Special edition – novelties in investment laws of the Republic of Kazakhstan

This Overview covers the latest changes in current laws on investments of the Republic of Kazakhstan («RK») as follows:

• The Law «On Changes and Amendments into Certain Legal Acts of the Republic of Kazakhstan in Relation to Improvement of Investment Climate» dated 24 June 2014;

• The Law «On Changes and Amendments into Certain Legal Acts of the Republic of Kazakhstan On Fundamental Improvement Of Business environment for entrepreneurship in the Republic of Kazakhstan» dated 29 December 2014.

Investment Priority Project

A new definition of Investment Priority Project has been introduced into the Law «On Investments» of the RK. This project can be performed only by a newly established legal entity(1) in certain types of activities approved by the Government of the RK provided that the total amount of investments exceeds 2,000,000 MCI(2) (more than 20,000,000 USD in 2015). The list of priority types of activity for attraction of direct foreign and domestic investments does not include the following:

• Gambling;

• Subsurface Use;

• Manufacturing of excisable goods.

Investment Preferences

We believe that introduction of privileges and preferences for investors carrying out investment priority projects is one of the most important novelties in the Law «On Investments». The Government provides the following preferences and privileges:

• Tax preferences (corporate income tax, land tax exemption for 10 years and property tax exemption for 8 years);

• Investment grant(3) – reimbursement by the Government of up to 30% capital expenditures of the investor upon project commissioning;

• No work permit is required for employment of foreign nationals during the entire period of project construction and for one year following the investment project commissioning;

• Long-term guaranteed orders for investor’s goods and services from national managing holding companies, national holding companies and national companies;

• The “stability clause” in investment agreements (contracts) for 10 years while maintaining the balance of Government interests;

• One-window principle for interaction with government authorities through the Investments Committee;

• Simplified procedure for obtaining land plots.

The effective duration term of investment privileges is established by the laws and is set forth for every type of investment privileges in the investment contract.

Conditions for Application of Privileges and Preferences

Pursuant to the Law «On Investments» investment preferences are provided subject to the following conditions:

1) The recipient of investment preferences must be a newly established legal entity of the RK, save for certain cases(4);

2) State or subject of quasi-public sector directly or indirectly holds no more than 25 percent of the shares in such company;

State or subject of quasi-public sector must maintain its shareholding for no longer than five years from the date of state registration of the investment project with subsequent withdrawal from the project. Failure to comply with this requirement leads to termination of investment contract and reimbursement of granted preferences.

3) No funds from the Kazakhstan national budget should be allocated for project financing;

4) The investment activity should not be performed under a concession contract;

5) The Resolution of the Government on granting investment subsidies must be in place.

To be eligible for tax preferences investor must receive not less than ninety percent of the aggregate annual income from carrying out activities relating to the execution of the investment project.

Investments Ombudsman

The Investment Ombudsman is appointed by the Government to assist investors in protecting their rights and lawful interests.

Investment Ombudsman is responsible for:

1) examining investors’ applications in relation to matters arising out of investment activity in the RK, and making recommendations for resolution of those matters, including through cooperation with government authorities, if necessary;

2) assisting investors in solving issues arisen during extrajudicial and pre-trial procedure;

3) drafting and presenting recommendations to the Government of the RK on improvement of legislation.

Information contained in this Client Update is of general nature and cannot be used as legal advice or recommendation. Please seek a lawyer for a specific advice. Please note that Kazakhstan is an emerging economy and its legislation and legal system are in constant development. Should you have any questions or would like to discuss matters addressed in this Client Update, please contact us.