Novelties in Legislation

This CLIENT UPDATE covers the key amendments to the laws of the Republic of Kazakhstan (“RK”) and various legal developments introduced in April-May 2018.

The laws covered by the present Client Update are related to both public and private sectors. Some of them may be of interest to you as they may affect your business in Kazakhstan.

1.Civil Law

Pledge matters

Pursuant to Kazakhstan’s Law No. 156-VI on improvement of the entrepreneurship regulation[1] certain aspects related to pledge of movable property were revisited.

The movable property, as a subject of the pledge may now have a general description only without any specific details or valuation. Valuation of the subject of the pledge is expressed in tenge and may be agreed by the parties unless otherwise provided by Kazakhstan laws. The valuation of the subject of the pledge secured in foreign currency must be stated in tenge and the respective foreign currency at the market exchange rate as at the date of the pledge agreement.

Furthermore, the movable property security extends to separable derived benefits, products and income gained as a result of its use (including further acquired assets and replaced assets), unless otherwise provided by the agreement. Such extension applies only to cover the unsecured part of the pledged movable property at the time of claim.

Now, if the pledger violates the terms of the inventory pledge, the pledgee is entitled to suspend sales of the inventory by imposing its signs on the pledged goods until the violation is eliminated.

Legal entities

According to the Order No. 524[2] of the acting Minister of Justice, as from 6 May 2018 individual entrepreneurs will no longer be required to affix a corporate seal on the following documents:

• Resolution of the owner of the company’s property or of other duly authorized persons/bodies on reorganization;

• The document confirming the written notification of creditors on the company’s reorganization, specifying the date when the notification is received by the creditors;

• The resolution of the company to establish a branch office;

• Application for registration of a branch and representative office;

• The resolution or an extract from the resolution of the company’s authorized body on state re-registration, which introduces amendments to the company’s foundation documents or regulations on the branch (representative office);

• The resolution or an extract from the resolution of the company’s authorized body on amendments to the company’s foundation documents, regulations of the branch (representative office) due to the registered address change.

In accordance with the foregoing Order, in case of legal de-registration of the company, “no tax/customs arrears” certificate is no longer required for filing.

2.Employment

The employment law has undergone some changes due to adoption of the Entrepreneurship Regulation Improvement Law, Law No. 147-VI[3] related to employment and migration issues and the Governmental Decree No. 157[4] with regard to work permits.

Terms and definitions

For the purposes of the employment government facilitation, the laws introduce the concept of the government-owned online Labor Exchange, which is a unified electronic labor market database.

Collective agreement

Upon expiry of a collective agreement, it will be deemed extended for not more than a year, until a new collective agreement is signed, provided that at least one of the parties submits a proposal for a new collective agreement prior to its expiry.

Work Permits

New fee rates for issuance/extension of the work permit have been approved. Depending on the activity type, the timeline for issuing a permit and the category of foreign employees, the rates vary from 137 to 462 MCI[5].

Work permits are no longer required for the following:

• General directors and deputy general directors of local companies with 100% foreign participation;

• Employees of national managing holdings in positions not lower than heads of structural units with higher education;

• Those employed as members of the board of directors of a national holding company[6].

3.Land Law

Kazakhstan’s Land Relations Law No. 151-VI[7] introduces the following changes.

Agricultural land plots located within the frontier line of the State border of Kazakhstan will be granted on the basis of the right of temporary land use to Kazakhstan citizens, save for citizens married to foreigners or stateless persons, and to Kazakhstan legal entities without foreign participation. In case of marriage of Kazakhstan citizens to foreigners or stateless persons, the right of temporary land use for agricultural land located in the frontier line of the State border of Kazakhstan must be alienated.

State-owned land plots for farming or peasant agriculture, or agricultural production will be granted on the basis of a tender.

4.Taxation

Tax Audits

The Entrepreneurship Regulation Improvement Law replaced random tax audits with tax inspections conducted according to a special order on the basis of risk assessment (such inspections will be held as per a semi-annual schedule, whereas the schedule will not constitute a tax secret).

VAT

Various ministerial orders introduce the following novelties:

• Clarifies the VAT refund procedure in the event of excess of VAT, being subject to offset, over the assessed tax and when pursuant to the declaration such excess was formed by the cumulative total at the end of the reporting tax period.

• Approves new VAT refund Rules[8].

• Approves 9 lists of goods subject to zero VAT, which are sold to special economic zones (SEZ) and fully consumed while undertaking activities that meet the objectives of the SEZ[9].

• Approves the list of VAT-exempt vehicles and agricultural machinery[10].

• Exempts the branch offices of Maersk Oil Kazakhstan GmbH, North Caspian Operating Company N. V. and Tengizchevroil LLP from VAT on imported goods.

• Approves the list of raw materials, import of which is exempt from VAT under the investment contract. The list contains 136 types of raw materials, including chlorite, kieserite, epsomite, inert gases, acids, tires, pipes, and others.

Participation in a Foreign Company

Tax authorities approved an application form for participation (control) in a controlled foreign company. Such application form must be submitted by Kazakhstan residents to the tax authorities in the following cases[11]:

• Direct/indirect/constructive acquisition of 25% or more of participation share or control in a foreign company;

• Establishment of a foreign company;

• Changes in the participation share or control in a foreign company;

• Termination of 25% or more of a participation share or control in a foreign company;

• Liquidation of a controlled foreign company.

A resident who directly/indirectly/constructively holds participation shares or control in a controlled foreign company acquired before 1 January 2018 is required to submit an application for participation in a controlled foreign company not later than 31 December 2018.

Submitting Information to Tax Authorities

The Minister of Finance approved the rules and terms for submitting information to state revenue authorities by financial organizations[12].

Second-tier banks must submit to the competent body information on the following accounts of clients:

• Bank accounts (current, savings);

• Accounts for securities registration;

• Clients’ accounts for asset management as part of custodial services;

• Metal accounts.

Brokers and dealers, save for second-tier banks, Development Bank of Kazakhstan JSC and the National Post Operator, must submit to the competent body information on clients’ accounts for securities registration.

The Integrated Securities Registrar must submit to the competent body information on clients’ personal accounts for securities registration.

Investment portfolio managers must submit to the competent body information on availability of other assets, save for securities.

Insurance companies offering to the client life insurance must submit to the competent body information on endowment insurance with redemption sum.

Statutory Fees

Immovable property rights statutory registration fee is cancelled as from 1 July 2018.

5.Customs Matters

Certain pharmaceutical products, medical equipment, transportation, technical facilities and other goods were released from customs clearance procedure in SEZ[13].

New customs duties rates were approved:

• For customs declaration of goods – KZT 19,000 for the main declaration and KZT 7,000 for each additional sheet;

• For customs support – from KZT 4,000 for up to 50 km to KZT 321,000 for 2,000 to 2,500 km;

• For preliminary decision – KZT 32,000[14].

6.Subsoil Use and Petroleum Products

The following was approved:

• New tax rates for extraction of minerals on crude oil for unfluxed, watercut, mined-out and marginal deposits[15] (please refer to http://adilet.zan.kz/rus/docs/P1800000204);

• Rules for attributing a deposit (group/part of deposits) of solid minerals, save for wide-spread mineral deposits, to low-margin category[16];

• New excise rates for gasoline (save for aviation fuel) and diesel fuel[17] (please refer to http://adilet.zan.kz/rus/docs/P1800000173).

7.Rehabilitation and Bankruptcy

Statute of Limitation

The Dossier to Kazakhstan’s Draft Law concerning improvement of rehabilitation and bankruptcy procedures (May 2018) provides for the following:

• Special statute of limitation for administrative offenses in case of rehabilitation and bankruptcy would be up to 3 years from the date when an offense was committed;

• Articles and concepts of intentional bankruptcy and false bankruptcy were excluded and replaced by “causing property damage to creditors of the debtor”;

The concept of insolvency is removed in its entirety, whereas the concept of insolvency settlement proceeding is replaced by the concept of debt restructuring proceeding.

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

[1] Dated 24 May 2018 and came into force on 8 June 2018 (hereinafter referred to as “Entrepreneurship Regulation Improvement Law”)

[2] Dated 5 April 2018 and came into force on 6 May 2018.

[3] Came into force on 16 April 2018.

[4] Dated 3 April 2018 and came into force on 29 April 2018.

[5] MCI is a monthly calculated index in the Republic of Kazakhstan. In 2018, 1 MCI is 2,405 KZT.

[6] Governmental Decree No. 189 ‘On Amendments to Decree No. 802 dated 15 December 2016’ dated 13 April 2018. Came into force on 28 April 2018.

[7] Dated 4 May 2018 and came into force on 21 May 2018.

[8] The Order of the Minister of Finance No 391 dated 19 March 2018. Came into force on 16 April 2018.

[9] The Order of the Minister of Investments and Development No. 131 dated 27 February 2018. Came into force on 15 May 2018 and applies to legal relations that arose after 1 January 2018.

[10] The Order of the Minister of Investments and Development No. 138 dated 26 February 2018.

[11] The Order of the Minister of Finance No. 334 dated 5 March 2018. Came into force on 9 April 2018.

[12] The Order of the Minister of Finance No. 171 dated 13 February 2018. Came into force on 13 April 2018.

[13] The Order of the Minister of Investment and Development No. 217 dated 5 April 2018. Came into force on 14 May 2018.

[14] The Decree of the Government No. 171 dated 5 April 2018. Came into force on 20 April 2018.

[15] The Decree of the Government No. 204 dated 18 April 2018. Came into force on 1 January 2018.

[16] The Decree of the Government No. 282 dated 21 May 2018. Came into force on 1 January 2018.

[17] The Decree of the Government No. 173 dated 6 April 2018. Came into force on 1 January 2018.