Monthly Legal Alert: December 2022.

SIGNUM regularly provides Legislative/Regulatory Alerts to keep Clients informed about important laws and regulatory changes in the Republic of Kazakhstan (“RK”). This Alert covers recent developments introduced in December 2022 related to:

1.     Tax issues;

2.     Moratorium on inspections;

3.     New adopted laws on specific goods, bankruptcy of citizens and approved law on digital assets;

4.     Compulsory pension contributions of the employer;

5.     Subsoil use issues.

1.     Tax Issues

Introduction of a single payroll payment

Single payroll payment at a rate of 20% has been introduced starting from 2023[1]. This payment includes individual income tax at the source of payment, mandatory pension, social and social health insurance contributions to be paid by individual entrepreneurs and legal entities that are subjects of micro-entrepreneurship and small business, applying special tax regimes (based on a simplified declaration and for agricultural producers and peasant farms).

Single payroll payment is not mandatory for the tax agents and is paid optionally in respect to them.

VAT exemption

In order to develop certain sectors of the economy, the following types of activities were exempted from VAT:

·         turnover on the sale of household appliances and (or) consumer electronics devices manufactured in Kazakhstan (for 5 years);

·         sales of refined gold and silver by precious metals production entities to jewelry and other products production entities;

·         import of raw materials and materials for the production of pesticides included in the list of import goods.

Publication of new information about taxpayers on the Internet resource of the State Revenue Committee of the RK

New information on taxpayers, such as information on the number of employees, a register of recipients of foreign funding and information on a taxpayer who is limited to issuing electronic invoices shall be published on www.kgd.gov.kz.

2.     Moratorium on Inspections

The moratorium on inspections and preventive controls, introduced from 1 January 2020, has been extended until 1 January 2024[2]. This moratorium applies to small business entities and micro-entrepreneurship entities.

The moratorium will also not apply to unscheduled inspections appointed by the authority of control and supervision on specific facts and circumstances in relation to a particular subject in order to prevent and (or) eliminate an immediate threat to human life and health, environment, legitimate interests of individuals and legal entities, the country.

3.     New adopted laws on specific goods, bankruptcy of citizens and approved law on digital assets

Law on the control of specific goods

Pursuant to the new law[3], specific goods include dual-use and military goods, as well as goods controlled to ensure national security. These include technologies, weapons, military equipment, software, technical and special means, materials, production and testing equipment, components and spare parts for them, products (including software and technologies) used for civilian purposes that can be used to create weapons of mass destruction and their means of delivery, weapons, military equipment.

The law establishes the principles and legal framework for the control of specific goods, defines the rights, duties and responsibilities of individuals and legal entities of the RK in the export, re-export, import, transit of specific goods, the provision of extraterritorial intermediary services or technical assistance, as well as foreign entities engaged in extraterritorial re-export and transit of specific goods.

In particular, the law determines the procedure for controlling the identification, export, import, transit of specific goods, control over the movement of specific goods across the state border, etc.

It should be noted that the Law of the RK dated 21 July 2007 "On Export Control" shall be deemed invalid from 1 March 2023.

Law on Restoration of Solvency and Bankruptcy of Citizens of the Republic of Kazakhstan

This law[4] regulates relations arising in connection with the insolvency of a citizen of the RK - an individual who is not registered as an individual entrepreneur. Citizens who are unable to repay debts shall be able to file for bankruptcy from 3 March 2023. The law provides for 3 types of procedures: out-of-court bankruptcy, judicial bankruptcy and restoration of solvency.

The basis for filing an application as part of the out-of-court bankruptcy procedure is unfulfilled obligations not exceeding 1,600 times the monthly calculation index[5] (KZT 5,520,000).

The basis for applying to the court for the purposes of restoring solvency or judicial bankruptcy is unfulfilled obligations due within 12 months as of the filing date and exceeding 1,600 times the amount of the monthly calculation index, subject to the following conditions:

1)      the debtor has taken measures to settle and (or) collect debt under a bank loan agreement and (or) a microcredit agreement (if such a loan exists);

2)      procedures for restoration of solvency, out-of-court and judicial bankruptcy have not been applied to the debtor within 7 years preceding the submission of the debtor's application.

Please kindly refer to a more detailed review of the law at the following link: https://online.zakon.kz/Document/?doc_id=32064991&show_di=1.

Law on ratification[6] of Loan Agreement (Private Sector Based Development Policy Financing and More Sustainable Economic Recovery Loan) between the Republic of Kazakhstan and the International Bank for Reconstruction and Development

The agreement provides for a loan in the amount of EUR 345,700,000 to the RK until 2033 for funding of the following program:

·         promoting competition and equal terms for all businesses;

·         strengthening the favorable environment and attracting investments for the telecommunications and digital economy sector;

·         promoting open competition, transparency and accountability in public procurement;

·         supporting market discipline and fair competition in the banking sector;

·         reducing corruption and increasing accountability in the public and quasi-public sector;

·         improving energy efficiency and reducing greenhouse gas emissions;

·         strengthening the emissions trading system;

·         increasing renewable energy production capacity;

·         protecting, preserving and restoring the environment.

Draft Law of the RK “On Digital Assets in the Republic of Kazakhstan” (second reading)

The Mazhilis of the Parliament of the RK approved and submitted for consideration to the Senate of the Parliament of the RK the draft Law of the RK “On Digital Assets in the Republic of Kazakhstan”.

1.    The following definitions have been introduced to the draft law: “digital miner”, “digital mining data center”, “digital platform for storing and exchanging secured digital assets”.

2.    The powers of the competent authority have been expanded by maintaining the state register of persons engaged in the issuance of secured digital assets, exercising state control in the field of digital assets, issuing permits for the issuance and circulation of secured digital assets.

3.    The regulation on licensing digital mining activities has been fixed. The license is issued for 3 years and is divided into 2 categories: Category I - having digital mining data processing centers on the right of ownership or other legal grounds and Category II - digital mining data processing centers that do not have ownership or other legal grounds and carry out digital mining with using its own digital mining computing equipment hosted in a digital mining data center.

4.     Compulsory Pension Contributions

The obligation to pay the employer's mandatory pension contributions will enter into force[7] from 1 January 2024. The respective payment shall be done in the amount of 1.5 percent of the employee's monthly income. The mentioned contribution rate shall be increased gradually by 1% till 2028 until it reaches 5% as follows:

• from 1 January 2024 - 1.5 percent;

• from 1 January 2025 - 2.5 percent;

• from 1 January 2026 - 3.5 percent;

• from 1 January 2027 - 4.5 percent;

• from 1 January 2028 - 5.0 percent.

5.     Subsoil Use Issues[8]

"Complex project"

Two new model contracts have been introduced to the subsoil use legislation of the RK:

Ø  model contract for the exploration and production of hydrocarbons for a complex project;

Ø  model contract for the production of hydrocarbons under a complex project.

These improved model contracts consolidate a significant number of regulatory and fiscal preferences.

Complex projects include:

Ø  offshore projects providing for the exploration and (or) production of any hydrocarbons in the subsoil plot (areas), which are fully or partially located within the Kazakh sector of the Caspian or Aral Seas;

Ø  onshore projects that provide for the exploration and production of hydrocarbons in any subsoil area, with at least one of the following parameters:

ü  containing reserves of unconventional hydrocarbons;

ü  the absolute depth of the highest point of the identified (discovered) deposit of hydrocarbons is at least 4,500 meters;

ü  the content of hydrogen sulfide in the discovered deposit is 3.5% or more in the formation fluid;

ü  discovered reservoir (deposit) is characterized by abnormally high reservoir pressure with an anomaly coefficient of 1.5 or more, which is defined as the ratio of reservoir pressure to hydrostatic pressure with a fluid density of 1,000 kg/m3 in the wellbore;

ü  discovered deposit is located under salt deposits with a thickness of more than 100 meters;

ü  the discovered deposit refers to non-structural traps;

Ø  onshore gas projects that provide for the exploration and (or) production of hydrocarbons in a subsoil plot (areas) containing a gas or gas condensate deposit or field with an oil-saturated part volume of 25% or less of the total volume of hydrocarbons in the deposit or field.

If a subsoil user or at least one of the owners of shares in the subsoil use right is a foreigner, a foreign legal entity or a legal entity of the RK with foreign participation, a contract for the exploration and production of hydrocarbons under a complex project with such a subsoil user shall be signed in English at the discretion of the subsoil user. It worth mentioning that before the introduction of this change, the parties could only agree on the translation of the contract into another language.

These changes will help replenish the mineral resources of the oil and gas industry in Kazakhstan and attract investment in complex projects.

Crude oil and gas condensate metering devices

The list of facilities to be equipped with crude oil and gas condensate metering devices has been expanded with the following objects:

Ø  installation of complex raw gas preparation;

Ø  flare plant designed for technological unavoidable raw gas flaring;

Ø  installations intended for the use of raw gas for their own technological needs;

Ø  raw gas re-injection units;

Ø  underground gas storage facilities intended for the storage of commercial gas;

Ø  points of acceptance-delivery (transfer) of commercial gas;

Ø  points of acceptance-delivery (transfer) of raw gas and products of its processing (sales gas) through the gas pipeline;

Ø  delivery and acceptance points for raw and commercial gas.

The above mentioned facilities shall be duly equipped with metering devices till 1 January 2025.

1. The Law of the Republic of Kazakhstan No. 165-VII dated 21 December 2022 “On Introduction of Amendments to the Code of the Republic of Kazakhstan “On Taxes and Other Mandatory Payments to the Budget” (Tax Code) and the Law of the Republic of Kazakhstan “On Enactment of the Code of the Republic of Kazakhstan “On Taxes and Other Mandatory Payments to the Budget” (Tax Code)". Entered into force on 1 January 2023.
2. Decree of the President of the Republic of Kazakhstan No. 229 dated 26 December 2019 “On Amendments to the Decree of the President of the Republic of Kazakhstan No. 44 dated 7 December 2022 “On the Introduction of a Moratorium on Inspections and Preventive Control and Supervision with a Visit in the Republic of Kazakhstan”. Entered into force on 1 January 2023.
3. Law of the Republic of Kazakhstan No. 172-VII dated 28 December 2022 "On the Control of Specific Goods". Enters into force on 1 March 2023.
4. Law of the Republic of Kazakhstan No. 178-VII dated 30 December 2022 "On the Restoration of Solvency and Bankruptcy of Citizens of the Republic of Kazakhstan". Enters into force on 3 March 2023.
5. 1 MCI for 2023 – KZT 3,450.
6. Law of the Republic of Kazakhstan No. 162-VII dated 1 December 2022 “On the Ratification of the Loan Agreement (Loan for Financing Development Policy Based on the Private Sector and a More Sustainable Economic Recovery) between the Republic of Kazakhstan and the International Bank for Reconstruction and Development”. Entered into force on 13 December 2022.
7. Постановление Мажилиса Парламента Республики Казахстан от 7 декабря 2022 года № 626-VII «О проекте Закона Республики Казахстан «О цифровых активах в Республике Казахстан» (второе чтение).
8. Law of the Republic of Kazakhstan No. № 168-VII dated 26 December 2022 "On Amendments to Certain Legal Acts of the Republic of Kazakhstan on Issues of Governmental Youth Policy and Social Security". Entered into force on 1 January 2023.
9. Law of the Republic of Kazakhstan No. 174-VII dated 29 December 2022 "On Amendments to Certain Legal Acts of the Republic of Kazakhstan on Issues of Transport and Subsoil Use". Entered into force on 10 January 2023.