Monthly Legal Alert: December 2023 – January 2024

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 2023 – January 2024 related to the following:

1. Changes to the Subsoil Code;

2. Gambling business;

3. Administrative liability of legal entities;

4. Special social payment;

5. Tax matters;

6. Digital mining issues;

7. Unified Real Estate Cadastre;

8. Statutory fees for registration and re-registration of legal entities;

9. Non-residents must now obtain IIN only in person.

1. Changes to the Subsoil Code

The following changes were introduced to the Code of the RK “On Subsoil and Subsoil Use”¹.

Filing solid mineral reserves appraisal reports

Subsoil users are required to file copies of reserves appraisal reports with the national operator for collection, storage, processing and provision of geological information. This information is not confidential and is subject to disclosure in accordance with the Code.

Hiding or submitting false information

A person will be held liable for hiding or knowingly submitting unreliable (false) information about subsoil and subsoil use in reserves appraisal reports .

Extension of exploration period

Exploration period under the contract for exploration and production of hydrocarbons in a subsoil area that is not related to complex projects may be extended beyond the period established by the Code (6 years) in order to assess the discovered deposit (set of deposits).

Such extension is subject to the following conditions:

• May be extended at the request of the subsoil user, but not more than for 3 years;

• Seismic exploration and drilling of independent wells provided for in the work program for the exploration period must be completed in full;

• There are no uncured breaches of obligations specified in the notification of the competent authority;

• The exploration period under the contract was not previously extended.

Before submitting an extension application, the subsoil user places an escrow of 750,000 times of the MCI on its bank account in any bank of the RK .

These funds can be used exclusively for carrying out exploration work provided for in the work program. In case of failure to complete the work program during the extension period, the money held in escrow must be transferred to the budget of the RK.

If funds held in escrow were used for purposes other than those specified in the work program during the extension period, the subsoil user must transfer these funds to the budget of the RK.

Encumbrance of subsoil use rights

The Code now sets out the procedure for obtainment of permission to encumber a subsoil use right (share in the subsoil use right) for hydrocarbons, as well as encumber shares (stakes in the authorized capital) of organizations that directly or indirectly control a person holding the subsoil use right for hydrocarbons.

The application and supporting documents must be in Kazakh and Russian. If the application is submitted by a foreigner or a foreign legal entity, the documents attached to it can be drawn up in another language with the obligatory attachment to each document of a translation into the Kazakh and Russian languages, the accuracy of which is certified by a notary. The application must be considered within 15 business days.

Production from depleting fields

A hydrocarbon deposit is classified as depleting provided that during its development at least one of the following indicators is achieved:

• for large hydrocarbon deposits, depletion of reserves must be 70 percent or more of the approved recoverable reserves and the water cut of the field must be 85 percent or more;

• the current oil recovery factor should be 0.4 parts of a unit or more.

The investment obligation of a subsoil user under a subsoil use contract for depleting deposits is to make additional investments in development of such depleting deposits and (or) additional financing for socio-economic development of the region in the manner established by the Code.

2. Gambling business

In accordance with the Tax Code of RK² organizers of the gambling business operating as a betting agency and (or) betting terminal are required to ensure integration of hardware and software systems with the information system of the tax authority to ensure automated interaction and transfer of information. 

The procedure, list and form of information to be transmitted through the integration of hardware and software systems of gambling business organizers operating a bookmaker's office and (or) betting terminal with the information system of the tax authority are determined by the authorized government body.

3. Administrative liability of legal entities

The Normative Resolution of the Supreme Court³ sets out in more detail administrative liability of structural divisions of legal entities. Since a legal entity may choose by its decision to recognize its structural unit as an independent tax payer subject to conditions as provided by the Tax Code such structural unit would be subject to administrative liability for committing an administrative offense. Also such decision of the legal entity must enter into force in accordance with requirements set by the Tax Code.

4. Special social payment

The Labor Code and the Social Code of the RK introduces novelties⁴ in relation to payments to persons working under hazardous conditions. Employees working under hazardous conditions, upon reaching the age of 55 and provided that mandatory professional pension contributions for total of at least 84 months were paid on their behalf , that their employment in hazardous working conditions was terminated or that they were transferred to another work position that excludes exposure to harmful production factors, professional compensation is made at the expense of the employer. A monthly professional payment at the expense of the employer is a minimum subsistence level⁵. Citizens of the RK, foreigners and stateless persons permanently residing in the RK are entitled to this payment.

5. Tax issues

Tax regimes

On 12 February 2024, changes⁶ regarding the procedure for applying the special tax regime for retail tax will come into force.

According to the changes:

• special tax regime for retail tax cannot be applied by legal entities where a founder or participant  is simultaneously a founder or participant in another legal entity that applies any special tax regimes, not only retail tax special tax regime.

• income received (receivable) in the RK and abroad will be determined for tax purposes under the retail tax special tax regime in aggregate for the tax period in a manner similar to the procedure for determining income. Previously, the object of taxation for a taxpayer applying the retail tax special tax regime was income determined in aggregate for the tax period in the generally established manner.

Let us remind you that according to the Tax Code of the RK, taxpayers who meet the following conditions have the right to apply a special tax regime for retail tax:

• the average number of employees for the tax period does not exceed 200 people;

• income for a calendar year does not exceed 600,000 MCI[7];

• carrying out exclusively one or more activities determined by the Government of the RK for the purposes of applying this regime. 

Deferment of payment of state duty in the courts

According to the Tax Code of the RK[8] citizens and legal entities (save for large size businesses) can obtain a deferment in payment of state court fees.

Deferment is granted if there are grounds as listed in this article, for a period not exceeding 1 year from the date of the court ruling on state court fee deferment.

In this case, an individual or a legal entity may pay the state court fees partially and (or) ahead of schedule before the end of the deferment period. A deferment may be granted to an individual based on his material status, or to a legal entity, save for large size businesses, based on a financial situation that does not allow them to pay the state fee when filing a claim, but there are sufficient grounds to believe that they can eventually pay within the period for which a deferment is granted if one of the following grounds exists:

• damage caused by a natural disaster or technological disaster;

• late payment of wages to an individual;

• registration as an unemployed person;

• serious illness of an individual and being under treatment for more than three months;

• a legal entity was not paid for goods supplied, work performed, services rendered;

• seasonal nature of production and (or) sale of goods, works or services by a legal entity;

• provision of targeted social assistance. 

General declaration

As of 1 January 2024, the third stage of general declaration⁹ kicked off. Declaration of Assets and Liabilities (Form 250.00) must be submitted by managers, founders (participants) of legal entities and individual entrepreneurs, as well as their spouses. This declaration must be submitted not later than 15 September 2024 to the state revenue authorities at the place of residence. The Declaration must indicate income of an individual that is subject to independent taxation, excluding income taxed at source (salary, pension, etc.).

The following is not considered as income of the individual:

• Professional benefits at the expense of the employer;

• Debt forgiven by a person to whom the right to claim a loan was assigned;

• Income received by a borrower as a result of payment by a bank or credit organization;

• Targeted savings in the form of a payment from a single accumulative pension fund and also directed to an individual pension account to record voluntary contributions.

Corporate income tax

As of 1 January 2024, amendments¹⁰ concerning non-deductible expenses came into force. Costs of intangible services acquired from a non-resident related party of management, consulting, advisory, auditing, design, legal, accounting, advocacy, advertising, marketing, franchising, financial (except for remuneration expenses), engineering, agency services, royalties, rights to use intellectual property objects are not deductible exclusively when such non-resident related party is registered in a state with a favorable taxation.

Storage of tax accounting documentation

In addition, as of 1 January 2024, amendments¹¹ came into force concerning the exclusion of the obligation to keep for five years from the date of printing or full filling of shift reports, cash book and goods receipts, as well as cancellation and return receipts and control receipts on which cancellation and return operations were carried out for taxpayers using cash registers with a data transfer function. Therefore, this documentation must be kept permanently.

6. Digital mining issues

Qualification requirements for digital mining

Qualification requirements for carrying out digital mining activities were slightly changed¹². This includes providing information about availability of an automated system for commercial metering of electrical energy, special automatic load shedding, and a telecommunications system that ensures their unification with systems installed by the system operator and the energy transmission organization when connected to their networks. Accordingly, to obtain a license it is necessary, among other things, to provide a document confirming that the above systems are available.

Digital mining fee rate

According to the amendment to the Tax Code of the RK¹³, fees for digital mining are calculated at the rate of KZT 2 per 1 kilowatt-hour of consumed electrical energy during the reporting period.

For the purposes of digital mining, the fee is calculated at the rate of KZT 1 per 1 kilowatt-hour of consumed electrical energy when using electrical energy produced from renewable sources of electrical energy at own power plants in the RK or from generating installations not connected to the unified electrical power system of the RK. Where there are no control devices for measuring the volume of electrical energy consumption and (or) they are in a faulty state for the purposes of digital mining, the volume of consumed electrical energy is calculated based on the round-the-clock consumption of the maximum power of electrical energy. Let us recall that in the past the fee was calculated according to the table whereby the higher the price per 1 kilowatt-hour of consumed electrical energy, the lower the fee rate.

Licensing of Digital Mining Activities

As of 1 January 2024, the Rules¹⁴ for Licensing of Digital Mining Activities were approved.

The state service is now rendered on a fee basis and the following license fee is charged:

1) for issuance of a license of sub-type I - carrying out digital mining activities by a digital miner who  owns a digital mining data processing center or other legal grounds - 2,000 monthly calculation indices (hereinafter - MCI);

2) for issuance of a license of sub-type II - implementation of digital mining activities by a digital miner who does not have a digital mining data processing center by right of ownership or other legal grounds and who carries out digital mining using a hardware and software complex for digital mining owned by him/her and located in a digital mining data processing center - 5 MCI;

3) for license re-issuance - 10% of the license issuance rate.

7. Unified Real Estate Cadastre

The Technical Regulations¹⁵ “On the safety of buildings and structures, construction materials and products” were approved.

This regulation establishes minimum and mandatory requirements for safety of buildings and structures, construction materials and products at all stages of their life cycle, as well as rules for their identification, rules and forms for conformity assessment, including when releasing products in circulation, requirements for marking of building materials and products, as well as rules for its application to ensure free movement within the RK.

The Technical Regulations apply:

• to buildings and structures in all sectors of the economy, regardless of ownership and departmental affiliation, put into operation after completion of new construction, reconstruction or major repairs, processes of engineering surveys, design, construction, installation, commissioning, operation, post-disposal of buildings and structures;

• to construction materials and products, regardless of the country of origin, and the processes of their production, makring, transportation, storage, use, and disposal.

The Regulations do not apply:

• to household buildings on the territories of individual land plots and on the plots of gardening and vegetable farming partnerships (communities);

• to building materials, products and structures, and to safety of technological processes corresponding to the functional purpose of buildings and structures.

8. State fees for registration and re-registration of legal entities

The Order¹⁶ dated 16 January 2024 approved the state fees charged for services rendered by NAO «State Corporation «Government for Citizens» in relation to state registration of legal entities (commercial organizations) and record registration of their branches and representative offices.

State registration of legal entities, record registration of their branches and representative offices:

1. Registration:

• Small, medium-sized businesses - free of charge.

• Large business: registration of branches and representative offices – KZT 9,885.38 per document when executed through the front office and KZT 9,699.17 - through the portal (excluding VAT).

1. State re-registration of legal entities, record re-registration of their branches and representative offices:

• Paid by all entities – KZT 10,009.51 per document through the front office and KZT 9,823.31 through the portal. 

1. State registration of termination of a legal entity, deregistration of branches and representative offices:

• Small, medium-sized businesses - free of charge.

• Large Business - KZT 9,736.41 per document via front office and KZT 9,637.10 via portal. 

The order entered into force on 19 January 2024.

9. Changing the procedure of obtaining an IIN for non-residents

The Law «On National Registers of Identification Numbers» was amended¹⁷ with regard to the procedure for obtaining an individual identification number for non-residents.

As from 24 February 2024, obtaining an individual identification number (IIN) for foreigners and stateless persons will be carried out only when they are physically on the territory of the Republic of Kazakhstan and only upon personal application to the registration authorities for the purpose of the person’s identification in accordance with the legislation of the Republic of Kazakhstan.

It should be noted that for a long time there was a practice of obtaining IIN for foreigners and stateless persons on the basis of a power of attorney.

1. Law of the Republic of Kazakhstan dated 28 December 2023 No. 52-VIII “On introducing amendments and additions to certain legislative acts of the Republic of Kazakhstan on issues of subsoil use and ecology.” Entered into force on 1 July 2024.
2. Law of the Republic of Kazakhstan dated 12 December 2023 No. 48-VIII “On introducing amendments and additions to the Code of the Republic of Kazakhstan “On taxes and other obligatory payments to the budget” (Tax Code) and the Law of the Republic of Kazakhstan “On bringing into force the Code of the Republic of Kazakhstan “On taxes and other obligatory payments to the budget" (Tax Code)." Entered into force on 1 January 2024.
3. Regulatory Resolution of the Supreme Court of the Republic of Kazakhstan dated 22 December 2016 No. 12 “On some issues of the application by courts of the norms of the General Part of the Code of the Republic of Kazakhstan on Administrative Offenses.” Entered into force on 28 December 2023.
4. Law of the Republic of Kazakhstan dated 21 December 2023 No. 490VIII “On introducing amendments and additions to some legislative acts of the Republic of Kazakhstan on issues of public associations and social protection of persons working under hazardous conditions. Entered into force on 2 January 2024.
5. The minimum subsistence level – KZT 43,407.
6. Law of the Republic of Kazakhstan dated 12 December 2023 No. 45-VIII “On introducing amendments and additions to the Code of the Republic of Kazakhstan “On taxes and other obligatory payments to the budget” (Tax Code) and the Law of the Republic of Kazakhstan “On bringing into force the Code of the Republic of Kazakhstan “On taxes and other obligatory payments to the budget" (Tax Code)." Entered into force on 1 January 2024.
7. 1 MCI for 2024 – KZT 3,692.
8. Law of the Republic of Kazakhstan dated 12 December 2023 No. 48-VIII “On introducing amendments and additions to the Code of the Republic of Kazakhstan “On taxes and other obligatory payments to the budget” (Tax Code) and the Law of the Republic of Kazakhstan “On bringing into force the Code of the Republic of Kazakhstan “On taxes and other obligatory payments to the budget" (Tax Code)." Entered into force on 1 January 2024.
9. Chapter 71 of the Code of the Republic of Kazakhstan dated 25 December 2017 No. 120-VI «On taxes and other obligatory payments to the budget» (Tax Code).
10. Law of the Republic of Kazakhstan dated 12 December 2023 No. 45-VIII «On introducing amendments and additions to the Code of the Republic of Kazakhstan “On taxes and other obligatory payments to the budget” (Tax Code) and the Law of the Republic of Kazakhstan “On bringing into force the Code of the Republic of Kazakhstan “On taxes and other obligatory payments to the budget" (Tax Code)» Entered into force on 1 January 2024.
11. Law of the Republic of Kazakhstan dated 12 December 2023 No. 45-VIII «On introducing amendments and additions to the Code of the Republic of Kazakhstan “On taxes and other obligatory payments to the budget” (Tax Code) and the Law of the Republic of Kazakhstan “On bringing into force the Code of the Republic of Kazakhstan “On taxes and other obligatory payments to the budget" (Tax Code)» Entered into force on 1 January 2024.
12. Order of the Minister of Digital Development, Innovation and Aerospace Industry of the Republic of Kazakhstan dated 4 December 2023 No. 598/НК “On amendments to the orders of the Acting Minister of Digital Development, Innovation and Aerospace Industry of the Republic of Kazakhstan dated 26 April 2023 No. 165/НК “On approval qualification requirements for carrying out digital mining activities and a list of documents confirming compliance with them" and the Minister of Digital Development, Innovation and Aerospace Industry of the Republic of Kazakhstan dated 28 April 2023 No. 169/НК "On approval of the Rules for licensing digital mining activities." Entered into force on 22 December 2023.
13. Law of the Republic of Kazakhstan dated 12 December 2023 No. 48-VIII “On introducing amendments and additions to the Code of the Republic of Kazakhstan “On taxes and other obligatory payments to the budget” (Tax Code) and the Law of the Republic of Kazakhstan “On bringing into force the Code of the Republic of Kazakhstan “On taxes and other obligatory payments to the budget" (Tax Code)." Entered into force on 1 January 2024.
14. Order of the Minister of Digital Development, Innovation and Aerospace Industry of the Republic of Kazakhstan dated 28 April 2023 No. 169/HҚ «On Approval of the Rules for Licensing of Digital Mining Activities».
15. Order of the Minister of Industry and Infrastructure Development of the Republic of Kazakhstan dated 9 June 2023 No. 435 “On approval of the Technical Regulations “On the safety of buildings and structures, construction materials and products.” Entered into force on 21 December 2023.
16. Order of the Minister of Digital Development, Innovation and Aerospace Industry of the Republic of Kazakhstan dated 16 January 2024 №24/NҚ «On approval of prices for goods (works, services) produced and (or) sold by the non-profit joint-stock company "State Corporation "Government for Citizens", referred to the state monopoly in the field of state registration of legal entities, which are commercial organisations, and accounting registration of their branches and representative offices»  Entered into force on 19 January 2024..
17. Law of the Republic of Kazakhstan dated 23 December 2023 No. 50-VIII «On Amendments and Additions to Certain Legislative Acts of the Republic of Kazakhstan on Issues of the State Corporation "Government for Citizens", International Technological Park "Astana Hub" and Dactyloscopic Registration».