Legal Alert: Summer 2021
SIGNUM regularly provides Legislative/Regulatory Alerts to keep Clients informed about important laws and regulatory changes in the Republic of Kazakhstan (“RK”). This Alert includes recent developments introduced in the period from May to September 2021 and related to:
1. Administrative Procedural and Process-Related Code;
2. New Environmental Code and EIA;
3. Tax issues;
4. Digital mining;
5. Subsoil use issues;
6. Financial support of the RES settlement and financial center;
7. Teleworking under Kazakh labor law. Medical expenses of the employer;
8. New definitions in the Entrepreneurial Code;
9. External quality control of audit organizations;
10. Product recall regulations.
1. Administrative Procedural and Process-Related Code15
The Administrative Procedural and Process-Related Code of the Republic of Kazakhstan (hereinafter the "Code") entered into force on 1 July 2021. The Code regulates relations associated with the implementation of internal administrative procedures of state authorities as well as the procedure for administrative proceedings.
Particularly noteworthy are some of the principles on the basis of which the Code operates:
· the principle of priority of rights - all doubts, contradictions and ambiguities of the legislation on administrative procedures are interpreted in favor of the participant in the administrative procedure;
· prohibition of abuse of formal requirements - an administrative body, an official are prohibited from refusing to implement, restrict, terminate the right of a participant in an administrative procedure, as well as impose on him a duty in order to comply with requirements not established by law;
· protection of the right to trust - the trust of a participant in an administrative procedure in the activities of an administrative body, an official is protected by laws;
· an active role of the court - the court, not limited to explanations, statements, petitions of the participants in the administrative process, the arguments presented by them, evidence and other materials of the administrative case, comprehensively, fully and objectively examines all the factual circumstances that are important for the correct resolution of the administrative case; collects additional materials and evidence on his own initiative or a motivated application of the participants in the administrative proceeding; has the right to express its preliminary legal opinion on legal grounds related to the factual and (or) legal aspects of the administrative case.
2. New Environmental Codeand EIA16
New Environmental Code entered into force on 1 July 2021. The key novelties of the Code were presented by us earlier in another publication, which can be accessed at the following link: https://signumlaw.com/en/posts/monthly-legal-alert-january-2021.
Post-Project Analysis of Planned Activities During Environmental Impact Assessment (EIA)
According to the Environmental Code of the RK, the activities of individuals and legal entities related to the construction and further operation of production and other facilities, with other kinds of interference in the environment, including through subsoil use operations, as well as the introduction of significant changes in such activities, are subject to EIA. The preparation of the assessment results is drawn up in the form of a report on possible impacts by individuals and (or) legal entities licensed to perform work and provide services in the field of environmental protection. The post-project analysis, in turn, is drawn up by the same person to confirm the compliance of the implemented planned activities with the report on possible impacts and the conclusion based on the results of the EIA.
The rules17 for post-project analysis of planned activities have been introduced. A post-project analysis of the actual impacts during the implementation of the planned activities is carried out by the compiler of the report on possible impacts in order to confirm the compliance of the implemented planned activities with the report on possible impacts and the conclusion based on the results of the EIA.
Post-project analysis must be started no earlier than 12 months and completed no later than 18 months after the start of operation of the relevant facility that has a negative impact on the environment.
Post-project analysis is mandatory:
* in case of identification of uncertainties in the assessment of possible significant environmental impacts during the EIA;
* in cases where the need for it is established and justified in the report on possible impacts on the environment and in the conclusion based on the results of the EIA.
A post-project contract is drawn up on the basis of an agreement between the operator of the facility and the compiler of the report on possible impacts (individuals and (or) legal entities licensed to perform work and provide services in the field of environmental protection). If it is impossible for the compiler of the report on possible impacts to carry out a post-project analysis, the operator concludes an agreement on conducting a post-project analysis with another person licensed to perform work and provide services in the field of environmental protection.
3. Tax Issues
Tax Audit at the Location18
The tax audit was used to be subject to completion based on the results of a tax inspection in the absence of a taxpayer at the location within 3 business days. According to the new rule, the absence of a taxpayer at the location within 1 day from the date of drawing up a tax inspection report is the basis for completing a tax audit.
Tax Audit Report19
Previously, one copy of the audit report had to be always sent to the state authority, while, according to the new rules, the audit report within the framework of the tax control measures is now sent only at the request of the state authority.
Suspension of Operations20on Bank Accounts with Tax Arrears Over 6 MCI21
The exact amount of tax arrears in excess of 6 MCI has been determined, in the presence of which bank transactions on the taxpayer's bank accounts are suspended.
The Right to Additional VAT Credit
Legal entities, within 2 years from the date of state registration, are entitled to credit an additional amount of VAT on turnovers for the sale of goods resulting from the implementation of activities for the production of products in the manufacturing industry (with the exception of the metallurgical industry).
The right to additional VAT credit is granted to legal entities that commission buildings, structures, machinery and equipment in the territory of the RK to carry out activities for the production of products in the manufacturing industry for the first time (with the exception of the metallurgical industry).
4. Payment for the digital mining (method of mining cryptocurrencies)22
The payment will be made for the amount of electricity consumed during digital mining from 1 January 2022. The rate of payment is determined at the rate of 1 KZT per 1 kilowatt-hour of electric energy.
5. Subsoil use issues
New Rules for Monitoring the Fulfillment by Subsoil Users of Their Contract and (or) License Obligations
The rules apply to the following types of subsoil use contracts and licenses:
* licenses for the exploration of solid minerals;
* licenses for the extraction of solid minerals;
* licenses for the extraction of common minerals;
* mining licenses;
* contracts for the exploration and (or) production of solid minerals, concluded before the entry into force of the Subsoil Use Code, except for contracts for the extraction of uranium;
* contracts for exploration and (or) production of common minerals.
Monitoring is carried out on the basis of reports, and the analysis of the information received is carried out by comparing the information. Such information includes, for example: information on expenses, information on payment of land use fees, etc. (the rules contain a list of analyzed information).
Uranium Mining Framework Agreement
A new term has been introduced to the rules (methodology) of pricing for natural uranium concentrate - a framework agreement. Framework agreement is defined as an agreement of the parties on their general obligations, which are supposed to be specified by the parties by concluding separate agreements, filing applications or otherwise on the basis of or pursuant to the framework agreement.
The framework agreement23 defines a part of the terms of supply, establishes the principles of cooperation, save for certain essential conditions (specific volumes of purchases, prices, terms, etc.). In other words, it outlines the intentions of the parties to carry out the transaction, providing for some general conditions of the contract. The framework agreement is not considered as an independent contract for the sale and purchase of natural uranium concentrate due to the need to determine separate detailed subsequent agreements of the parties after the entry into force of the framework agreement and during its validity period.
Determination of Prices for the Sale of Natural Uranium Concentrate on Special Terms
A new chapter has been added to the rules (methodology) of pricing for natural uranium concentrate. When selling natural uranium concentrates at the cost of uranium products of a higher redistribution, the price is recognized as market price for tax purposes if it remains unchanged during the successive sale of the EPC (enriched uranium product), fuel pellets and fuel assemblies.
6. State Financial Support to the Financial Settlement Center for the Support of Renewable Energy Sources (RES)
Kazakhstan has introduced the state support measures for the settlement and financial center (“FSC”) for the support of RES starting from June 2021. Such support shall be carried out by directing funds to the special reserve fund to cover the obligations of the FSC to energy producing organizations using renewable energy sources.
The rules provide for exhaustive cases when state support is provided, as well as for the documents to be filed in order to receive state support. The term of consideration is no more than 10 business days, upon expiration of which the funds are credited to a special account of the reserve fund and are used only to cover the debt to energy producing organizations using renewable energy sources. The said debt arises from the failure of conditional consumers and qualified conditional consumers to pay for the electricity, produced by facilities using renewable energy sources and supplied to them.
7. Teleworking under Kazakh Labor Law. Medical Expenses of the Employer
Employer's Non-Taxable Medical Expenses24
The employer’s medical expenses in favor of employees during the quarantine and pandemic periods are, among others: laboratory examination, provision of personal protective equipment, medical examinations, preventive vaccinations, medical supervision, treatment, isolation, hospitalization in connection with the introduction of restrictive measures, including quarantine. Such medical expenses hall not be considered as income, hence they are not subject to taxation.
Teleworking25
In order to improve the legal regulation of teleworking, the following changes were introduced to the Labor Code:
* New definitions:
- combined teleworking - the implementation of the labor process by alternating the periods of performance of labor duties both at the location of the employer, the receiving party and their facilities, and through teleworking;
- teleworking - the implementation of the labor process outside the location of the employer, the receiving party and their facilities using information and communication technologies in the process of work.
* An employee can be familiarized with the collective agreement, labor regulations, other acts of the employer remotely through postal, courier mail, e-mail and other information and communication technologies.
* When working remotely, the place of work shall not be indicated.
* Now following cases do not require an obligatory written notification:
- termination of labor relations in the event of the expiration of the term of the employment contract;
- termination of the employment contract, indicating the reasons that served as the basis for termination, in the event of a negative result of the employee's work during the probation period;
- move of the employer to another location;
- change in working conditions, associated with the reorganization or changes in economic, technological conditions, conditions for the organization of labor and/or a reduction in the amount of work of the employer;
- termination of the employment contract at the initiative of the employer;
- refusal of additional work by the employee and/or cancellation of the order for additional work by the employer;
- termination of an employment contract for a segmental work at the initiative of either of the parties to an employment contract;
- termination of an employment contract with domestic workers.
* Teleworking or combined teleworking can be established by agreement of the parties at the initiative of either of them.
* During the period of the introduction of state of emergency or war, or when other restrictive measures, including quarantine, are introduced, by the decision of state authorities, the employer is entitled, by an act of the employer, to temporarily establish teleworking or combined teleworking until the above cases are eliminated. At the same time, the provision of employees with the equipment, informatization objects, communication services and other means necessary for the performance of their job duties, as well as reimbursement of expenses are determined by the employer's act.
The employer's act must contain:
- the basis for the temporary establishment of teleworking or combined teleworking;
- a list of employees for whom teleworking or combined teleworking is temporarily established;
- the period of teleworking or combined teleworking, not exceeding the date of elimination of the case that served as the basis.
* By agreement of the parties, an employee engaged in teleworking may be reimbursed for other reasonable expenses, associated with the performance of work, including electricity costs.
8. New Definitions in the Entrepreneurial Code
Changes have been introduced to the Entrepreneurial Code of the RK. In particular, a new term “average annual income”, which is defined as the sum of the total annual income or income of business entities applying, in accordance with the tax legislation of the RK, a special tax regime based on a patent, a simplified declaration or using a special mobile application, for the last 3 years, divided by three.
A new chapter - "Social Entrepreneurship" was introduced into the Code. Social entrepreneurship is the entrepreneurial activity of subjects of social entrepreneurship, contributing to the solution of social problems of citizens and society. The objectives and conditions are specified in the Code. Social entrepreneurship subjects are divided into 4 categories, the register of which is maintained by the authorized body.
9. External Quality Control of Audit Organizations
The rules26 for conducting external quality control of audit organizations have been approved. External control is carried out in the following cases:
* receipt by a professional council or a professional organization of an appeal for the actions of auditors (inaction), audit organizations, and professional organizations;
* in case of disagreement with the results of the work of auditors and (or) audit organizations;
* at the initiative of the objects of external quality control of the professional council;
* at the initiative of the authorized body in accordance with the received applications related to the activities of auditors, audit organizations and professional organizations.
External control is divided into scheduled and unscheduled. The inspection period cannot exceed 10 days, and determination of the quality assessment based on the inspection results - 2 months.
10. Product Recall Regulations
The regulations provide for the procedure to recall products that do not meet technical requirements, to return by the manufacturer, its authorized representative, importer or seller of such products released into circulation.
If a product is found being not compliant with technical regulations, the manufacturer or its authorized representative, importer or seller, in order to avoid risks, independently recalls the product from the purchaser and identifies a specific batch, volume, unit of production subject to recall. If it is possible to eliminate the defects, they are eliminated within the timeframe agreed with the purchaser. The rules indicate exhaustive cases when non-conformities can be eliminated.
15 Code of the Republic of Kazakhstan dated 29 June 2020 No.350-VI "Administrative Procedure-Procedural Code of the Republic of Kazakhstan". Entered into force on 1 July 2021.
16 Code of the Republic of Kazakhstan dated 2 January 2021 No.400-VI "Environmental Code of the Republic of Kazakhstan". Entered into force on 1 July 2021.
17 Order of the Minister of Ecology, Geology and Natural Resources of the Republic of Kazakhstan dated 1 July 2021 No.229 "On Approval of the Rules for Conducting Post-Project Analysis and the Form of Conclusion Based on the Results of Post-Project Analysis." Entered into force on 16 July 2021.
18 Order of the Minister of Finance of the Republic of Kazakhstan dated 11 May 2021 No.445 "On Amendments to the Order of the Minister of Finance of the Republic of Kazakhstan dated 12 January 2018 No.20 "On Approval of the Rules and Terms of Delivery to the Taxpayer of a Preliminary Tax Audit Act, Submitting a Written Objection to the Preliminary Tax Audit Act, Consideration of Such an Objection, as Well as the Categories of Taxpayers in Respect of Which the Norms on the Preliminary Act of the Tax Audit are Applied ”. Entered into force on 24 May 2021.
19 Order of the Minister of Finance of the Republic of Kazakhstan dated 6 May 2021 No.433 "On Amendments to the Order of the Minister of Finance of the Republic of Kazakhstan dated 30 April 2015 No.293 "On Approval of the Rules for Conducting an Audit on Taxes and Submitting an Auditor's Opinion on Taxes." Entered into force on 29 May 2021.
20 Law of the Republic of Kazakhstan dated 24 May 2021 No.43-VII "On Amendments and Additions to Some Legislative Acts of the Republic of Kazakhstan on the Regulation of Banking, Microfinance and Collection Activities in the Republic of Kazakhstan." Enters into force on 1 October 2021.
21 MCI is a monthly calculated index, which is 2,917 KZT for 2021.
22 Law of the Republic of Kazakhstan dated 24 June 2021 No.53-VII "On 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 the Enactment of the Code of the Republic of Kazakhstan "On Taxes and Other Obligatory Payments to the Budget "(Tax Code)". Effective from 1 January 2022.
23 Resolution of the Government of the Republic of Kazakhstan dated 1 June 2021 No. 361 on amendments and additions to the Resolution of the Government of the Republic of Kazakhstan dated 3 February 2011 No.74 "On Approval of the Rules (methodology) for Pricing of Natural Uranium Concentrate". Entered into force on 14 June 2021.
24 Law of the Republic of Kazakhstan dated 24 June 2021 No.53-VII "On 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 the Enactment of the Code of the Republic of Kazakhstan "On Taxes and Other Obligatory Payments to the Budget "(Tax Code)". Enters into force on 1 January 2025.
25 Law of the Republic of Kazakhstan dated 1 July 2021 No.61-VII "On Amendments and Additions to the Labor Code of the Republic of Kazakhstan on Improving the Legal Regulation of Remote Work". Entered into force on 13 July 2021.
26 Order of the Minister of Finance of the Republic of Kazakhstan dated 16 June 2021 No.574 "On Approval of the Model Rules for Conducting External Quality Control of Auditing Organizations, Including Criteria for Inspections of Auditing and Professional Organizations." Entered into force on 6 July 2021.
