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Investment Regime in Kazakhstan

Investment Definition

Under the Kazakhstan law, investment include all kind of property and intellectual values contributed by an investor into the charter capital of the legal entities or the increase of fixed assets used in business activity, such as movable and immovable property, ownership titles, right of retention (lien) and others. At the same time under the law the following may not be considered as investment – importing goods and intended for sale without being processed, shares and other forms of participation in business organizations; bonds and other credit liabilities; demand for payment amounts, goods, services and any other demand for execution of obligations under the contracts connected with investments; as well as right for results of an intellectual activity including copyrights, patents etc.

Types of Investment Projects

Kazakhstan law provides for the three types of investment projects, such as: investment project, investment priority project and special investment project.

Investment project is defined as a complex of actions which provide the investments into creation of new, expansion and (or) upgrade of existing production facilities, including the production facilities which were created, expanded and (or) upgraded through the public-private partnership arrangements, including concession project.

Investment priority project means the investment project on creation of new production facilities, expansion and (or) upgrade of existing production facilities. The law sets out the minimum threshold of the amount of investment. In particular, relating to the creation of new production facilities, the minimum amount of investment shall be 2,000,000 monthly calculation indexes, while with regard to the expansion and (or) upgrade of existing production facilities such minimum threshold equals to 5,000,000 monthly calculation indexes. Importantly, as a matter of law, the investment priority project on creation of new production facilities, expansion and (or) upgrade of existing production facilities may be implemented on certain types of activities, the list of which is approved by the Government of Kazakhstan.

The special investment project is defined as the investment project which is implemented by the Kazakhstan based legal entity registered in special economic zone.

Investment Preferences

Investment preferences are granted for:

  • the investment project – to the legal entities of the Republic of Kazakhstan;
  • the investment priority projects – to the newly established legal entity of the Republic of Kazakhstan – under the law a legal entity is deemed as newly established provided that its State registration was performed not earlier than twenty-four calendar months prior to the date of submission of the application for obtaining the investment preferences;
  • special investment projects – to the legal entities of the Republic of Kazakhstan registered in the special economic zones prior to1 January 2012 or the legal entities which entered into agreement on industrial assembly of motor transport vehicles and owners of free warehouses registered prior to 1 January 2012.

The law provides for certain investment preferences applicable to each investment project, as described above.

Investment projects may be subject to the following investment preferences:

  • exemption from customs duties and VAT on imports;
  • state in-kind grants.

Investment priority projects may be subject to the following investment preferences (in addition to the investment preferences applicable to investment projects listed above):

  • tax preferences (i.e. 0% corporate income tax, 0% land tax and 0% property tax);
  • investment subsidies.

Special investment projects may be subject to the following investment preferences:

  • exemption from customs duties;
  • tax preferences.

 

Bilateral Investment Treaties

Kazakhstan has entered into 48 bilateral investment treaties (the “BIT”) with various jurisdictions, among those the most economically developed countries, such as USA, Germany, Great Britain, France, Italy, Switzerland, the Netherlands, China, Luxembourg etc. In addition, to date, there are more than 20 draft agreements on the stage of development and around 6 agreements on the process of ratification.

Under the Kazakhstan law the foreign investors are guaranteed the full and unconditional protection of rights and interests provided by the BITs.

The Constitution of Kazakhstan explicitly provides that the treaties ratified by Kazakhstan shall supersede any law of the country that is not in line with the applicable international treaty. In the event of contradiction between the local legislation and the effective BIT, the latter shall prevail.

Bilateral Investment Treaties

Kazakhstan has entered into 48 bilateral investment treaties (the “BIT”) with various jurisdictions, among those the most economically developed countries, such as USA, Germany, Great Britain, France, Italy, Switzerland, the Netherlands, China, Luxembourg etc. In addition, to date, there are more than 20 draft agreements on the stage of development and around 6 agreements on the process of ratification.

Under the Kazakhstan law the foreign investors are guaranteed the full and unconditional protection of rights and interests provided by the BITs.

The Constitution of Kazakhstan explicitly provides that the treaties ratified by Kazakhstan shall supersede any law of the country that is not in line with the applicable international treaty. In the event of contradiction between the local legislation and the effective BIT, the latter shall prevail.

Repatriation of Investment and Returns

The Kazakhstan law guarantees to investors the unrestricted use of investment profit on a tax-after basis. Investors are entitled to receive profit in the form of dividends and capital gains, as well as profit made under the contract, interest payments on loan and proceeds from the liquidation or sale of all or part of investment.

Under the law the distribution by Kazakhstan based company of profit to investor, as well as most payments made under a contract shall be carried out without any restrictions, subject, however, to certain currency control procedures. Further, the law does not apply any currency conversion/exchange restrictions on transactions.

The Most Important International Treaties Ratified by Kazakhstan in the Field of Investment

  • 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards;
  • 1965 ICSID Convention on the Settlement of Investment Disputes Between States and Nationals of Other States;
  • 1994 Energy Charter Treaty.

Platforms for Protection and Support of Investors

There are number of platforms in Kazakhstan which are established to effectively solve the problematic and bureaucratic issues experienced by investors. Such platforms include:

  • Council of Foreign Investors under the President of Kazakhstan
  • Business Ombudsman

The Business Ombudsman is directly accountable to the President of Kazakhstan and annually submits to the President the reports on its work on protecting businesses’ rights. Such reports are to be published in the mass media

  • National Company Kazakh Invest

Such company is aimed to perform the role of “sole negotiator” on behalf of the Government in its communications with the investors, as well as to eliminate the existing bureaucracy in the Government and other state authorities and to make the communication between the investors and the Government more effective and efficient.

Dispute Settlement 
Kazakhstan legislation provides for the following forms of protection of businesses’ rights:

  • judicial, in accordance with the civil procedural legislation of Kazakhstan;
  • out-of-court settlements;
  • non-judicial forms: (i) arbitration; (ii) mediation; (iii) in accordance with the participatory procedure without a judge through negotiations between the parties with a view to facilitating dispute settlement by attorneys of both parties.

Membership in OECD’s Investment Committee

On 20 June 2017, Kazakhstan became the 48th country to adhere to the Declaration of Organization of Economic Cooperation and Development (OECD) on International Investment and Multinational Enterprises. Such adherence essentially signals Kazakhstan’s commitment to provide a fair and transparent environment for international investment and willingness to encourage the positive contribution investment can make to economic, environmental and social progress.

It is also noteworthy that Kazakhstan has recently joined the OECD’s Investment Committee, a leading government forum for co-operation on international investment issues, and engage in active policy dialogue with peers. Such membership is expected to bring further positive developments in investment climate and legal framework in Kazakhstan.

Contacts
If you would like further information, please contact:
Kamil Jambakiyev
Partner, Almaty
ADM Valner LLP

Tel.: +7 (727) 390 11 01
kamil.jambakiyev@admvalner.com

Disclaimer

The provided information does not constitute formal legal advice and should not be relied upon without further consultation with legal advisors.