Baker McKenzei Doing Business in Kazakhstan · 3/18/2015 · Kazakhstan non-discrimination in tax matters. 11 [change title in View/Header and Footer] 11 Legal Aspects of Creating

Doing Business in KazakhstanJoint Chamber of Commerce Switzerland -

CIS/Georgia (JCC)

Kazakhstan Business Roundtable: Kazakhstan Today – New Strategic Priorities & Implications for Bilateral Swiss-Kazakh Trade & Investment

18 March 2015

Lyubomir Georgiev, Baker & McKenzie ZurichHolbeinstrasse 30, Postfach, CH-8034 Zurich, Switzerland

Direct: +41 44 384 14 90 Fax: +41 44 384 12 84 Email: [email protected]

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General

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Kazakhstan – Geographical Position

2.7 million square kilometers (equivalent to the Western Europe)

9th largest country world’s largest landlocked country

borders on Russia, Kyrgyzstan, Turkmenistan, Uzbekistan and China

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Basic Facts

• Population: 16.6 million

� Kazakhs – 65%

� Russians – 25%

� Others – 10%

• Major Languages spoken

� Kazakh – state language

� Russian – official, used in everyday business, interethnic language

• GDP in 2014

� USD 224 billion in total

� USD 14.6 thousand per capita

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FDI Statistics (in USD billion)Gross FDI inflows in the economy of Kazakhstan

from 2005 to 1-half 2014: $ 196.2 billionLeader in Central Asia

Source: National Bank of Kazakhstan

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FDI Inflows by Country from 2005 to 1-half 2014 (in USD billion)

France


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FDI Inflows by Sector (in %)


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Factors of Attractiveness of Kazakhstan• Relatively stable political and economic environment

• Extensive investment incentives for non-mining sector

• A favorable tax regime, including relatively low tax rates and a tax holding

regime which (subject to some conditions) allows not to pay tax on dividends

and capital gains

• A relatively easy currency regulation regime

• A well-developed banking sector

• Government’s constant efforts to ease formalities related to doing business

• Extensive network of international treaties in the area of foreign investment

protection

• Enforceability of foreign arbitral awards

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Switzerland-Kazakhstan Cooperation

• Switzerland - fourth trade partner of Kazakhstan in Europe

• Trade turnover in 2014 – USD 4.5 billion

• More than 40 have operations in Kazakhstan, including those in banking

(e.g., UBS), pharmaceutical (e.g., Novartis and Alcon) and oil trading

sectors

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Major Switzerland-Kazakhstan Treaties• Investment Protection Agreement dated 12 May 1994

� national treatment and most favored nation treatment of investments

(with limited exceptions), non-discrimination

� free repatriation of income

� investment arbitration (even in the absence of an arbitration

agreement)

• Convention for Avoidance of Double Taxation dated 21 October 1999

� generally, no income tax on business profits in Kazakhstan in the

absence of a permanent establishment (fixed place of business)

� general rates of withholding taxes: (i) dividends – 5% (reduction from

15%); (ii) interest – 10% (reduction from 15%); (iii) royalty – 10%

(reduction from 15%)

� exemption or relief in Switzerland in relation to income taxed in

Kazakhstan

� non-discrimination in tax matters

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Legal Aspects of Creating Business

Presence

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Restrictions on Foreign Investments

• Restrictions on foreign participation exist in a limited number of areas.

Examples:

� restrictions on participation of tax havens (Belize, BVI, Lichtenstein, etc.)

in certain entities (e.g., banks and insurance companies)

� mass media companies (not more than 20% directly or indirectly)

� security organizations (restriction limited to direct shareholding);

� air travel companies (not more than 49%)

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Forms of Doing Business

• Short-term activity (generally, up to 12 months) without a fixed place

of business (e.g., an office) generally does not require any legal

presence

• Long-term projects (over 12 months) or activities with a fixed place

of business require legal presence in the form of:

� a representative office;

� a branch; or

� a Kazakhstani legal entity (KLE)

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Representative Office and Branch

• A representative office is a subdivision of the parent company with

representation and protection functions. Essentially a marketing tool

that cannot carry out commercial activities

• A branch is a subdivision which may carry out all functions of the

parent company. May carry out commercial activities

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Kazakhstani Legal Entity (KLE)

• A KLE can generally perform any activities (both commercial and non-commercial) and

is technically a separate entity (and not part of the parent company)

• Two main forms: a limited liability partnership (LLP) and a joint stock company (JSC)

• LLP:

� capital divided into participatory interests rather than shares of stock;

� nominal minimum capitalization (generally around USD 1,000);

� relatively easy to operate.

• JSC – typical in the financial sector and major infrastructure projects. Main features:

� considerable minimum capital (around USD 500,000), divided into shares of

stock;

� more difficult to operate than an LLP (special transaction approval procedures in

some cases, etc.);

� possibility to issue common (voting) and preferred (non-voting) shares;

� possibility of attracting finance through public issuance of shares and listing.

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Comparison of Legal Forms (1)

Feature Branch (Rep Office) KLE

Liability for Obligations

Unlimited Generally limited

Capitalization Requirement

No Yes

Management Very simple (by a sole managing director)

More cumbersome (e.g., general meeting, board of directors, General Director)

Ability to transact in foreign currency with local clients

Yes No

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Comparison of Legal Forms (2)

Feature Branch (Rep Office) KLE

Local Content Requirement

Disadvantaged compared to KLEs

Priority in tenders organized by mining companies, state entities, and certain other customers (subject to additional local nexus requirements)

Dividend Tax Net income tax (15%) (for branch) regardless of repatriation

Dividend withholding tax (15%) due only upon distribution

Dividend Tax Benefits

None Exemption from tax after 3 years (except for mining and oil companies)

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Registering Legal Presence

• All forms of legal presence must be registered with a local

Department of Justice and tax authorities

• Issuance of shares in a JSC additionally requires registration with

the National Bank

• Timing for establishing branches, representative offices and LLPs –

usually 1-2 months after document preparation starts

• Timing for establishing a JSC – 4-5 months after document

preparation starts

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Taxes

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Taxes in General (1)• Major taxes on local companies and Kazakhstani branches of

foreign companies:

� corporate income tax – 20%

� in case of a branch – 15% tax on net income (5% for branches of Swiss companies)

� VAT – 12%

� Social tax – 11% of the payroll

� Property tax – 1.5% of the average annual balance sheet value of real estate

� Land tax – land depends on location and quality of the land plot

• Personal income tax – flat rate of 10%

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Taxes in General (2)• Major taxes on foreign companies with no legal or tax presence:

� business income in general – 20% (0% for Swiss companies)

� dividends – 15% (5% for Swiss companies)

� interest – 15% (10% for Swiss companies)

� royalties – 15% (10% for Swiss companies)

• Applying double tax treaty benefits requires submission to the local

counterparty of an apostilled certificate of Swiss tax residency on an

annual basis

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Tax Holding Regime

• Exemption from the dividend tax (15%) and capital gains tax (15%) once the foreign investor has owned shares in a local company for more than 3 years

• This exemption does not apply to oil and gas and mining companies and their holding companies

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Major Investment Incentives

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General Investment Incentives• Local entities carrying out investment projects (regardless of size) in certain areas (e.g.,

production of food, oil refinery, manufacture of chemicals, equipment, pharmaceuticals,

metallurgy, etc.) are entitled to the following investment benefits:

� state grants in kind (i.e., assets allocated by the state free of charge);

� exemption from customs duties for imported products and equipment.

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New Incentives for Priority Projects• From 1 January 2015, the following additional incentives were introduced for local

entities carrying out investment projects with a value of at least USD 20 million in

certain areas (e.g., production of food, oil refinery, manufacture of chemicals,

equipment, pharmaceuticals, metallurgy, etc.):

� an exemption from corporate income tax, land tax and property tax for up to 10 years;

� an investment subsidy, i.e., compensation by the Government of up to 30% of costs

related to construction and assembly and acquisition of equipment (a Government

resolution granting the subsidy in each case would be required);

� stability of tax and labor laws;

� exemption from work permits for up to one year after the investment facility has been

commissioned; and

� creation of a one-stop-shop assistance by the investment agency in respect to liaison

with various state agencies in relation to project implementation.

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Investment Ombudsman

• A special commission (investment ombudsman) has been created to consider

investor issues and assists in resolving potential disputes

• The Ministry of Investment and Development is the working body of the

ombudsman

• The ombudsman is expected to become active in 2015

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Questions?

Baker & McKenzie – CIS

What others say…

“Described as “excellent” and even

“impeccable”, Baker & McKenzie acts for

top financial institutions, manufacturers

and commodity traders, and its experience

includes debt restructuring, M&A and

corporate law, real estate transactions,

labor law advice, and commercial disputes.

Legal 500 EMEA 2013

Established in Kazakhstan since 1995, this

full-service international firm covers all

areas of commercial law, including finance,

energy, natural resources, real estate and

environmental protection. The group also

offers one of the country’s largest dispute

resolution teams. Oil, gas and mining

remain staple industries for the firm here.

The three-partner office caters principally

to Western users, although the traditional

client base has evolved in recent years to

feature a growing number of Central and

East Asian names.

Chambers Global 2011

Strength in numbers

Legal Professionals:

Partners: 41

Associates: 137

St. Petersburg - 1992 Moscow - 1989

Kyiv - 1992

Almaty - 1995

Baku - 1998

The largest law firm in the CIS – no other international firm has more lawyers in the

region.

Russia Ukraine Kazakhstan Azerbaijan

Partners: 27 Partners: 10 Partners: 2 Partners: 1

Associates: 83 Associates: 36 Associates: 12 Associates: 6

Office in Kazakhstan

Almaty

39 total staff:

- 2 partners

- 2 counsels

- 10 associates

- 3 paralegals

Baker&McKenzie CIS, Limited

Kazakhstan - Almaty

Samal Towers, 8th Floor

97 Zholdasbekov Street

Almaty 050051 Kazakhstan

Tel.: +7 727 330 05 00

Fax.: +7 727 258 40 00

[email protected]

Contacts:Azamat Kuatbekov

Managing Partner

Tel.: +7 727 3300502

[email protected]

Igor Kolupayev

Of Counsel

Tel.: +7 727 3300509

[email protected]

What others say…

Busy oil and gas practice. Capital markets and arbitration

are also particular areas of expertise. Able to draw on a

global network of offices when advising clients. Client

service: “They offer a high level of service in all matters.”

Chambers Asia-Pacific 2014

The Kazakh office of this major global law firm is

considered to be particularly strong in energy, finance and

litigation work. It draws on the firm’s extensive network of

worldwide offices to excel in cross-border matters. It

recently advised a number of foreign investors in the

mining and banking sectors.


The Kazakhstan branch of this impressive global firm is

noted for its strength in corporate matters. The group is

particularly highly regarded for cross-border mandates,

where it can draw on its extensive network of offices

worldwide. The team also represents a growing number of

foreign investors in the mining and banking sectors.

Chambers Asia-Pacific 2012

Ranked in tier 1 (1/3) in Legal Market Overview by

Legal 500 EMEA 2013

Recommended in General Business Law by


Highly recommended in Dispute Resolution by

PLC Which lawyer? 2012

Baker McKenzei Doing Business in Kazakhstan · 3/18/2015 · Kazakhstan non-discrimination in tax matters. 11 [change title in View/Header and Footer] 11 Legal Aspects of Creating

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