A brief legal overview of some Kazakhstan legislation spheres for foreign individuals and legal entities («KAPLAN, LEE & PARTNERS» Legal firm Managing partner Alexandr Kaplan Junior partner Ilyas Ibraimov)
A brief legal overview of some Kazakhstan legislation spheres for foreign individuals and legal entities
As a legal firm with huge experience in different Kazakhstan legislation spheres, we regularly face interest of our clients, especially from abroad, on the general understanding of business climate in Kazakhstan and «how it works» in practice, not by official officers’ interviews. This brief legal overview aims to answer this question shortly and succinctly.
The practice shows that for the arriving legal entities it is quite necessary to reveal the real features of conducting business in KZ comparing with their main state of registration. As a big growing country with complicated and different history and social relations, now Kazakhstan has some specific legal issues and practices that all arriving companies should know and keep in mind to make their business work well.
Let me list the most important of these issues:
1.Visas and work permits
Migration and visas issues in KZ are really complicated. The thing is that even state authorities and specialists sometimes cannot understand whether this provision applicable or not, or, if yes - how to apply to it. Visas are necessary to get work permits for employees.
In general, the most applicable visas for foreigners are C-category visa - for permanent residents, employers etc.
For example, for some non-citizens there are exceptions that free them on getting work permits:
1.Kazakh who has citizenship in other countries («kandas»).
If the person does not mention in this list, its employer should submit special application with attachments via special portal https://elicense.kz depend on the specific position. After getting work permit employer can get working visa for his employee.
In general, for working visa (let’s take for example Kazakhstan embassy out of KZ) there should be submitted invitation letter from the employer and a list of identification documents. The application process usually lasts 5 working days, but in some cases, it can last up to 30 days. It depends on citizenship of the person or his occupation.
Other documents and specific procedures are quite complicated and from time to time interpreted by field staff at their own discretion, so please keep it in mind when you decide to get foreign workers in Kazakhstan.
Please note that Kazakhstan Tax legislation is quite complicated and even tax officers sometimes do not understand whether specific provision should be applied in such way or otherwise.
Also, in last 20 years huge changes were adopted in the Tax Code, and from 2001 Kazakhstan adopted 3 (!) Tax Codes, so this obvious instability leads to some troubles to understand and use different Tax Code provisions.
Also, the important issue to be disclosed is tax administration. Regardless of having very huge and complicated IT-system of tax administration that replaces officers and provides many processes automatically, some processes are made directly, and thus mistakes from time-to-time occur. As a result, taxpayers receive different
notifications from tax bodies - to correct tax reports, to submit documents, to pay additional taxes etc.
In general, Kazakhstan Tax Code sets 20% rate Corporate Income Tax, 10% rate Individual Income Tax, 12% Value- Added Tax (0% for exporters and some other types of activities), 0%-5% rate tax on dividends, up to 34% salary taxes and payments. Also, if you conduct business in KZ with the country that is listed in specific Order of the Minister of Finance (https://adilet.zan.kz/rus/docs/V1800016404#z95, unfortunately, no English version available), than your taxation will took place with tax rates in KZ, without using lower tax rates of this low-tax country.
Also providing business in KZ without registration of legal entity as LLP nor JSC, your company should pay an additional 15% net income tax. Please note that our Tax Code consists of many sensitive points which, consequently, make your presence in KZ as a permanent establishing.
Our tax rates are generally lower than in many other jurisdictions, but tax administration and tax policy are sometimes quite ambiguous and dissimilar even in on the similar provisions, but in different regions of the country.
Therefore, it is necessary to review critically all incoming tax notifications and any mistrust should be appealed to the higher tax body to the court.
3.Real estate and land issues
Individuals with permanent residence in Kazakhstan and legal entities can freely have housing (apartments or dwelling).
To get permanent residence status, a person should apply to the state body with a list of documents, and often this status is issued easy.
On the other hand, Private ownership of non-state legal entities of the Republic of Kazakhstan may include land plots provided (intended) for agricultural production, afforestation, under construction or built-up with production and non-production, including residential, buildings (structures, facilities) and their complexes, including land intended for servicing buildings (structures, facilities) in accordance with their purpose. At the same time, the private ownership of foreigners, stateless persons and foreign legal entities (non-state) may include land plots for the purposes indicated in the paragraph above, but except for land designated for agricultural production and forestry. This stems from the fact that our officials and the public are often very sensitive about foreign ownership of land, especially regarding agricultural one.
Real estate with other designated purposes may be freely sold and bought to anyone, and Kazakhstan has many foreign individuals and legal entities that conducts business using such types of real estate.
Our legislation provides 2 main form of legal entities - LLP (ТОО) and JSC (АО). Each of them is convenient for different purposes and with the different size of business. Other different forms of legal entities (additional liability partnership, limited partnership, non-commercial establishment, fund etc.)
The popular type of conduction business in KZ is to work via joint ventures, the non-legal entity creation that is a simple contract that allows local and foreign entities to work together without creating a specific legal entity.
For charity and sponsorship, it is better to use «fund».
Please note that branches and representative offices of any legal entities are not legal entities by themselves under our legislation.
Different goals and purposes require different types of legal entities, so please carefully review this when you decide to choose one or another type.
Because of all mentioned above, the relations between government and business in our country historically had many difficulties. We get a huge progress in the last 5 years by now, however some issues still have a place.
The fact is that corruption is still a big problem in our state bodies, and still some state officers may conduct bribe from businessmen, especially from foreigner that seems for them as wealthier than locals, and who can pay more. Please note that corruption is a serious crime in KZ, and both briber and the bribe taker take responsibility up to 15 years.
In general, our state officers’ mentality has its specific, and sometimes it’s quite difficult to build healthy relations with state authorities. There is also sometimes arises a problem of qualification and language knowledge of this officers, so please keep it in mind when you are about to work with it.
6.Kazakhstan state courts and arbitrages
The thing is that Kazakhstan has 2 (from 2017 - 3) judicial systems:
·state (country) courts - the main courts that hears main quantity of cases.
·arbitrages - private courts that mostly hears commercial disputes and claims.
·Astana International Finance Center (AIFC) court - the brand-new court established in 2017 and has a right to hear various cases that are even subject of state courts. This court works under its special rules and the judges are respected lords from UK.
Arbitrages and AIFC court work alike similarly and are very different comparing with the state courts.
We have different arbitrage courts in KZ, and nearly 10 of them are the most respected, work many years, and there are arbiters and the most qualified lawyers, attorneys, teachers and legal researchers.
AIFC is a quite new court that works under common law, and its judges are the reputable judges and sirs from UK.
It is necessary to mention that in arbitrages and AIFC applications they examine very carefully, and all positions and evidence take in account and thoroughly describe in the judgment, unlike in state courts.
Other thing is that court processes in state courts mostly prolong shorter than in AIFC court, but longer that in arbitrages, and the court fees also different - as in state courts it’s fixes as 3% of the claim amount from legal entities, 1% from individuals and nearly 1.500 KZT (5 USD) from non-material claims, arbitrages apply regressive fee scale that orders you to pay less fee with greater sums to be collected. Thus, arbitrages are cheaper and more convenient for claimants that have bigger sums to be collected.
6.1. Civil litigation
Our firm belief that Kazakhstan judicial system is a mix of Romano-Germanic and Common law legal systems. Judgments should be bases only on laws and no judicial precedent (previous judicial cases and acts) should be considered by any other judges under other cases.
Nevertheless, our Supreme Court submits «Review and Summary of judicial practice» and submits Regulatory Orders that contains clarifications of how to apply certain rules of law.
Kazakhstan has 4-chains model of civil judicial system:
·Surpreme Court and
·Chairman of the Surpreme Court
Judiciary system, as everywhere, is hierarchical, so previous judgment can be appealed to the higher court.
Please be informed that, unfortunately, our legislation is quite unstable and judicial practice is quite different even with the similar cases, so even in very clear and uncomplicated cases judge could adopt unpredictable judgment.
6.2. Administrative litigation
From July 2021 the new type of court hearing had been revealed in Kazakhstan - administrative courts hearing cases under claims against state and quasi-state bodies and officers. This is very unusual type of litigation proceedings and KZ, but the practice shows that it is very long-awaited and extremely useful approach that lets private, non-governmental entities and individuals more legal tools and legal opportunities to protect their violated rights.
The last 6-month practice shows its great effect and great results by equalization courts positions between state bodies and individuals.
6.3. Criminal litigation
Unfortunately, our criminal legislation is still very stiff and has too much punitive elements as after-USSR’s heritage. Investigators, prosecutors and even criminal judges, unfortunately, mostly think and act not to reveal the truth and to convict the perpetrator, but to convict anyone who were involved in the orbit of criminal prosecution.
From business the most popular tough punishment take place under tax avoidance, submission fake VAT-invoices, fraud, violation of customs legislation etc. that frequently qualifies with organized crime group which entails a substantially heavier punishment.
If anyone become involved in the orbit of criminal prosecution, he should make essential efforts to lose crime interest from investigator and prosecutor. The good think is that in many times you can prove your innocence (sure, it sounds weird and surprisingly, but, unfortunately, this is reality of our state) by submission necessary evidence, witnesses, expert’s conclusions etc.
This is a strength and proud of our country - we really made great things in digitalization, and we have some great services and lets all citizens, legal entities, even foreigners make their activities much easier comparing with our neighboring countries, for example:
·https://egov.kz - A portal that provides public services remotely, without the involvement of a public servant. Allows you to open companies, receive various certificates and statements, and receive numerous public services.
·http://elicense.kz - the portal that allows you to make a lot of licensing procedures online - for subsoil users, for monopolies, for import/export operations etc.
·https://office.sud.kz/form/proceedings/services.xhtml - the portal which lets you to submit claims, to participate in court cases online, to submit court papers. Using some apps and services as WhatsApp, ZOOM and True Conf we can participate in court cases online without visiting the court building itself.
·https://adilet.zan.kz - free and open legal information system that contains plenty legal act - Codes, Laws, Rules etc.
Using these resources your work and processes became easier and get many services and information
faster. To use this portal, you need to be authorized by using either login/password or electronic digital signature, and both are chained to personal/business identification number that is issued by the state and is unique number of any person of legal entity.
As summary, conduction business in Kazakhstan has both pros (low tax rates, good digitalization, good judicial access via AIFC etc.) and cons (very unstable legislation, prosecutorial bias in the judicial system, corruption and low qualification of the state officers etc.), so it is necessary to understand all risks and to «feel» how to act and how to contact with state officers.
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