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
Source: National Bank of Kazakhstan
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FDI Inflows by Sector (in %)
Source: National Bank of Kazakhstan
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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
Contacts:Azamat Kuatbekov
Managing Partner
Tel.: +7 727 3300502
Igor Kolupayev
Of Counsel
Tel.: +7 727 3300509
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.
Chambers Global 2013
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
Chambers Global 2013
Highly recommended in Dispute Resolution by
PLC Which lawyer? 2012