Foreigners in KZ
Foreigners will need visas to visit Kazakhstan (KZ). The most popular visas are investor, business, and work visas. In the territory of KZ visas are issued by the Department of Consular Services of the KZ Ministry of Foreign Affairs and abroad by KZ consulates within KZ Embassies. Foreigners upon arrival should register and receive migration cards if needed.
Foreigners in KZ have all rights and freedoms, and assume all duties established by the Constitution, laws, and international agreements equally as citizens of KZ, except for some limitations.
Foreign Legal Entities
The activity of legal entities in KZ begins from the moment of state registration. Foreign legal entities may formalize their presence by registration of a subsidiary, or a branch/representative office.
The most common forms of presence are as follows:
A joint-stock company (JSC) is a company that issues shares for the purpose of raising funds for the performance of its activity. A JSC shall have capital separate from the capital of its shareholders and shall be liable for its obligations within the amount of its capital. A company’s shareholders shall not be liable for the company’s obligations, except for the cases specified by the laws of KZ. The activity of a JSC is covered by the Law on Joint-Stock Companies, which came into effect on May 16, 2003. The minimum charter capital of a JSC is a 50,000-fold monthly calculated index (MCI)—approximately $521,379. Shareholders of a newly registered JSC should pay the initial charter capital within 30 days from the date of registration of the company. Contributions to charter capital can be made either in the monetary form or in kind. However, for a JSC, the value of any contribution in kind must be determined by an independent licensed evaluator. Shares of a JSC are subject to state registration. The JSC Law requires that only an independent licensed registrar may maintain a registry of shareholders.
Limited Liability Company
A limited liability company (LLP) is a company that may be established by one or more persons (legal entities subject to certain limitations, and individuals) and the charter capital of which shall be divided into participation interests of the members of the LLP. Members of the LLP are not liable for the latter’s obligations and bear the risk of losses associated with the activities of the LLP within the value of their contributions to the charter capital of the LLP. The LLP may consist of one or more participants. The LLP cannot be established and/or owned by a single participant (legal entity) if the latter was established by only one participant. The participant’s financial liability is limited to the amount of its investment in the charter capital. This type of investment can be made either in a monetary form or in kind. Contributions in kind must be valued and are based on the agreement of all founders or on the decision made by a general meeting of participants. Where the value of an “in kind” contribution exceeds 20,000-fold MCI (approximately $208,551), the evaluation should be verified by an independent expert. The initial charter capital for an LLP may not be less than 100-fold MCI (approximately $1,042).
The other forms of foreign legal entity presence in KZ are:
•Branch: a separate subdivision, situated outside the location of the main legal entity and performing all or part of the legal entity’s functions;
•Representative office: a separate subdivision, situated outside the location of the main legal entity and representing the legal entity, committing transactions and other legal actions on behalf of the legal entity.
In accordance with the laws of KZ, legal entities and branches/representative offices must be registered with territorial subdivisions of the Ministry of Justice of KZ. The procedure for state registration is carried out by the Registration Authority in up to seven business days depending on the type of legal entity, i.e. whether it will have small, medium, or large business activities pursuant to the law.
In order to register a legal entity it is required to submit the following documents to the Registration Authority:
•Charter or Articles of Association of the foreign legal entity acting as the founder of a Kazakhstani legal entity;
•Extract from a foreign trade register confirming the legal status of the foreign legal entity;
•Decision on establishment of a KZ legal entity;
•Certificate from the KZ tax authorities confirming absence of any outstanding debts of the founder(s) to the state budget of KZ;
•Charter and Foundation agreement (if two or more founders) prepared and notarized in accordance with KZ laws;
•Copy of lease contract or any other similar documents confirming that the established legal entity has offices in KZ to operate;
•Power of attorney issued by the foreign legal entity to its representative for registration of the Kazakhstani legal entity;
•Copy of a bank payment order/receipt confirming payment of the state registration fee.
If the documents provided by a foreign legal entity are originally in a foreign language, all such documents should be legalized or apostilled, notarized, and translated into the Kazakh and Russian languages. Otherwise, the documents should be notarized (in certain cases) and be in Kazakh and Russian.
Protection of Investments
One of the main issues for the legal regulation of foreign legal entities’ activity in the territory of KZ is investments regulation. KZ provides guarantees for investors in the case of nationalization and confiscation, which are supposed only in exceptional cases. In the case of nationalization, the losses caused to the investor as a result of nationalization acts must be compensated in full. Requisition of the investor’s property is carried out by payment to the aggrieved party at the property’s market cost, which is defined in an order established by KZ legislation.
There are several types of investment preferences provided by the government of KZ. By concluding an investment contract with investors the government of KZ may grant exemptions from customs duties and certain state natural grants. Such preferences shall be granted in priority types of activity approved by the KZ government. In order to obtain investment preferences it is necessary to submit a special package of documents to the government of KZ.
Separate types of activity in KZ are subject to licensing. Such licenses may be obtained from the appropriate state authorities depending on the sphere of activity to be pursued by the company, for example, activity in the sphere of industry, circulation of toxic substances, export/import of certain commodities, and so on.
In the territory of KZ there is currency control over some categories of currency transactions between KZ residents and non-residents. Such currency control is exercised by the National Bank of KZ.
For investors planning to carry out activity in KZ, it is necessary to know the basic legal aspects of state anti-monopoly regulation. Special law regulates the protection of competition. The principle of KZ anti-monopoly law is that the state regulates tariffs for services, goods, and works provided not only by the subjects of natural monopolies, but also by the subjects occupying dominating (exclusive) positions in the following areas: railway transportation, electro- and power systems, transportation of crude oil and gas (and its products), civil aircraft, port activity, telecommunications, and mail services.
The anti-monopoly law of KZ provides the general and equal legal regime for both local and foreign companies. The key definition for the determination of obligations of the company according to the anti-monopoly law is the concept of the so-called “subject of the market”, who is an individual and (or) legal entity of KZ, or a foreign legal entity (its branch or representative office), carrying out business activity.
Any M&A transaction that may lead to economic concentration is subject to approval by the anti-monopoly authority.
There are also transfer-pricing issues in KZ. Transfer pricing is under the control of the tax authorities. Transfer pricing control applies to a wide range of cross-border transactions. The main concept of this regulation is to investigate those commercial transactions where the parties are intentionally reducing the prices while exporting products and overpricing while importing products.
The other important legal matter is taxation. In KZ, taxation is governed mostly by the Tax Code. KZ is a party to more than 35 double-tax treaties with various countries. Although double tax treaties prevail over the Tax Code, their application must comply with established procedures. All individuals and legal entities that are taxpayers, including non-residents, should register with the tax bodies in KZ. Non-registration as a taxpayer and nonpayment of taxes may result in administrative and criminal liability.
One of the main spheres of regulation is customs regulation. Customs relations will be regulated by the Customs Code of the Customs Union (KZ, Russia, and Belarus) enforced on July 1, 2010.
As KZ possesses huge amounts of hydrocarbon fuel reserves as well as minerals and metals, the mining industry, including the oil and gas sector, are the areas that attract the most foreign investment. Activities in the mining industry are governed by subsoil use legislation and other branches of KZ law.
In KZ, all subsoil reserves belong to the state and the state grants exploration and production rights to legal entities or individuals that want to develop subsoil reserves. Subsoil use rights may be held by Kazakhstani or foreign individuals and legal entities. Subsoil use rights are granted for 1 exploration; 2 production; and 3 combined exploration and production. Subsoil use rights under one contract may be held by several persons, in which case such persons will have joint responsibility for activities under such subsoil use contract.
The subsoil use rights arise as a result of: 1 granting; 2 transfer; and 3 assignment in the procedure of legal succession. The subsoil use right may be granted directly by the state by way of entering into a contract for exploration or production based on the results of a tender. In certain cases contracts may be executed on the basis of direct negotiations without holding a tender, in particular, a production contract with a person having a pre-emptive right to obtain subsoil use rights for production in connection with a commercial discovery on the basis of an exploration contract.
Subsoil use rights and rights to so-called associated objects may be transferred, among other ways, through: 1 alienation of the subsoil use right, in full or in part, to any person on the basis of civil transactions for consideration and free of charge; 2 alienation of a participatory interest (shares) in a subsoil user legal entity on the basis of civil transactions for consideration or free of charge; 3 transfer of the subsoil use right or a participatory interest (shares) in a subsoil user legal entity as a contribution to the charter capital of another legal entity; 4 the right to a participatory interest (shares) in a legal entity having the subsoil use right, a legal entity having the possibility to directly and/or indirectly determine the resolutions and/or influence the decisions of such a subsoil user if such a legal entity’s main activities are associated with subsoil use in KZ. If such a right arises as a result of an increase of the charter capital by way of additional contributions of one or several participants or the accession of a new participant to such a legal entity.
“Objects associated with subsoil use right” means participatory interests (shares) in a legal entity holding the subsoil use right, as well as a legal entity that may directly and/or indirectly determine and/or influence decisions adopted by a subsoil user if the principal activity of such a subsoil user is related to subsoil use in KZ.
Transfer of subsoil use rights and objects associated with subsoil use rights requires the permission of the competent body. Furthermore, the state has a pre-emptive right over any other party of the contract or participants in the legal entity holding the subsoil use right and other persons to acquire a subsoil use right (or part thereof) and/or objects associated with subsoil use rights alienated for consideration or free of charge.
Potential investors in the mineral resources sector should be aware of a local content requirement. Local content requirements cover contracting local personnel and use of local goods and services. The percentage of local content must be specified in the subsoil use contract, and non-compliance with the provisions of the contract on local content might become grounds for the termination of the contract by the competent body.
Liquidation of Legal Entities
Liquidation of a legal entity can be carried out in two ways. In the first case the legal entity shall be liquidated under the decision of the owner of its property or by an authorized corporate body of the owner, and also under the decision of the corporate body of the legal entity authorized to make such decisions by its charter. In this case the legal entity can be liquidated on any basis. In the second case the legal body shall be liquidated in compulsory order by court decision. Liquidation procedure differs due to the type of the company—LLP or JSC.
Disputes in KZ may be solved in two ways: by court hearing or by arbitration procedures. Arbitration procedures are quite popular In KZ. Disputes between residents and non-residents of KZ may be resolved by arbitration courts in KZ. There are several stages of arbitration proceedings and mechanisms of the enforcement of arbitral awards in the state courts. Legislation in KZ prohibits arbitration for disputes involving state interests and involving state enterprises or natural monopolies. The law specifically permits state courts to review an arbitration award on its merits if the court determines that such an arbitral award is not in compliance with the principle of lawfulness or violates public policy. However, disputes between two subsidiaries of foreign companies registered in KZ may not be resolved by foreign arbitration. KZ is a party to the New York Convention on Recognition and Enforcement of Foreign Arbitral Awards, the European Convention on International Commercial Arbitration (1961), and the Convention on Settlement of Investment Disputes between States and Nationals of Other States (1965).
It is important to note that certain disputes such as land and tax disputes may not be resolved in arbitration and should be resolved exclusively by Kazakhstani state courts.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
TBY would like to thank Integrites International Law Firm for compiling this analysis.