With the country now emerging from the global financial crisis, the ways of doing business are being upgraded.

Kazakhstan is back on investors' radar screens. Although hit hard by the global economic crisis of 2008-2009 and the resulting collapse in prices for Kazakhstan's abundant oil and gas, metals, and mineral exports, Kazakhstan's economy had largely recovered by 2010, growing by 7% that year. The rising oil prices and increased demand for Kazakhstan's export commodities continue to fuel Kazakhstan's growth. GDP growth is expected to be 5.9% in 2011. This has resulted in an improved balance of payments, increased National Bank reserves, and put substantial pressure on the tenge, the national currency, which is gradually appreciating against the US dollar. Although the country's economic performance continues to be dragged down by the sharp drop in real estate prices since their peak in the summer of 2007 and the continued weakness in the banking sector (which was heavily exposed to non-performing loans to the construction and real estate sectors), Kazakhstan is seeing increased investor interest in the traditional petrochemical and mining sectors, agricultural and retail sectors, and manufacturing. While it's too early to call Kazakhstan's economy booming, it can safely be said that Kazakhstan is out of the doldrums and—assuming that the global economy continues to recover—is poised to experience strong growth in the future.

Civil Legislation

Kazakhstan is a civil law jurisdiction. Judicial decisions have no basis on precedent, and consequently, the legislation is aimed at providing guidance in any and all situations of uncertainty that might arise. The Constitution is the supreme law of the land. Other sources of law include parliamentary acts, presidential edicts, and Constitutional Council and Supreme Court decisions, all of which have different legal force. In addition, secondary regulatory acts are issued by government ministries and agencies to fill the gaps left by primary legislation.

The Civil Code governs most aspects of civil and commercial relations in Kazakhstan, including property and contractual relations. The Civil Code is generally progressive and provides for the freedom to contract, the inviolability of private property, and restrictions on the state's ability to arbitrarily interfere in a person's private affairs. As a general rule, civil legislation does not apply to property relations based on the state's tax, administrative, or police powers, all of which remain quite extensive.

The Civil Code and related laws permit both local and foreign entities a high degree of flexibility in structuring their business activity in Kazakhstan. Available business structures include a representative office, a branch office, a legal entity, and a simple partnership of companies (or consortium). The primary differences between these various business structures relate to the entity's legal status, the scope of its rights, the nature of the relationship between the entity and its owners, and taxation. As a general rule, the law does not discriminate between domestically owned legal entities and Kazakhstani subsidiaries of foreign legal entities.

Accounting Standards & Audit Requirements

All large entities and public companies in Kazakhstan must follow International Financial Reporting Standards (IFRS). Small and medium-size enterprises and branches and representative offices of foreign entities may follow either national financial reporting standards or IFRS.

In accordance with the Law on Audit Activity, joint stock companies, insurance companies, bonds, subsoil users, natural monopolies, and specified other entities are subject to a mandatory audit. Other legal entities may elect to be audited on a voluntary basis, but are not subject to an audit requirement.


Kazakhstan is a member state of the Customs Union with Russia and Belarus. The Customs Union is the first step in the creation of a Single Economic Space between the member states, and is designed to provide for free movement of goods between the member states of the Customs Union and to eliminate customs duties and non-tariff barriers between the member states.

The formation of the Customs Union has resulted in the following:

•Goods manufactured or released for free circulation in the territory of any of the participating countries (hereinafter, “Customs Union Goods") circulate within the territory of the Customs Union (a) without the payment of customs duties; (b) free of any economic limitations; and (c) with simplified customs formalities (requiring only documents confirming the status of goods as Customs Union Goods);

•The use of uniform regulations for principal customs-related issues, including: (a) the rights and duties of the customs authorities and participants in foreign economic activities; (b) uniform customs procedures; (c) uniform rules for classification, customs valuation, and determination of the country of the origin of goods; and (d) uniform procedural rules (procedures and forms for declaring and releasing goods, payment of customs duties, and so on.);

•The use of uniform customs tariff regulations (including, among others, a common commodity classification nomenclature and a customs tariff); and

•The use of uniform non-tariff regulations (including, among others, unified rules applicable to licensing, export supervision, and quantitative restrictions).

Employment of Expatriates

Visa & Registration Requirements

Entry into Kazakhstan requires possession of a valid passport and, in most cases, a visa. New simplified procedures have been established for the issuance of visas to foreign nationals from most North American and Western European countries. Nationals of these countries do not need an invitation letter from a Kazakhstani inviting party as a prerequisite to applying for a Kazakhstani visa and can apply directly to a Kazakhstani embassy or consulate in another country for a visa.

All foreigners must register with the migration police within five business days following their arrival in Kazakhstan, except for citizens from about two dozen developed countries, who are automatically registered at the airport for a 90-day period. Failure to register with the state authorities can subject the unregistered expatriate to fines and possible deportation.

Foreign Employee Work Permit

A company that invites foreign specialists to work in Kazakhstan is required to obtain a permit allowing it to do so. The procedure for obtaining a permit includes the payment of a deposit guaranteeing the departure of the expatriate. In addition, the prospective employer must provide to the state labor authority various documents that typically evidence that no comparably qualified local candidates are available on the local labor market. Heads of branch offices and representative offices of foreign legal entities, employees of diplomatic missions or international organizations in Kazakhstan, and certain other categories of employees may work in Kazakhstan without a work permit, although in some cases their employer must submit a form to Kazakhstani state authorities that testifies to their education, years of professional work experience, and the duration of their employment agreement or a power of attorney for heads of branch offices and representative offices.

The work permit process is difficult and cumbersome, and diplomats and employers have frequently called for improvements to the work permit system and an increase in the quota levels. The number of work permits issued each year in Kazakhstan is limited by both employee category and region of employment. Work permit quotas were slightly increased in 2011 as the economy began to recover. The total work permit limit for 2011 is 0.85% of the economically active population in Kazakhstan, or approximately 78,200 work permits, split among various categories of employees.

The government of Kazakhstan recently amended the rules for employing foreign staff in Kazakhstan. The amendments ban domestic secondments and impose sanctions on employers that second or lease expatriate staff to other employers in Kazakhstan by allowing a work permit to be terminated if an employer seconds a foreign employee to another legal entity. They also impose a 12-month bar on obtaining new work permits on employers who second expatriate personnel to other employers in Kazakhstan.

The new amendments also require employers to comply with specified limits on the number of foreign staff they employ before a work permit may be issued to them. The new limits apply to all employers other than small companies, but will be cancelled once Kazakhstan becomes a member of the World Trade Organization. Failure to observe the new limits is grounds for the revocation of work permits. It also precludes employers that violate the limits from obtaining new work permits for 12 months from the date when the violation is confirmed.

The new limits are scheduled to be phased in as follows:

•From July 1, 2011 to January 1, 2012 the total number of foreign specialists already employed or scheduled to be employed in the employer's first personnel category (i.e. chief executives, their deputies, and heads of specified departments) may not exceed 50% of the employer's total number of category one specialists;

•From July 1, 2011 to January 1, 2012 the total number of foreign specialists already employed or scheduled to be employed in the employer's second personnel category (management and technical specialists) and third personnel category (skilled workers) may not exceed 30% of the employer's total number of personnel;

•From January 1, 2012 the total number of foreign specialists already employed or scheduled to be employed in the employer's first personnel category may not exceed 30% of the employer's total number of category one specialists;

•From January 1, 2012 the total number of foreign specialists already employed or scheduled to be employed in the employer's second and third personnel categories may not exceed 10% of the employer's total number of category two and category three specialists.


The principal law that regulates taxation in Kazakhstan is the Tax Code, which was adopted in December 2008 to replace prior tax legislation. Drafted at the time when Kazakhstan was enjoying substantial tax revenues because of unusually high global prices for hydrocarbons, metals, and minerals, the new Tax Code sought to make the Kazakhstani fiscal regime more competitive and shift the tax burden from companies operating outside the natural resource sphere into subsoil users. The new Tax Code has therefore significantly reduced the corporate income tax rate and eliminated many tax privileges and exemptions. At the same time, the new Tax Code abrogated subsoil contract stability for many subsoil use contracts, while raising taxes on subsoil users.

While many taxpayers have benefited from the simplification of the tax regime and the reduction of corporate income tax rates, the expected additional revenues from subsoil users failed to materialize during 2009 and 2010 due to the collapse of oil and commodity prices as a result of the global economic downturn. Facing a significant budgetary shortfall, Kazakhstan's government tried to compensate for this shortfall through more aggressive enforcement and tax collection efforts. While the recovery of Kazakhstan's economy has brought additional revenues to the state budget, the government has canceled its plans to further reduce corporate income tax rates.

Taxation of Business Entities in Kazakhstan

Business entities in Kazakhstan (including branches and representative offices of foreign companies) are potentially subject to several taxes and fees, which include:

1 Corporate income tax;

2 Value-added tax;

3 Excise tax;

4 Export rental tax on exported crude oil,coal and gas condensate;

5 Special taxes on mineral resource users;

6 Social tax;

7 Land tax;

8 Vehicle tax;

9 Property tax,

10 Customs duties;

11 Miscellaneous fees and levies.

All these taxes have their own separate filing and reporting requirements and make record keeping time consuming.

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 KPMG for compiling this analysis.