Invest Asia Group in Kazakhstan
Last Update: 12th October 2020
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Independence Memorial in Nur-Sultan, Kazakhstan
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Kazakhstan has the largest economy in Central Asia in both absolute and per capita terms. However, there was a sharp decrease in the value of currency between 2013 and 2016. Since 1991, there was an incremental amount of depreciation in the economy of a country after the breakup of Soviet Union (under whose economy was hardly dependent on the traditional heavy industrial production). Currently the state has substantial oil reserves, minerals and metals as well as a significant amount of steppe lands accommodating both livestock and grain production.
As of 2020, Kazakhstan’s economy is 39th freest with the score of 69.6 and 10th among 42 countries in the Asia-Pacific region. The economy has been in the dominant stages of the moderately free category for the past several years. During this time there was a growth on the Gross Domestic Product which was higher than was tracked in the previous decade.
The past years have seen a transition of the traditional way of education and the language usage from Cyrillic alphabet to the Latin alphabet. Oil production is booming, primarily because of a nearly $37 billion expansion of the Tengiz oil field. Kazakhstan’s vast hydrocarbon and mineral reserves, especially in the Caspian Basin, form the backbone of its economy. The country is the world’s largest producer of uranium and has a large agricultural sector featuring livestock and grain.
As of 2020, Kazakhstan’s economy is 39th freest with the score of 69.6 and 10th among 42 countries in the Asia-Pacific region. The economy has been in the dominant stages of the moderately free category for the past several years. During this time there was a growth on the Gross Domestic Product which was higher than was tracked in the previous decade.
The past years have seen a transition of the traditional way of education and the language usage from Cyrillic alphabet to the Latin alphabet. Oil production is booming, primarily because of a nearly $37 billion expansion of the Tengiz oil field. Kazakhstan’s vast hydrocarbon and mineral reserves, especially in the Caspian Basin, form the backbone of its economy. The country is the world’s largest producer of uranium and has a large agricultural sector featuring livestock and grain.
Kazakhstan: Overview
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There are four main cities in Kazakhstan which populate more than a quarter of the country’s population – Almaty, Nur-Sultan, Shymkent, Taraz and Karagandy. Almaty, which was once the capital city has the population of almost 2 million people and which is the most industrialized where the most business activities occur and investments.
Nur-Sultan is recently the best location and the capital of the country where the new investments are put. This city is being modernized and revolutionized day by day both economically and socially where a great number of tourist attractions and entertainment places are available for the citizens as well as foreigners. |
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Special Economic Zones (SEZ) are a part of the territory of the Republic of Kazakhstan, which has a special legal regime, with the entire necessary infrastructure, to carry out activities in priority activities. Within the territory of the Republic of Kazakhstan, there are 13 special economic zones with different sectorial orientations which can be learnt in detail upon request.
Kazakhstan Prefectures & Regions
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Kazakhstan consists of 14 regions (oblystar, singular – oblys) with the further division of regions into distrcits (aýdandar, singular – aýdan). Four cities, Baikonur, Shymkent, the largest city Almaty and the capital Nur-Sultan are not parts of regions they are surrounded by. The list of the regions is as follows:
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Top Kazakhstan Cities
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Kazakhstan only became independent in 1991, after the break-up of the Soviet Union. This has resulted in many cities being heavily undeveloped and lacking in modern amenities. However, there are certain cities emerging and progressing socially, economically and technologically. The most economically and culturally developed cities are listed below:
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Business Operations in Kazakhstan
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Since independence, Kazakhstan faced a number of challenges whilst attracting foreign investment to transform the economy. The country started to reform and with the assistance of foreign investment, Kazakhstan has significantly improved its economic condition and infrastructure.
Investors willing to enter Kazakh market have a number of opportunities as well as some challenges which should not be bypassed. There are a number of geographical, political, ethical and cultural factors to be considered before launching a business within Kazakhstan. Overall, there is an open market in Kazakhstan where any foreign investors can enter with few restricted industries (outside of media outlets, domestic and international air transportation services as well as telecommunication services). |
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Forming a Company in Kazakhstan
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There are several ways of doing business in Kazakhstan, with the following company structures available to foreign investors:
Of these options, typically the most popular method for foreign investors is to establish a Limited Liability Company or a partnership. The 2019 World Bank’s Doing Business Report ranked Kazakhstan 28 out of 190 countries in the “Ease of Doing Business” category, and 36 out of 190 in the “Starting a Business” category, making it a very transparent country choice within this region of the world. Foreign investors have access to a “single window” service, which simplifies many business procedures. Investors may apply for these services with Invest Asia Group - to find out more, please contact our team directly and learn how we can be of assistance. |
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Company Formation Procedure
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According to the World Bank, on average, it takes 9 procedures and a total of 34 days to establish a foreign-owned limited liability company (LLC) or a Limited Liability Partnership (LLP) in Almaty, Kazakhstan. For the purposes of this article, we've detailed the overall process and for more details, please contact our team directly.
One of the principal foundation documents of an LLP is a charter agreement of its founders and A foundation agreement must include:
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A foundation agreement may include any other provisions at the discretion of the participants. The terms of a foundation agreement are binding upon the partners, and are enforceable in the court. Under the law, a foundation agreement must be notarized.
There are four general steps to be taken in forming an LLP:
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International Investors
Foreign Direct Investment (FDI) inflows into Kazakhstan have been strong in recent decades. The country’s economic growth and some of the non-extractive sectors like agriculture, renewable energy, logistics and transport, and infrastructure changes caused the foreign investment to be significant into Kazakhstan. Investors have substantial freedom and transparency across a range of sectors within Kazakhstan.
Corporate Taxes
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Several types of taxes are imposed on the companies and individuals involved within Kazakhstan. The initial and the most common one is registered when an account is opened with local banks, or on receiving Kazakh-source income not taxed at source in Kazakhstan, or on acquiring Kazakh tax resident status.
There is a Corporate Income Tax (CIT) levied on the worldwide income of resident entities and Kazakh-source income of non-resident entities. Non-residents doing business in Kazakhstan through a permanent establishment (PE) are taxed on the PE’s profits, which are calculated in essentially the same way as for residents. Non-residents that derive Kazakh-source income otherwise than through a PE are taxed by withholding (explained at “Withholding tax” section). |
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The standard rate of CIT is currently 20% of taxable income. In addition, net income (after the deduction of CIT) of a non-resident’s PE (branch) in Kazakhstan is subject to branch profit tax at the rate of 15%. This is usually reduced by tax treaties.
Withholding tax is dealt to most types of income made in Kazakhstan by the non-residents that are not registered for tax purposes in Kazakhstan. Tax agents withhold tax from a nonresident’s gross Kazakh-source income. Any tax-registered entity that pays Kazakh-source income is potentially a tax agent. Here go the tax rates and compliance:
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Where to establish in Kazakhstan
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This depends upon your business type and goals for doing business in Kazakhstan. The capital city of Nur-Sultan and city of Almaty are popular choices for headquarters, whilst mining sites and special economic zones are located throughout the country.
A number of “Special Economic Zones” (SEZ) are located in Kazakhstan, allowing businesses to establish within these 'zones' and reap the benefits from them. Details are as follows:: 1. SEZ “Astana – New City”
2. SEZ “Saryarka” – metallurgy, heavy machinery; 3. SEZ “National Industrial Petrochemical Techno-park” – chemistry, petrochemistry; |
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4. SEZ “Seaport Aktau”
5. SEZ “Ontustik”
6. SEZ “Chemical Park Taraz”
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7. SEZ “Khorgos – East Gate” – mixed industrial activities;
8. SEZ “Park of Innovative Technologies” – ICT and R&D; 9. SEZ “Pavlodar” – chemistry, petrochemistry, metallurgy; 10. SEZ “Astan – Technopolis” – mixed activities; 11. SEZ “Turkistan” – mixed activities, mainly focused on tourism; 12. SEZ “ICBC” Khorgos” – mixed activities and trading; 13. SEZ “Qyzyljar”
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Participant companies of these Special Economic Zones have a significant amount of opportunities which can be enjoyed easily:
For further details regarding locations to establish within Kazakhstan, please contact the Invest Asia Group team directly. |
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Tax-Friendly Policies
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There are three types tax friendly policies of that may be implemented under investment contracts enforced by the Entrepreneurial Code of Kazakhstan which are Regular investment projects – new or upgrading of existing production facilities, Priority investment projects – investments no less than $13,858,177 and Special investment projects – applied by legal enterprises, owners of free warehouses. Depending on these types of projects there are certain incentives provided at the country which are as follows:
1. Regular investment projects:• exemption from customs duties; • exemption from import VAT; • in-kind grants (free land lease, title to land plots and equipment) up to a value not exceeding 30% of total investment. |
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2. Priority investment projects:• exemption from customs duties;
• in-kind grants (free land lease, title to land plots and equipment) up to a value not exceeding 30% of total investment; • tax incentives, and specifically: — 100% CIT relief for up to 10 years for new production facilities and 3 years for the modernization of production facilities — zero rate land tax for up to 10 years — zero rate property tax for up to 8 years; • investment subsidies if the investments are no less than US $34,645,442 (compensation of up to 30% of expenditure on construction works and procurement of equipment during the implementation stage). 3. Special investment projects:• exemption from customs duties; • exemption from import VAT. |
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Financial Markets in Kazakhstan
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The Kazakhstan Stock Exchange (KASE) was first established in 1993 and is located in the city of Almaty, Kazakhstan. The currency exchange was one of the first markets organized on the KASE and has been operating since inception. The first foreign currency trading in US dollars took place in 1993. Today, transactions on this market account for about half of the total volume of trade on KASE. Main participants of KASE currency market are Kazakhstan's second-tier banks and the National Bank of the Republic of Kazakhstan.
Currently, trading on KASE is conducted in US dollars, euros, Chinese yuan and the Russian Ruble and the Tenge, as is Euro-USD trading. Pairs USD/KZT and EUR/KZT along with regular transactions are traded as currency swaps with terms of one and two days. |
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Kazakhstan Stock Exchange (KASE)
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Within Central Asia, the Kazakhstan Stock Exchange is the largest exchange by market capitalization and as at 10th October 2020, there are 189 listings on the exchange. A large proportion of companies are minerals and raw materials companies and aside from equities, it also offers a number of other different markets.
The Kazakhstan Stock Exchange operates a number of different markets for traders including the following:
Within the Securities Market, there is a Government Securities Market, an Equity Securities Market and a Corporate Debt Securities Market. |
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Kazakhstan Stock Types
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In Kazakhstan there are only three types of stocks available which are subdivided into parts according to the areas of the business and the receivers to be issued which are as follows:
simple, privileged and golden 1. A simple share, on “Joint Stock Companies”, provides a shareholder with the right to participate in the general meeting of shareholders with the right to vote when deciding all issues put up for voting, the right to receive dividends if the company has net income, as well as part of the company's property upon liquidation in the established by the legislation of the Republic of Kazakhstan. 2. A privileged share gives some opportunities to the holders and its own types:
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Other ways to get exposure to Kazakh Stocks
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Kazakhstan is the country located in Central Asia is known to foreign investors as the birthplace of the apple. In terms of US ETFs, there are no direct specific Kazakhstan ETFs but some with exposure include a variety of Uranium exposure and Emerging Markets focused ETFs.
From the beginning of October 2020, a new listing from FinEx, the Russian ETF provider will be tracking the Kazakh Stock Exchange. According to Oleg Yankelev, a senior partner of FinEx ETF, in regards with the macro-economic and political environments differently from other frontier markets Kazakhstan is relatively consistent. Besides, the country is rich in distinguishable types of commodities and able to compete with other developing markets in terms of economy and financial markets. The ITI Funds Russia-focused USD Eurobond UCITS ETF is offering a Russian equity ETF - the ITI Funds RTS Equity UCITS ETF – which could potentially follow suit. This fund, which comes with a slightly higher expense ratio of 0.65%, uses physical replication to track the RTS Index, Russia’s oldest and most widely used equity index for equity securities traded on MOEX. The index is currently composed of 40 equity securities of Russia’s top companies by market cap and liquidity. |
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Foreign Exchange
The Kazakhstani Tenge is the national currency of Kazakhstan and since 2015, is a free floating currency. Whilst Kazakhstan has attracted substantial foreign investment, primarily into the natural resources sectors of the economy, a number of capital controls exist.
This currency law was first adopted in 2018 and is to primarily target currency outflows. Please contact the Invest Asia Group team directly to find out more about the latest situation regarding outflows and capital controls. |
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Commodities
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Kazakhstan is rich in natural resources and the economy has become reliant on commodities including the following:
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There were significant changes in Kazakhstan’s economy after its independence in 1991. Trade statistics of the end of 2019 show that the trade turnover consisted of $79.1 billion where the exports accounted for $47.7 billion and imports $31.4.
The list of the products that accounted for the exports of the country are shown below on a decreasing order:
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Cryptocurrency in Kazakhstan
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Kazakhstan commenced planning about the launch of a cryptocurrency in the country in 2017 after the announcement of the partnership between Astana International Financial Center (AIFC) and Exante. The country passed legal amendments in June clarifying the regulation and taxation of cryptocurrency mining that it hopes will boost its oil-dominated economy, which can offer relatively cheap electric power for the energy-hungry business.
There are now 13 large scale “mining farms” operating in the Central Asian nation with a further four currently under construction (in 2020). This is in addition to numerous smaller mining operations whilst Kazakhstan has invested more than 80 billion tenge ($190 million) in the sector. Kazakhstan laws allow the mining of asset-backed cryptocurrencies and prohibit work with unsecured ones such as Bitcoin. |
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Property in Kazakhstan
In conjunction with the strong economic growth of the economy, Kazakhstan property has experienced a housing boom over recent years across the main cities. Whilst foreign investors are excluded from the housing market, unlike a number of countries within Asia, the property market has presented an excellent opportunity for investors to profit from a strong economy.
International Investors & Kazakhstan Property
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The answer to the question if a foreign investor can own a property in Kazakhstan is, no – only permanent residents & local citizenshave rights to own a house. Article 9 of the Law of the Republic of Kazakhstan “On Legal Status of Foreigners” stipulates that foreigners in the Republic of Kazakhstan can have a house on the right of ownership (with the exception of temporarily staying foreigners). However, the Invest Asia Group team can provide alternative options in the form of establishing a company to own the investment vehicle. To find out more, please contact our team directly.
There are two conclusions to be drawn from the article on the rights to own lands and real estates by the foreign individuals. The initial one is that the Law of the Republic of Kazakhstan enforces a rule that foreign legal entities have the same obligations in land-based relationships that are available for Kazakh legal entities, except in certain cases provided by law. On the other hand, the Law has divided the concepts “foreigners” and “foreign legal entities” into different parts, by denoting “foreigners” as only foreign citizens and “foreign legal entities” as a succinct category of legal entities, meaning that the norms in the Law referring to “foreigners” referred to only foreign individuals. Overall, the land is held under state ownership according to Land Law, while the plots of land can at be held in private ownership by citizens and non-state legal entities (including foreign citizens and legal entities) on the bases, under the terms and within the limits established by the Land law (Art.2). In the Republic of Kazakhstan private ownership is recognized and protected on a par with state ownership (Art. 15). |
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Property Taxes
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Taxes imposed on properties have a range of between 0.1 % to 1.5 % according to the type of the property and the taxpayer’s activities. There is a new law that the property tax will be levied at 0% in 2020 to legal entities and individual entrepreneurs using property for conducting tourism, hotel and catering activities, as well as for legal entities and individual entrepreneurs in large retail facilities, shopping and entertainment centers, cinemas, theaters, exhibitions, fitness and sports facilities (COVID-19-related measure).
Below are the rates of the levies differing by the net value of the immovable properties:
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Best Locations to Purchase Property
Foreign investors looking forward to invest money on properties mostly pay attention to the client base where the properties they are purchasing are located. The city centers with a significant amount of population are subjects to the foreign attention – the shops, real estates, parks, hotels and the like are mostly bought from inside the populated areas like Nur-Sultan, Almaty, Shymkent, Taraz and the others.
Of course, real estates like houses and apartments are costlier at big cities, however they are worth investing in Kazakhstan. Why? Because the country is in constant development and purchasing houses or hotels is never miserable for any investors in especially abovementioned destinations. |
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Venture Capital/Private Equity in Kazakhstan
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Currently, Kazakhstan embraces a number of firms which create venture capital funds throughout the country. Three main ones of these are The Eagle Kazakhstan Fund (formerly the GIMV Kazakhstan Post-Privatization Fund (the KPPF), The AIG Silk Road Fund (SRF), Central Asian-American Enterprise Fund (CAAEF) which made considerable amounts of investments to the businesses and startups.
The Eagle Kazakhstan Fund has now invested over 40% of its e33m capital in six companies. These are:
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The SRF is one of eleven emerging market direct equity funds managed and sponsored by AIG Capital Partners, a wholly owned AIG subsidiary. With total capital of nearly $6.5 billion and teams totaling over 120 private equity professionals, these funds currently operate in major emerging markets in the CIS, Eastern Europe, Asia, and Latin America. In each of these funds, AIG has directly contributed a minimum of 10% of the capital base.
Since starting operations in 1994, the CAAEF has disbursed more than $73 million in equity and loans to over 400 businesses and entrepreneurs in the five countries of Central Asia. Individual transactions vary from large equity investments in new manufacturing facilities to micro loans for commercial traders plying their wares in the bazaars. The CAAEF currently provides financial support through two mechanisms:
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Other Jurisdictions in Central Asia
Uzbekistan
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Turkmenistan
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Tajikistan
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Kyrgyzstan
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