Doing business in Kazakhstan - Invest In Kazakhstan

¼ ²·¸¹¨º»®b¯TABELA 4 - Produção de Leite por Tipo, Estado de São Paulo, 2000 a 2002°±²³´µAnoTipo A Tipo B Tipo C Total1.000 litros ∆ 1 % 1.000 litros ∆ 1 % 1.000 litros ∆ 1 % 1.000 litros ∆ 1 %2000 49.124 - 345.403 - 1.545.698 - 1.940.225 -2001 2 53.968 9,86 337.415 - 2,31 1.585.372 2,57 1.976.755 1,882001 3 34.343 - 30,09 353.644 2,39 1.588.439 2,77 1.976.426 1,872002 2 34.112 - 0,67 324.576 - 8,22 1.480.361 - 6,80 1.839.049 - 6,952002 3 39.063 13,74 344.971 - 2,45 1.619.950 1,98 2.003.984 1,391 Variação percentual de crescimento anual calculada em relação ao levantamento de novembro.2 Previsão do levantamento de junho dos respectivos anos.3 Estimativa do levantamento de novembro dos respectivos anos.Fonte: Informações Estatísticas da Agricultura: Anuário IEA, 2000/01. São Paulo: IEA, 2001/02 (Sér. inf. estat. agric.) e LevantamentoIEA/CATI de jun. 2001, jun. e nov. 2002.TABELA 5 - Produção de Aves para Postura, Estado de São Paulo, 2000 a 2002 1AnoPlantel(cabeça)Produção de ovos(1.000 dúzias/ano)∆ 2 % da produção2000 33.656.206 724.4162001 3 34.685.243 758.039 4,642002 3 36.661.035 765.235 0,951 As estatísticas da produção de aves para postura passaram por uma revisão, estando disponíveis apenas para o levantamento denovembro.2 Variação percentual de crescimento anual calculada em relação ao levantamento de novembro.3 Estimativa do levantamento de novembro dos respectivos anos.Fonte: Levantamento IEA/CATI de nov. de 2000, 2001 e 2002.TABELA 6 - Produção de Aves para Corte, Estado de São Paulo, 2000 a 2002AnoRebanho(cabeça)Enviadas ao abate(cabeça)Produção de carne(t)∆ 1 %2000 135.838.316 483.873.393 1.024.170 -2001 2 138.979.489 536.644.662 1.087.962 6,232001 3 152.015.552 617.308.322 1.243.836 21,452002 2 149.796.969 511.308.338 1.055.643 - 15,132002 3 148.991.286 504.288.751 1.029.458 - 17,241 Variação percentual de crescimento anual calculada em relação ao levantamento de novembro.2 Previsão do levantamento de junho dos respectivos anos.3 Estimativa do levantamento de novembro dos respectivos anos.Fonte: Informações Estatísticas da Agricultura: Anuário IEA, 2000/01. São Paulo: IEA, 2001/02 (Sér. inf. estat. agric.) e LevantamentoIEA/CATI de jun. 2001, jun. e nov. 2002.TABELA 7 - Número de Suínos, Estado de São Paulo, 2000 a 2002AnoRebanho atualcabeças ∆ 1 %Enviado aoProdução de carneabate tonelada ∆ 1 %Taxa de abate2000 1.529.695 1.481.767 133.360 96,872001 2 1.413.247 - 7,61 1.341.305 128.873 - 3,26 94,912001 3 1.684.335 10,10 1.670.258 149.122 11,82 99,162002 2 1.368.757 - 18,74 1.428.027 130.205 - 12,69 104,332002 3 1.378.263 -18,17 1.485.624 137.104 -8,06 107,791 Variação percentual de crescimento anual calculada em relação ao levantamento de novembro.2 Previsão do levantamento de junho dos respectivos anos.3 Estimativas do levantamento de novembro dos respectivos anos.Fonte: Informações Estatísticas da Agricultura: Anuário IEA, 2000/01. São Paulo: IEA, 2001/02 (Sér. inf. estat. agric.) e LevantamentoIEA/CATI de jun. 2001, jun. e nov. 2002.(%)— ˜£ š¦›¨œžŸ ¡¢£š˜£¤¦œ¥£¡ ¦§¨¦© ª «£«¦"˜£ª «¦œ›¨ª¦¬%­&­«'ª

Section 1Welcometo KazakhstanHighlights• Kazakhstan posted an annualaverage GDP growth rate of 8.3%from 2001—2010, with GDP in 2010reaching US$148.1 billion (US$9,070per capita). After a sharp declineof GDP growth from 8.9% in 2007to 1.2% in 2009, the economy ofKazakhstan demonstrated a positivetrend. In 2010 and January—June2011, GDP growth reached 7.3% and7.1%, respectively. In June 2011, thegovernment of Kazakhstan approvedan official annual average GDPforecast for 2011—2015 at 7%.• Dominant sources of national revenueremain the oil and gas and miningsectors, but Kazakhstan continuesto diversify its economy.• Kazakhstan benefits from robust FDI,given its investor-friendly approach.• Political stability, coupled with a strongvision in the formulation and executionof the country’s economic development,has positioned Kazakhstan as theregional leader in Central Asia.• Significant market size due tothe formation of the CustomsUnion between Russia, Belarusand Kazakhstan that accounts for170 million people.• Kazakhstan is committed to regionaland international cooperation andaims to become a country with ahigh-income economy (US$15,000GDP per capita by the end of 2015).2 Doing business in Kazakhstan

Governance structureThe Republic of Kazakhstan gained itsindependence on 16 December 1991.According to the constitution adoptedon 30 August 1995, Kazakhstan is ademocratic, secular, legal and social state.State power is divided between legislative,executive and judicial authorities.Kazakhstan is a unitary state withpresidential rule. The President of therepublic is Nursultan Nazarbayev, who waselected by popular vote for a five-year term.The last election was held in April 2011; thenext is to be held in 2016.Public holidaysThe following table presents the officialpublic holidays in Kazakhstan.HolidayNew Year’s HolidaysInternationalWomen’s DayNauryz MeyramiKazakhstani PeopleUnity DayVictory DayCapital DayDate1—2 January8 March21—23 March1 May9 May6 JulyTimeKazakhstan’s time zones progress fromfive hours ahead of Greenwich Mean Time(GMT) in the western part of the countryto six hours ahead of GMT in the rest of theregions. Astana and Almaty are six hoursahead of GMT and two hours ahead ofMoscow.Business hoursKazakh offices are generally open from9:00 a.m. to 6:00 p.m., Monday to Friday,and closed Saturdays and Sundays.The Parliament of Kazakhstan is thesupreme representative body, whichperforms legislative functions and consistsof two chambers: the Senate and Majilis.The government of Kazakhstan acts as asupreme executive body headed by PrimeMinister. Judicial authority is vested in theSupreme Court.Constitution DayIndependence Day30 August16—17 December4 Doing business in Kazakhstan

KazakhstanArea:2,724,900 square kilometers (1,052,085 square miles)Population: 16.4 million people as of 1 January 2011Capital: Astana (697,000 people as of 1 January 2011)Language:Currency:Kazakh is the official language,Russian is a means of inter-ethnic communicationKazakh tenge (KZT)AstanaTime differences between Astana and selected citiesWinter,hours—11—6—5—3—2—1+3New YorkLondonParisKyivMinskBakuMoscowSt. PetersburgTbilisiYerevanAtyrauAktobeAktauTashkentAstanaAlmatyTokyoSummer,hours—10—5—4—3—2—1+3New YorkLondonParisKyivMinskMoscowSt. PetersburgTbilisiAtyrauAktobeAktauBakuYerevanTashkentAstanaAlmatyTokyoDoing business in Kazakhstan5

Section 2Our top 10tax and legal tipsIn this section, we set out the top tax and legal tipsthat investors should be aware of.Tax tips1. Tax laws in Kazakhstan have changedregularly in recent years. It is thereforeimportant that tax planning is robust,i.e. it can cope with changes in taxlaw and can be restructured withoutsignificant tax costs.2. Corporate and Individual incometax rates in Kazakhstan are low byinternational standards. However,penalties for non-payment andnon-reporting, whether intentionalor not, are high. The first focus oftax planning in Kazakhstan shouldbe to ensure that all tax that oughtto be paid in Kazakhstan is paid andreported. In addition, Kazakhstanis a documentation-driven place.Therefore, keeping documentationin order (including supportdocumentation) is of paramountimportance.3. The scope of withholding taxes oncross-border payments is wide andrates are high (even sometimeswhen the recipient has never enteredKazakhstan). These can be totallyavoided in many cases provided thatthe transactions are structured usinga tax treaty country and the payer hasall of the necessary documentationin place. Otherwise tax will bewithheld, and getting a refund maybe an uncertain process. Moreover,Kazakhstan has a unique position inregard to transfer pricing: transferpricing control potentially applies to allcross-border transactions regardlessof whether the parties are in any wayrelated or not.4. There are many downsides to dealingwith tax havens when structuringcross-border investments ortransactions in Kazakhstan. Thus, taxhavens should not usually form part oftax planning in Kazakhstan.5. The rules for determining whethera taxable presence for corporateincome tax (CIT) in Kazakhstan(a “permanent establishment”) existsfor a business dealing with Kazakhstanare very wide and can apply to wholegroups of companies collectivelyif their total presence exceeds sixmonths in country. Some but not allof Kazakhstan’s tax treaties protectagainst this. Therefore, if using morethan one group entity to do businesswith Kazakhstan, the position of allentities involved must be reviewedcollectively.6. The rules for determining whether ataxable presence exists for VAT areindependent of the rules for CIT, andthe penalties for breaches can bedraconian. Never forget to considerVAT separately when thinking aboutwhether you have a taxable presencein Kazakhstan.7. For financing investments, there is abasic 6 to 1 debt equity ratio (9 to 1for banks), while from 2012 the ratiowill be 4 to 1 (7 to 1 for banks). Aninvestor will at best pay 10% WHTon cross-border interest (based on adouble tax treaty) and get at best aCIT deduction at 20%. Furthermore,exchange gains and losses on loans arerecognized for tax purposes.8. There is a safe harbor which wouldavoid a deemed taxable presencefor an entity that seconds staff towork in Kazakhstan. Provided thearrangements are properly structured,this is likely to be more tax-efficientthan using those same staff to provideconsultancy or other services.9. Branch profit tax applies to allpermanent establishments of foreignlegal entities at a general rate of 15%.It is usually reduced by tax treaties.There is an equivalent tax on dividendsat the same general rates and alsoreduced by treaties. In the case ofdividends the rate is zero after theinvestment has been held for threeyears (except for investments into oiland gas or mining).10. Capital gains tax on exiting from aninvestment in Kazakhstan can belegitimately avoided in many cases,provided that the correct structuringis used when the investment is firstmade. How onerous the structuringwould be depends on the nature of theasset.6 Doing business in Kazakhstan

Legal tips1. Most investors use a Kazakhstanlimited liability partnership (LLP)as their investment vehicle.2. Settlements between residents ofKazakhstan (legal entities and citizens)must be performed in Kazakh tenge.Settlements between nonresidents(legal entities and citizens) andKazakhstani residents may generally beperformed in any currency.3. The range of business and professionalactivities that require a license is verybroad and it is important for investorsto determine whether they need alicense beforehand. The penalties fornot having licenses can be significant.4. Obtaining work permits is a rathersophisticated process. Thus, it isimportant to plan this process well inadvance.5. Using “brass plate” legal addressesis not sufficient in practice. Theauthorities will expect an investor tohave some presence at its registeredlegal address in Kazakhstan.6. Kazakhstan is very formalistic in manyaspects. In most cases, a company’srepresentatives should have powerof attorney for their actions and willregularly be required to refer to it, forexample when signing contracts.7. Local content is very important formining and oil and gas companies andtheir subcontractors, and is constantlybeing monitored by the stateauthorities.8. Kazakh is the state language ofKazakhstan. Russian is an officiallanguage and also may be usedequally with Kazakh. English is notrecognized as a legal language forofficial purposes. Thus, Englishdocuments will need to be translated.Where necessary, translations must benotarized.9. For commercial contracts Kazakhstandoes, generally, permit the use offoreign law as the governing one,except for subsoil use contracts withthe state and foundation agreementsof a Kazakhstan legal entity andagreements on transfer of participationshares in such a legal entity.10. International arbitration is not usuallyavailable for contracts between Kazakhlegal entities.Should you need more information on any of these issues, Ernst & Young will be happy toassist you with services in the following areas:1. Tax planning and compliance, both in Kazakhstan and internationally2. Business accounting3. A full range of legal consultancy services in Kazakhstan, as well as tax litigation services4. Transaction advisory services and legal and tax due diligence5. Migration support and performance and reward planning6. Assurance services.Doing business in Kazakhstan7

8 Doing business in Kazakhstan

Section 3Getting startedArriving in KazakhstanCitizens of most foreign countries will needvisas to visit Kazakhstan.Passports should be valid for at least sixmonths after the visa expiration date.The most popular visas are investor,business and work visas. These visas areissued for one, two, three or multipleentries and are valid for up to three years.Investor visas are issued to managementof foreign companies, which carry outinvestment activities in Kazakhstan, andto participants in the Regional FinancialCentre of Almaty City (“RFCA”) as well asto their family members.Work visas are issued to foreign individualsarriving in Kazakhstan for employment,as well as to non-working members oftheir families. A work permit should besubmitted to obtain a work visa. See theWork permit section below for details.Business visas are issued to foreignindividuals arriving in Kazakhstan forbusiness purposes (e.g., business trip,negotiations, entering into contracts,provision of consultancy or audit services,participation in conferences, symposiums,forums, exhibitions, concerts, cultural,scientific, sport and other events, etc.).In the territory of Kazakhstan visas areissued by the Department of ConsularService of the Kazakhstan Ministry ofForeign Affairs and abroad by Kazakhstanconsular establishments (e.g. theConsular Department of the Embassyof Kazakhstan). Generally, visas areissued based on a letter of invitation bya local Kazakh company or a branch/representative office of a foreign companysubmitted to the Department of ConsularService of the Ministry of Foreign Affairsof the Republic of Kazakhstan. The fee forissuing a visa ranges from US$10 to 400,depending on the country of residenceof the invited person and the type of visasought. The term for issuance of a visashould not exceed five working days.A letter of invitation is not required fora single diplomatic, official, businessor private visa for citizens of certaincountries, such as Austria, Belgium, GreatBritain, Greece, Italy, France, Singapore,the United States. This visa is issued basedon a written application submitted by aforeign individual to the Kazakh consularestablishment in the respective countryor to the Department of Consular Serviceof the Ministry of Foreign Affairs of theRepublic of Kazakhstan.Foreign individuals arriving in Kazakhstanare registered by making a registrationrecord in their migration card, except forthose coming under investor visas. Theseforeign individuals are registered by makinga record in the passport. Depending on thevisa category and ground for its issuance,the registration is made by the Kazakhconsular establishment when issuing a visa,border control authority when crossing theborder or migration police within five daysupon arrival of a foreign individual.Should you require assistance in planningand managing your human capital needs,Ernst & Young can assist with obtainingwork permits for foreign employees, taxregistration and compliance for expatriateindividuals.Doing business in Kazakhstan9

Should you require more information on thenature and use of various business entities inKazakhstan, Ernst & Young offers legal andtax advice on how to structure business inKazakhstan, as well as the full range of legalformation and registration services.Types of legalentitiesIn accordance with the provisions of theCivil Code 1 of the Republic of Kazakhstan,foreign and local investors may do businessin Kazakhstan through a number oforganizational and legal forms, includinggeneral partnerships, limited liabilitypartnerships, partnerships with additionalliability, commandite partnerships,joint stock companies (corporations)and representative and branch offices.Branches and representative offices offoreign legal entities are also common.In the outline below, we expand on the fourtypes of business vehicles which are mostwidely used in practice.Limited liability partnerships (LLP)LLP are very similar to joint stockcompanies. The main difference betweenthe two entities is that an LLP does notissue shares; instead, participants haveinterests in the partnership. An LLP maybe formed by one or more participants.Generally, the participants of an LLP arenot liable for the debts of the LLP beyondthe value of their contributions. The CivilCode provides a number of exceptions tothis rule.The minimum capital requirement for anLLP is 100 times the MCI 2 (approximatelyUS$1,000). For small-sized businessentities the minimum capital requirementis KZT100 (approximately US$0.7).Participants’ interests are proportional totheir contributions to the charter capitalunless the foundation documents provideotherwise. Participants have preemptionrights on each other’s interests.Importantly, in Kazakhstan, limited liabilitypartnerships are separate legal entitieswhich are distinct from their participants.As a legal entity, a limited liabilitypartnership is subject to state registrationand taxation in its own right; i.e., it is nottax-transparent.Joint stock companies (JSC)A JSC is a legal entity that is separateand distinct from its shareholders, i.e.shareholders are not liable for JSCliabilities. It may have one or moreshareholders. The minimum capitalrequired for a JSC is 50,000 times MCI(approximately US$500,000).Representative officeKazakhstan’s law allows a foreign companyto establish a representative office inKazakhstan in order to represent itsinterests on the territory of Kazakhstan.A representative office protects andrepresents the interests of a foreign legalentity and carries out preparatory andauxiliary activities, such as marketing andadvertising. Generally, a representativeoffice may not conduct commercial activity.The representative office is not recognizedas a separate legal entity.BranchA branch is a subdivision of a foreignlegal entity that carries out all or part ofthe functions of the foreign entity and inparticular can carry on commercial activity.A branch is not considered to be a legalentity separate from its foreign parentcompany (head office). However, branchesand representative offices must completestate registration.1 The Civil Code of the Republic of Kazakhstan dated 27 December 1994 (with amendments as of 22 July 2011).2 The Monthly calculation index (“MCI”) was established by the Law of the Republic of Kazakhstan “On Republic Budget for 2011—2013”.Starting from 1 January 2011 MCI is KZT1,512.10 Doing business in Kazakhstan

Establishinga legal presenceAs a general rule, all legal entities,branches and representative officesin Kazakhstan are subject to stateregistration.State registrationState Registration in Kazakhstan isperformed based on a “one window”principle: all the registration documentsshould be submitted to one state authority,the Public Service Center (TSON).In accordance with the law On StateRegistration, the procedure takes fromthree to 14 business days. The abovetimeframes do not include registration of alegal entity, branch or representative officewith the statistical and tax authorities. Inpractice the general registration term cantake up to one month and even longer.The legislation requires that a standard setof documents be submitted to completethe state registration of an entity. Havingall of the right documents is the key toa successful registration process. It isessential to ensure that the documentshave been duly signed, sealed, notarizedand legalized or apostilled if the documentsare executed abroad 3 , otherwise theregistration process may be considerablydelayed.The state registration fee is currentlyapproximately US$70.As soon as the state registration hasbeen completed, the entity should applyto obtain a seal from a local authorizedcompany. Such an authorized company willdesign and produce a seal and register itwith the Kazakh state authorities.Location (Legal address)The location of a legal entity is the addressindicated in its foundation (e.g. Charter)documents. In accordance with Kazakh law,the location of a legal entity is the placeof the legal entity’s permanent operatingbody. The location plays an importantpart in a legal entity’s registration andother legal events, such as identificationof the court to which an appeal shouldbe submitted (legal suit is filed accordingto the location) or tax authority throughwhich the taxes and other payments to thebudget will be paid.For tax proposes, the actual address of alegal entity should be the same as its placeof location. The tax authorities have a rightto conduct tax inspections to confirm theactual location of a taxpayer at the placeof location. If the tax authorities discoverthat a taxpayer is not present at the placeof location, they may impose administrativeactions against the taxpayer.Opening a bank account —for companies and individualsBank accounts can be opened with alocal bank in Kazakhstan in the nationalcurrency, the tenge, and/or in a foreigncurrency.Branches and representative officesof foreign legal entities may opt to useoffshore (foreign) bank accounts.See the chapters on Bank regulations andCurrency regulations for details.Antimonopoly legislationAcquisition of more than 25% of shares/participation shares in a legal entity inKazakhstan (provided certain criteriaare met) may be viewed by the Kazakhstate authorities as activities leading toeconomic concentration, which requireobtaining prior approval from theantimonopoly authorities. According tothe recent practice of the antimonopolyauthorities, creation of a legal entity witha potential purchase of more than 25%of shares/participation shares in such alegal entity is also treated as transactionleading to the economic concentration. Inthis respect, potential participants shouldobtain the consent of the antimonopolyauthorities.3 Requirement on legalization and apostillisation is not applicable to documents executed in countries which are parties to the respectiveinternational treaties.Doing business in Kazakhstan11

Categories of labor immigrants,permits and secondment issuesNew Law of the Republic of Kazakhstan“On Migration of Population” (the “NewLaw on Migration”) adopted on 22 July2011 establishes the following categoriesof immigrants arriving for the laboractivities:• Foreign employees, i.e. immigrantsarrived or attracted by employers forconducting labor activities in Kazakhstan;• Business immigrants, i.e. immigrantsarrived for conducting entrepreneurialactivities in accordance with thelegislation of the Republic of Kazakhstan;• Seasonal foreign employees, i.e.immigrants attracted by employersfor conducting seasonal work whichis performed during a definite period(season) in view of climate and othernatural conditions but for no more thanone year.The New Law on Migration establishesdefinite conditions for the arrival andstay in Kazakhstan of each of the abovementionedcategories of labor immigrants,including, among other things, (i)confirmation of their financial solvencyallowing them to leave Kazakhstan forthe country of permanent residence uponexpiration of their permits, (ii) informationon previous convictions, (iii) medicalconfirmation allowing them to performwork in Kazakhstan in a particular specialty.Work permitsUnder the New Law on Migration, thereare two types of permits for conductinglabor activities by foreign individuals in theRepublic of Kazakhstan, in particular:• permit for attraction of foreign laborforce (the “work permit”) and• permit issued to a foreign employeearriving in Kazakhstan for individualemployment under a certain specialty(the “permit for employment”). A list ofsuch specialties should be approved bythe Government.It should be noted that the work permitshould be obtained by an employer,whereas, the permit for employmentshould be obtained by a foreign employee.Only one document should be obtainedfor the work of a foreign employee inKazakhstan, i.e. either a work permit or apermit for employment.As a general rule, under Kazakh legislation,an employer hiring a foreign individual isrequired to obtain a work permit for such aforeign employee. In accordance with thecurrent effective legislation of the Republicof Kazakhstan, internal affairs bodies(migration police) issue work permits forconducting labor activities in Kazakhstan.However, in practice, work permits arestill issued by the local executive bodies(Akimats). This rule is applied to allforeign employees except for those whoare specifically exempt, such as heads ofbranches and representative offices offoreign legal entities and those on businesstrips, provided the business trips do notexceed in total 60 calendar days in onecalendar year, etc.The Government sets an annual quotafor work permits. Employers submit anapplication for a quota of work permitsprior to 1 September of the current yearfor the next year. As a general rule, thenumber of available work permits hasalways been limited, so early applicationis important. The process of obtaining awork permit is quite long and requires thecollection of a certain set of documents.Work permits are usually granted for oneyear.Work permits are generally granted withseveral conditions imposed and monitoredby the Akimats. The conditions are relatedto (1) training of Kazakh citizens withfurther replacement of foreign labor forceby Kazakh citizens, (2) replacement ofa foreign labor force by Kazakh citizenswith respective qualification, (3) creationof additional work places for Kazakhstancitizens and etc.As for the permit for employment,currently there are no establishedprocedures for obtaining such permits.There are penalties for violation ofimmigration rules, which may includemonetary fines and deportation.Secondment issuesSecondment of foreign personnel iscurrently a key topic on the Kazakh jobmarket.The Tax Code provides a “safe harbor”to avoid a foreign entity (that providessecondees from outside of Kazakhstan)becoming taxable in Kazakhstan. Thisprovision requires that certain conditionsbe met.Under a secondment, the local hostcompany should act as a tax agent and beresponsible for calculating and reportingpersonal income tax liabilities for secondedindividuals.12 Doing business in Kazakhstan

Ernst & Young offers assistancein obtaining work permits.Ernst & Young offers assistance withsecondment issues, including:1. Help in drafting secondmentagreements2. Support and advice on globalimmigration issues as well asobtaining the relevant permits andother documentation3. Assistance in managing tax andlegal compliance for internationalassignees.Doing business in Kazakhstan13

Ernst & Young offers help withall aspects of tax compliance forindividuals and employers, as well aswith payroll processing, and tax andlegal assistance to high net worthindividuals.14Doing business in Kazakhstan

Section 4An overview of tax rulesin KazakhstanWe describe the most significant taxes in Kazakhstan in the sections that follow. There are a number of other less significanttaxes such as asset tax, land tax, payments for use of various resources such as radio frequencies, environmental taxes anda number of taxes on “subsurface users,” i.e. oil, gas and mining companies. It is important to perform a thorough review ofany proposed business activity to determine the actual list of taxes that apply to it.Individual income taxThe tax rates are set forth in the RatesResidents and non-residents of Kazakhstan Taxable income4 Please see Appendix for the list of Double Tax treaties ratified by Kazakhstan.(receiving income from a Kazakh source)The taxation of various types of income is section below.are subject to personal income tax.described below.Certain items listed below should not beTax payers and residencyregarded as income of the individual,Employment incomeincluding but not limited to the following:Residents are taxed on their worldwide Income from employment consists of allincome. Non-residents are taxed on compensation, whether received in cash • Business trip per diems within establishedKazakhstan-source income only, regardless or in kind, subject to minor exceptions, norms and reimbursement of certainof where it is paid. Income is generally regardless of the place of payment of such business trip expensesdeemed to be from a Kazakhstan source if income.• Accommodation and meal expenses withinit is paid for work performed in Kazakhstan.established norms for rotating workersSelf-employment and business incomeKazakhstan-source income also includes,while they are at work sitesThe income of individuals engaged inbut is not limited to, interest income fromself-employment activities (individual • The excess of the market value of theresidents and non-residents having aentrepreneurs) is subject to income tax. stock option at the time of the exercisepermanent establishment in Kazakhstanover the exercise price of the option. Theand dividends from resident legal entities. Tax is levied on an individual’s annualexercise price of the stock option is theFor tax purposes, foreign individuals areconsidered residents if they are presentin the country for more than 183 days inbusiness income, which consists of grossincome less expenses incurred in obtainingthat income. However, to deduct expenses,price fixed in the relevant document basedon which the stock option was granted toan employee.any consecutive 12-month period ending individual entrepreneurs must be speciallyin that year. An individual is regarded as registered with the tax authorities andExempt incomea non-resident for the period following provide supporting documentation forCertain items are exempt from income tax,the last day of stay in Kazakhstan if the such expenses. The tax rates for selfemploymentincome are the same as • Alimonyincluding, but not limited to, the following:individual does not become a resident inthe year following the year in which the those applicable to employment income • Medical expenses within established normsindividual ends his/her stay in Kazakhstan. as set forth in the Rates section, with the• Dividends and interest on securities which,exception of individual entrepreneurs usingLocal individuals are always consideredat the time of the accrual of such dividendsa simplified taxation regime, advocates andresidents of Kazakhstan if their center ofand interest, are on the official list of aprivate notaries.vital interests is located in Kazakhstan. Thestock exchange operating in the territorycenter of vital interests is deemed to be Losses from entrepreneurial activities may of Kazakhstanlocated in Kazakhstan if all of the following be carried forward for up to ten years to • Dividends received from a resident legalconditions are fulfilled:offset taxable income. Losses may not be entity where the shares or participating• The individual is a citizen of Kazakhstan carried back.interests have been possessed for moreor has permission to live in Kazakhstan.than three years provided that 50% orInvestment income• The family or close relatives of themore of the value of the charter (equity)Generally, investment income is includedindividual reside in Kazakhstan.capital or of shares (participatingin taxable income. Exemptions include, butinterests) in the legal entity or consortium• The individual or members of the family are not limited to:at the date of payment of the dividends isof the individual own, or otherwise have • Interest income on deposits paid tocomprised of assets of the entity which isat their disposal, immovable property in individuals by licensed organizations innot a subsurface user.Kazakhstan permanently available for Kazakhstanresidence.• Income from Kazakhstan state securities.Double tax treaties 4 may provide differentrules to determine residency.Doing business in Kazakhstan15

Capital gainsCapital gains are subject to tax at the ratesset forth in the Rates section. Capital gainsderived from securities listed on a stockexchange operating in Kazakhstan at thedate of realization are exempt from tax.Capital gain from the disposal of securitieswhich were purchased by an individualthrough an option is the positive differencebetween the selling price and the purchaseprice. The purchase price should includethe price of exercising an option and optionpurchase price.DeductionsPersonal deductions and exemptions.The MMS 5 for an employee determined bythe Law on Republican Budget and effectiveon the date of income accrual for thecorresponding month for which income iscalculated is deductible from an employee’smonthly salary. The total amount of taxdeduction for the year should not exceedthe total amount of the MMS determined bythe Law on Republican Budget and effectiveat the beginning of each month of thecurrent year.Other deductions include, but are not limitedto the following:• Obligatory pension fund contributions• Voluntary pension fund contributions• Insurance premiums for the individual’sown benefit under accumulativeinsurance agreementsIf the amount of the MMS exceeds theamount of the employee’s monthlytaxable income, reduced by the amountof obligatory pension contributions, theexcess can be carried over to subsequentmonths within the calendar year to reducethe employee’s taxable income.RatesThe following tax rates are applicableto resident and non-resident individualsdepending on type of income:Type of income1 Employment income of residentsand non-residents2 Income of advocates and privatenotaries3 Capital gains, interest andwinningsTax rate10%10%10%4 Dividends received by residents 5%5 Dividends, interest, royalties paidto non-residents by Kazakh legalentities6 Income of non-residentsregistered in a tax haven7 Other income (non-employment)paid to non-residents15%20%20%Income received in foreign currency isconverted to tenge at the exchange rate onthe date the income is received.Tax registration of foreign individualsin KazakhstanThe most common cases when foreignindividuals need to be registered for taxpurposes in Kazakhstan are the following:1. When opening bank accounts at bankswhich are tax residents of Kazakhstan.2. When receiving Kazakhstan sourceincome not taxed at the source ofpayment in Kazakhstan.3. When becoming a tax resident ofKazakhstan.The place of tax registration is usuallythe address of residence indicated inthe migration card issued for foreigners.There are certain sets of documents to besubmitted. The tax registration should takethree working days but in practice may takeup to one week.Tax complianceThe tax year in Kazakhstan is the calendaryear.A tax agent should be responsible forwithholding and remitting income tax frompayments made to resident and nonresidentindividuals.Under the withholding mechanism, atax agent withholds and transfers to thestate budget personal income tax, whichshould be remitted on a monthly basis bythe 25th day of the month following themonth in which income was paid. The taxagent must file a personal income tax andsocial tax report (which includes pensionfund contributions and social insurancecontributions) on a quarterly basis by the15th day of the second month following thereporting quarter.5 The Minimum Monthly Salary (“MMS”) was established by the Law of the Republic of Kazakhstan“On Republic Budget for 2010—2012”. Starting from 1 January 2011 MMSI is KZT15,999.16 Doing business in Kazakhstan

If a tax agent is not available in Kazakhstan,resident and nonresident individualsare responsible for the calculation ofpersonal income tax liabilities and filing theKazakhstan tax return. The filing deadlinefor the Kazakhstan tax return is March 31of the year following the reporting year,and the income tax liability, if any, shouldbe settled within 10 calendar days of thefiling deadline.Kazakhstan tax returns should be filed bythe following tax resident individuals:1. Individual entrepreneurs2. Private notaries and advocates3. Individuals who received propertyincome4. Individuals who received income nottaxed at the source of payment inKazakhstan, including income outsideKazakhstan5. Individuals having funds in foreign bankaccounts outside Kazakhstan.Kazakhstan tax non-resident individualswhose Kazakhstan-source income is subjectto withholding in Kazakhstan have noobligation to file a Kazakhstan tax return.The law provides for late payment interestpenalties, late filing fines and fines forunderreporting of taxable income.Social taxKazakhstan does not have a social securitytax as it is known in other countries.A social tax is payable by employers.However, this tax is an additional directtax imposed on employers that is notearmarked for the social benefit ofemployees.Taxable base for social tax is the employer’sexpenses in the form of employees’ income.Exemptions to social tax include, but arenot limited to, the following:• Compensation resulting from theliquidation of an organization ortermination of the employer’s activities,or from personnel reductions• Compensation paid by an employer toemployees for unused vacation• Obligatory pension fund contributions.Employers are required to pay social tax ata flat rate of 11% of gross income, less theobligatory pension fund contributions forKazakhstan citizens. Minimum taxable basefor social tax per employee is the MMS.Social tax must be remitted to the statebudget on a monthly basis by the 25thday of the month following the tax period.Monthly social tax liability is reduced bythe monthly amount of obligatory socialinsurance contributions (see Obligatorysocial insurance contributions).For individual entrepreneurs (excludingentrepreneurs working under special taxregimes), private notaries and advocates(attorneys), the rate of social tax is twotimes the MCI (approximately US$20) forthemselves and one MCI (approximatelyUS$10) for each employee, if any.Pension fund contributionsObligatory pension fund contributionsof 10% of the gross salaries of localemployees must be withheld and remittedto pension funds by the employer on amonthly basis. Income received in excess of75 times MMS (approximately US$8,200)per month is not subject to obligatorypension fund contributions. Obligatorypension fund contributions are deductiblefor personal income tax and social taxpurposes.Obligatory social insurance contributionsObligatory social insurance contributionsat a rate of 5% are payable by employerson income paid to employees. Income inexcess of 10 times the MMS (approximatelyUS$1,100) is not subject to obligatorysocial insurance contributions per month.Individual entrepreneurs are also subject toobligatory social insurance contributions.The rate of the obligatory social insurancecontributions for individual entrepreneursis also 5%. This rate is applied to the MMS.Doing business in Kazakhstan17

Ernst & Young offers the following services in the area of corporate income tax:1. Help with tax compliance of legal entities in every step of the process2. Tax Accounting and Risk Advisory Services3. Drafting and review of compulsory tax accounting policies4. A comprehensive tax litigation service, including representation of tax payersin court.Corporate income tax(CIT)CIT is imposed on the profits of residentlegal entities from worldwide sources,and Kazakhstan-source income of nonresidentlegal entities. The basic principlesare consistent with those used in mostdeveloped economies. However, therequired standards of documentary supportare particularly high in Kazakhstan.PayersResident legal entities are taxed on theirworldwide income, and non-residentsof Kazakhstan on their income fromKazakh sources. Non-residents carryingout business in Kazakhstan through apermanent establishment (PE) are taxedon the profits of that establishment,calculated in basically the same way asfor residents. Non-residents derivingKazakhstan-source income not througha PE are taxed by withholding (see theWithholding tax section below).Taxable incomeTaxable income is calculated as thedifference between aggregate annualincome (AAI) and certain adjustmentsand statutory deductions. AAI includespractically all forms of income, includingcapital gains. Deductions generally includeall expenses related to business activitiesand directed at the receipt of income,although a number of generally minorexclusions also apply. In addition to normaloperating expenses, examples of expensesthat are allowed for deduction includeinterest (within a thin capitalization limit),foreign exchange losses, representationalexpenses up to a limit of 1% of payrollsubject to taxation, and charitable expenses(up to 3% of taxable income). This list is notexhaustive.Losses from entrepreneurial activities andlosses from the sale of Group I fixed assets(such as buildings and installations otherthan oil and gas wells and transmitters)are carried forward over the following 10calendar years inclusively so that they maybe recovered from taxable income for thoseyears. Capital losses from sale of securitiescan generally be offset against relevantgains (with certain exceptions).Depreciation for tax purposesTo qualify as a fixed asset for tax purposes,an asset should be defined as such in theIFRS accounts of the entity.For tax depreciation purposes, fixed assetsare split into four groups. Assets aredepreciated at any rate up to the maximumdepreciation rates set out in the followingtable:Group Type of fixed assets Maximumdepreciation rateI Buildings, structures (except for oil and gas wells andtransmission devices)10%IIMachinery and equipment, except for machinery and equipmentof oil and gas productionIII Office machinery and computers 40%IVFixed assets not included in other groups, including oil and gaswells, transmission devices, machinery and equipment of oil andgas production25%15%The following items are not consideredas fixed assets:• Land• Intangible assets with an indefiniteuseful life• Assets commissioned under investmentcontracts concluded before 1 January2009.Expenses actually incurred on use, repair,maintenance and liquidation of fixed assetsare defined as “subsequent costs” and aredeductible in the tax period when they areactually incurred.Tax rate and complianceCIT is applied to companies at the currentgeneral rate of 20% of taxable income. Inaddition, net income (after deduction ofCIT) of a non-resident’s PE (branch) inKazakhstan is subject to branch profits taxat a rate of 15%. It is usually reduced by taxtreaties.As a general rule, the tax period is acalendar year. The general CIT TaxDeclaration deadline is March 31 in theyear following the reporting period.As a general rule, all taxpayers (withcertain exceptions) are subject to theCIT advance payment procedure, whichrequires taxpayers to estimate the taxliability for the year and pay the tax ininstallments monthly, not later that the25th day of the current month.18 Doing business in Kazakhstan

Withholding tax (WHT) —other than individual income taxWHT applies to most types of Kazakhstansourceincome paid to non-residents thatare not registered for tax purposes inKazakhstan, and even to some who areif due care is not taken. The rules arecomplex and inconsistent and there aresome instances in which WHT could applyto payments that involve no presence inKazakhstan. It is vital to have a thoroughunderstanding of how WHT may affectyour business. There are also significantadministrative requirements to receive thebenefits of tax treaties.PayersTax agents withhold tax from the grossKazakhstan source income of a nonresident.Any tax-registered entity thatpays Kazakhstan-source income ispotentially a tax agent.Taxable incomeTaxable income includes but isnot limited to:• Non-residents’ income from the saleof goods or performance of work orservices in Kazakhstan, including incomefrom export sales• Income from management, financial(except for insurance/reinsurance ofrisks), consultancy, legal (except forrepresentation in court and notaryservices) and auditing servicesperformed outside of Kazakhstan• Any income of tax haven entitiesregardless of where the underlyingoperations take place• Capital gains from sales of shares orinterests in Kazakhstan or foreign legalentities that derive most of their valuefrom Kazakhstan oil and gas or miningrights• Capital gains from sales of Kazakhstanproperty subject to registration.Tax rates and complianceTypes of incomeInterest, dividends,capital gains androyaltiesInsurance premiumsunder insurance riskagreementsIncome frominternationaltransportationservices and insurancepremiums underreinsurance riskagreementsIncome of a personregistered in a taxhavenRate of WHT15%10% (till 1 Jan 2012),15% (from 1 Jan 2012)5%20%Other income 20%Most of the double tax treaties concludedby Kazakhstan either provide for exemptionfrom Kazakhstan withholding tax or allowthe reduction of WHT rates to 5–10%provided that the treaty provisions aremet. However, application of the benefitsis also subject to rules in the KazakhstanTax Code concerning documentaryevidence. The rules are very specific asto the documentation required and it isrecommended that the tax agent generallyposseses it at the time payment is made iftreaty relief is to be applied. Otherwise taxmust be withheld in full and a refund couldbe claimed subsequently.The payment of withholding tax is made bythe tax agents. The general rules are:• With respect to accrued and paidamounts, not later than 25 calendar daysfollowing the month when the paymentwas made• With respect to accrued but not yetpaid amounts, if they are deducted forcorporate income tax purposes, not laterthan 10 calendar days following thedeadline for corporate income tax returnsubmission.• With respect to prepayment, not laterthan 25 calendar days after the end of amonth in which income was accrued tothe non-resident.In accordance with the current TaxCode, the tax agents should submit thewithholding tax return within the followingdeadlines: (i) not later than 15th day ofthe second month following the quarterwhen the withholding tax obligation arose,or (ii) not later than February 15 of theyear following the tax period in which theaccrued but not paid income was deductedfor corporate income tax purposes.Doing business in Kazakhstan19

Value-added taxA European Union-style VAT applies inKazakhstan. The VAT rate has fallenprogressively from 20% in the late 1990sto 12% currently.Payers and registrationAll tax payers registered for VAT purposesare required to charge VAT on their taxablesupplies and calculate and report their VATobligations.Taxpayers are required to registerfor Kazakhstan VAT purposes if theirtotal turnover in a calendar yearexceeds 30,000 MCI (or approximatelyUS$300,000). Even if an entity is notrequired to register for VAT purposes, itmay usually do so voluntarily by submittingan application to the appropriate taxcommittee.Penalties for non-registration are severe:30% of turnover.VATable turnoverFor a VAT payer, taxable turnover is thetotal of practically any type of supply itmakes (e.g., sale, exchange or gift) ofgoods, work and services and the total ofits acquisitions of goods, work and servicesfrom non-registered non-residents. Thereare a limited number of non-taxable andexempt supplies that are excluded fromthis rule.Definitions:• For Kazakhstan VAT, the term “goods”applies to practically any form ofproperty or property rights.• Taxable supplies of work or servicesare any supplies of work or servicesboth chargeable and free of charge oranything that is done for considerationand is not a supply of goods.A small number of transactions such astransfers into the charter fund of a legalentity are treated as non-taxable.Goods and services are subject to VAT ifunder the place of supply rules they aredeemed to be supplied in Kazakhstan. Theplace of supply rules are broadly similarto European Union rules; in particular,they deem some supplies that are madeoutside of Kazakhstan such as consultancyto be made inside Kazakhstan and so to betaxable.Zero ratingTurnover taxable at a zero rate includes:• Export sales of goods• International transportation services.Exempt suppliesTurnover and imports exempt from VATinclude:• Turnover associated with residentialbuildings• Defined financial services• Transfers of assets under finance leases• Turnover from services rendered by noncommercialorganizations• Turnover from services in the spheres ofculture, science and education• Import of certain assets, the list of whichis approved by the government.Ernst & Young offers help with VATrisk identification and minimizingVAT compliance costs, as well ascross-border VAT planning.20 Doing business in Kazakhstan

VAT offsetVAT paid on services and goods purchasedby a VAT payer (i.e., input VAT) includingreverse-charge VAT already paid andVAT paid at customs should generallybe available for offset (credit) whendetermining a taxpayer’s VAT liability tothe budget. However, offset is not availablefor VAT incurred for the purpose of makingsupplies which are either exempted orwhich are deemed to be supplied outside ofKazakhstan.VAT calculationand VAT offset carry-forwardThe VAT liability of a taxpayer is calculatedas output VAT (i.e., VAT charged by ataxpayer) less input VAT (i.e., VAT paid bya taxpayer to its suppliers) in a reportingperiod.The excess of input VAT over output VATmay generally be carried forward againstfuture VAT liabilities. In practice, obtainingrefunds requires significant effort, althoughthe rules do prescribe a procedure forrefunds under certain conditions.Non-recoverable input VATInput VAT is not allowed for offset if it ispaid in connection with the receipt of thefollowing:• Goods, work, and services not related totaxable turnover• Passenger cars which are purchased asfixed assets• Goods, work, and services, when a VATinvoice is issued that is not in compliancewith the requirements of the Tax Code.VAT registrationVAT registration is separate from the taxregistration that occurs as part of the“one-stop shop.” The deadline for theregistration is within 10 business days ofthe end of the month in which the turnoverthreshold is exceeded.VAT rate and complianceThe VAT rate is 12% and the tax period forVAT is a calendar quarter. The submissiondeadline for the VAT return is the 15th dayof the second month following the reportingperiod. The deadline for payment of VATliability is the 25th day of the second monthfollowing the reporting period.Reverse-charge VATUnder the place of supply rules, certainservices are deemed to be supplied atthe location of the business activity ofthe purchaser of services. These servicesinclude: consulting, audit, engineering,design, marketing, legal, accounting,advocacy, advertising, informationprocessing services, provision of personnel,lease of movable property, communicationservices, etc. Where such services arerendered by a non-resident not registeredfor VAT purposes in Kazakhstan, theKazakhstan purchaser of these services isrequired to self-assess and pay VAT to thebudget via a reverse-charge mechanism.The obligation to pay the reverse-chargeVAT will be on the Kazakh purchaser ofthe services, which should be allowed tooffset the amount of the reverse-chargeVAT paid, subject to the general offsetprocedure.Customs UnionThe Tax Code contains certain proceduresand compliance requirements for importof goods to Kazakhstan from the CustomsUnion countries (Russia and Belarus).Doing business in Kazakhstan21

Ernst & Young offers a comprehensive tax complianceservice and tax reviews to assess in-house tax compliancerisks, as well as onsite tax audit support and the full rangeof tax appeal services, including litigation.Subsoil use taxesPlease refer to Ernst & Young’s Kazakhstanoil and gas tax guide and Mining tax guidefor details.Tax administrationIn Kazakhstan the tax administration rulesare complex, and penalties for even minorinfringements can be significant. Manytaxpayers are audited, and it is vital tomanage the tax audit process.Tax returnsTax reports (including returns andcalculations) are compiled by the taxpayer,tax agent or their representatives. Taxreports can be compiled on paper orelectronically in the Kazakh or Russianlanguages.Tax auditsTax audits can generally be divided into thefollowing main categories:• Comprehensive tax audit• Thematic (targeted) tax audit• Cross-check tax auditTax audits can cover any period within thestatute of limitations, which is five years.Generally, tax audits can be intrusive andtime-consuming and sometimes mayeven result in a seizure of documents andinvestigations of violations by the financialpolice.AssessmentsUpon completion of a tax audit, the taxauthorities usually issue a tax audit act.(If no violations of the tax legislationare discovered, an appropriate note ismade in the tax audit act.) On the basisof the results recorded in the act, thetax authorities issue a “notification” onthe assessed amounts of taxes and otherobligatory payments to the budget, andrelated penalties and interest.AppealsTaxpayers have the right, within deadlines, toappeal acts of the tax authorities to a higherbody of the tax authorities or the court.Penalties and interestThe Code of Administrative Violationsestablishes administrative penalties fornon-compliance with tax regulations. TheCode imposes administrative penaltiesfor tax non-compliance, including thefollowing:• Under-declared taxes: 30–50% of theunder-declared tax amount for thecompany and 20 MCI (or approximatelyUS$200) for the company’s officers• Understatement of advance corporateincome tax payment by more than 20%:penalty of 40% of the understated tax• Failure to withhold and pay tax: 30–50%of the not withheld tax amount for thecompanies and 20 MCI (or approximatelyUS$200) for the company’s officers• Concealment of taxable items: 150%of taxes to be paid on the concealedamount for the company and 20 MCI(or approximately US$200) for thecompany’s officers.Interest is applied to late tax payments at2.5 times the official National Bank annualrefinancing rate (currently 7.5 %) of theunpaid tax for each day of delay.In addition to the above, the concept ofcriminal liability with respect to taxes isapplied in Kazakhstan. A criminal violationby an organization is perceived to occurwhen the tax amount misreported exceeds2,000 MCI (or approximately US$20,000).Such violations can result in investigationby the financial police and even inprosecution of individuals who are held tobe responsible for violations.22 Doing business in Kazakhstan

Tax rulingsNon-binding tax clarifications may beobtained from the tax authorities inKazakhstan. A taxpayer may apply to thetax authorities where it is registered, orto a higher body of the tax authorities, ifrequired.The tax authorities usually provide theiropinion on specific tax queries in the formof a letter. However, such letters are only ofan advisory character and do not have fulllegal force. Generally, such letters can becanceled or recalled.Doing business in Kazakhstan23

Section 5An overview of other lawsthat affect business administrationTransfer pricing issuesThe Transfer Pricing Law was adopted in2008 and came into effect on 1 January2009, replacing the previously existing Lawon State Control over Transfer Pricing.Transfer pricing issues are under the closewatch of the tax authorities. Accordingto the Transfer Pricing Law, transferpricing control has a very wide scopeand potentially applies to all cross-bordertransactions regardless of whether theparties are in any way related. Moreover,transfer pricing control is also exercisedover the following domestic transactionsdirectly related to international businesstransactions:• For marketable minerals produced by asubsurface user (i.e., oil/gas and mining)• With a party having tax preferences• With a party that has had tax losses intwo immediately preceding years.The Transfer Pricing Law allows forthe following methods to determinea market price:1. Comparable uncontrolled price method2. Costs plus method3. Subsequent resale price method4. Profit split method5. Net margin method.There is no “safe harbor” allowed in termsof deviation from market price, althoughthe Law does recognize that there may bea range of market prices.The Law requires the transactionparticipants to maintain documentationjustifying the transaction price and/or to submit transaction monitoringreports to the authorities. Documentationjustifying the transaction price can include,among other things, a description of thebusiness of the transaction participant,the industries where the transactionparticipant operates, and the marketconditions; forecasts, business strategy,and transfer pricing methodology, includinginformation on factors impacting priceformation; functional analysis; and analysisof risks.Ernst & Young’s services in the field of transfer pricing include reviews to detectsignificant transfer pricing risks, development of transfer pricing policies, andperformance of transfer pricing studies. We can help companies concludeagreements on application of transfer pricing with the tax authorities, as well asproviding assistance in tax audits, dispute resolution, and preparation of transferpricing documentation and monitoring reports.24 Doing business in Kazakhstan

Employment regulationsThe New Labor Code was adopted in 2007and codified legislative acts related tolabor relations. The Code regulates laborrelations of residents and non-residents inthe territory of Kazakhstan.An employment agreement must beconcluded with each employee. Theagreement should reflect rights, obligationsand guarantees of an employee establishedby the Labor Code. As a general rule, anemployment agreement cannot worsen orlimit the rights of an employee establishedby the Code.There is a specific requirement for anemployer to obtain a work permit for aforeign individual (if applicable) beforeconcluding an employment agreement withsuch an individual. Otherwise, a foreignindividual should obtain a permit foremployment independently.Under the Code, an employer is responsiblefor proper execution of an employmentagreement. Employment agreements maybe made for a fixed or indefinite term. Anemployment agreement may establisha probation period which cannot exceedthree months.Kazakh law establishes a minimum monthlysalary requirement. A working week islimited to 40 hours. The Code does notallow overtime greater than 120 hours ayear.The minimum paid vacation periodestablished by the Code is 24 calendardays. Additional vacation days shouldbe provided for employees working indangerous or hazardous conditions.Maternity leave is 126 calendar days(70 days before the birth of a child and56 days after or up to 70 days in case ofcomplication and for those with two ormore children).According to Kazakh legislation, anemployer is obliged to insure employeesfrom accidents during performance of his/her labor (official) responsibilities within10 working days of the date of the stateregistration of the employer.Ernst & Young offers employmentlaw services including preparationof standard legal documents andconsultancy on performance andreward planning and consultancy.Doing business in Kazakhstan25

Ernst & Young offers advisory serviceson tax and legal aspects of import, export,transit and processing regimes.Ernst & Young offers advisory services onthe scope and application of the licensinglegislation and assistance in obtaininglicenses.Import/export formalitiesand custom dutiesCustoms regulations of KazakhstanOn 1 July 2010 the territory of Kazakhstanbecame part of the unified customsterritory of the Customs Union, whichenvisages unified customs legislation,tariff and nontariff regulations of importof goods from third countries and freemovement of goods of the Customs Unionwithin the territory of the Customs Union.The Customs Union establishes varioustypes of customs procedures for customsclearance of import/export of goodsincluding release of goods for internalconsumption, temporary import, re-import,customs warehouse, duty free shops,transit of goods, export of goods and othercustoms procedures.On 1 July 2011 the customs control ofgoods crossing the border between Russiaand Kazakhstan was cancelled. However,border and passport controls are still ineffect.Customs dutiesand classification of goodsThe Unified Customs Tariff came intoeffect on 1 January 2010. The UnifiedCustoms Tariff determines the rates ofcustoms duties and classification of goods.According to the Unified Customs Tariff, therates of customs duties, which are normallybased on percentage of the price of goods,can vary from 0% to 35%.However, with respect to certain types ofgoods which are imported into Kazakhstan,there are transitional provisions whichenvisage lower customs duty rates for thetransitional period from 2010 to 2015.The amount of customs fees are subjectto regulation by the domestic laws ofthe Customs Union member-states. InKazakhstan, the customs clearance feeequals €60 for the first list of the customsdeclaration plus €25 for each additionalpage of a customs declaration.Since 1 July 2010 the customs value ofgoods has been determined based on theAgreement on Determination of CustomsValue concluded between the CustomsUnion member-states, which applies togoods crossing the border of the CustomsUnion.Some customs procedures envisagefull or partial exemption from customsduties. Also, there are other kinds ofnontariff regulations, such as limitation orprohibition of import/export of goods.The amount of customs fees will be subjectto regulation by the domestic laws of CU’smember countries. In Kazakhstan thecustoms clearance fee equal to €50 plus€20 for each additional page of a customsdeclaration.Common Economic SpaceOn 1 January 2012, the CommonEconomic Space will come into effect withinthe Customs Union member-states, whichenvisages free movement of goods, work,services, capital and labor forces within theCustoms Union territory and establishescommon regulation of economic policy,currency, antimonopoly and othereconomic relations.LicensingThere is a list of activities which are subjectto licensing. The range of business andprofessional activities which are subjectto licensing is very broad. It is vital forinvestors to determine if they need a licensebeforehand. The penalties for not havinglicenses can be significant.A license is a permit granted by a competentstate body (licensor) to an individual or alegal entity for performing certain types ofactivities.Depending on the activity licenses aredivided into the following types:• General license (license granted forunlimited period and for various activities)• One-time license (license granted for alimited period and for a specific operation,as well as in the sphere of gamblingactivity and house construction activitywhich is made at interest-holders’ cost)Licenses in the sphere of export/import aredistinguished as follows:• General license (license granted to aparticipant in external economic activityby the Customs Union’s state member forexport/import of certain goods)• Exclusive license (license granted to aparticipant in external economic activityfor exclusive export/import of certaingoods)• One-time license (license granted to aparticipant in external activity based ona foreign trade agreement and whichprovides with the right for export/importof goods)There are also operational licenses which areissued for banking and insurance operations.26 Doing business in Kazakhstan

Ernst & Young offers advisory serviceson the scope and application of thecurrency legislation.Banking regulationsBanking systemThe banking system of the Republic ofKazakhstan is a two-tier system. The firsttier of this system is the National Bank ofKazakhstan (NBK), which is the centralbank.The second tier includes commercialbanks except for the Development Bank ofKazakhstan, which has special legal status.Foreign banks have operated in Kazakhstansince 1993. Although these banks arenot allowed to establish branches inKazakhstan, they may establish whollyowned Kazakhstan subsidiaries.The legislation also provides provisions onIslamic bank activities. The main differenceis that an Islamic bank does not participatein the deposit guarantee system. Specialprovisions on creation of an Islamic bankare determined in the legislation of theRepublic of Kazakhstan.LicensingBanking operations are subject to licensingby the NBK. In addition to licensing activitieswhich include cash operations, lock boxoperations and collection of bank notes,coins and values are subject to mandatoryapproval by the NBK.CurrencyregulationsThe Currency Legislation involves someformal requirements, but it does notimpede most international businessoperations.The Currency Legislation distinguishes thefollowing parties to currency transactions:• Residents of Kazakhstan, i.e. (i) Kazakhcitizens (except for individuals whohave permanent residency statusabroad), (ii) foreigners and statelesspersons who have permanent residencystatus in Kazakhstan, (iii) legal entitiesregistered in Kazakhstan, their branchesand representative offices located inKazakhstan and abroad, as well asdiplomatic, trade and other officialrepresentative offices of Kazakhstanabroad, and• Non-residents, i.e. (i) foreign citizens andstateless persons, foreign legal entities,their branches and representativeoffices, (ii) international organizations,as well as (iii) diplomatic and otherofficial representative offices of foreignstates in Kazakhstan.The Currency Legislation states thattransactions between residents and nonresidentscan be made in any currency.However, transactions among residentsshould only be made in tenge, the nationalcurrency of the Republic of Kazakhstan.Individuals (residents and non-residents)are allowed to bring cash foreigncurrency not exceeding the equivalent ofUS$10,000 out of the country without anydocumentation validating the source ofthis amount. Any amount above this limit issubject to source validation. Transportationof cash foreign currency not exceeding theequivalent of US$3,000 in and out of thecountry by residents and non-residents isallowed without declaration; any amountabove this threshold requires declaration.The Currency Legislation sets out threeregimes of currency regulation: licensing,registration and notification on currencytransactions.LicensingA license is required for organizationswhich carry out transactions on exchangeof foreign currency.RegistrationGenerally, registration of currency operationsshould be done before performing anyobligations by either party to the agreement.The following types of currency transactionsare subject to registration with the NBK byresidents:• Commercial credits on export/import ofgoods for the period over 180 days• Direct investments of non-residents inKazakhstan and residents abroad• Financial loans for a period over 180 days• Payments by residents to non-residents, aswell as payments by non-residents in favorof residents, related to the acquisitionof the full exclusive right to objects ofintellectual property, or payments relatedto transfer and receipt of money andother property by residents in lieu of anobligation of a party to the consortium.NotificationThe notification regime requires a noticeto be given to the NBK of certain types ofcurrency transactions, for example:• Commercial credits related to the export/import of works, services for a period over180 days• Opening a bank account with a foreignbank (only by resident legal entities)• Acquiring securities, paying contributionsto charter capital, and currency operationsrelated to derivatives.Currency transactions are subject toregistration or notification if the sum ofthe transaction exceeds the establishedthreshold.It should be noted that generally in themajority of cases registration or notificationregimes presume further submission ofreports on currency transactions to theterritorial divisions of the NBK.Doing business in Kazakhstan27

28 Doing business in Kazakhstan

Ernst & Young in KazakhstanErnst & Young was the first international professional services firm to open an office in Kazakhstan in 1992.Today we have a network of three offices in Astana, Almaty and Atyrau. Ernst & Young in Kazakhstan hassignificant experience serving leading companies in the country’s energy, financial services, metallurgy, railwaytransportation and industrial production sectors. Our clients include national companies and major foreigninvestors operating in Kazakhstan.Across all industries and at local and international levels, our professionals are respected for their leadership,knowledge and ability to deliver results. We help you identify and reduce business risks, develop a sustainablegrowth strategy and create new opportunities for your company.Our servicesAssurance• Accounting and Financial Reporting• External Audit Services• Financial Accounting Advisory Services• Fraud Investigation & Dispute ServicesAdvisory• Performance Improvement• Risk• IT Risk and Assurance• Advisory for Financial Services• Academy of BusinessTax• Business Tax• Human Capital• Indirect Tax• International Tax• Transaction Tax• LawTransactions• Lead Advisory• Restructuring• Operational Transaction Services• Transaction Support• Transaction Tax• Valuation & Business ModellingOffice locationsAstanaKaskad Business CenterKabanbai Batyr Ave., 6/1Astana, 010000, KazakhstanTel.: +7 (7172) 58 0400Fax: +7 (7172) 58 0410AlmatyEsentai TowerAl-Farabi Ave., 77/7Almaty, 050060, KazakhstanTel.: +7 (727) 258 5960Fax: +7 (727) 258 5961AtyrauAtyrau PlazaSatpaev Str., 19Atyrau, 060011, KazakhstanTel.: +7 (7122) 99 6099Fax: +7 (7122) 99 6097For further information or professional advice,please contact the following Ernst & Young leaders:Tax and LegalZhanna Tamenova zhanna.s.tamenova@kz.ey.com +7 (727) 258 5960Erlan Dosymbekov erlan.b.dosymbekov@kz.ey.com +7 (727) 258 5960Aliya Dzhapayeva aliya.k.dzhapayeva@kz.ey.com +7 (727) 258 5960Jahangir Juraev jahangir.juraev@kz.ey.com +7 (727) 258 5960Dinara Tanasheva dinara.s.tanasheva@kz.ey.com +7 (727) 258 5960AssuranceKeith Gaebel keith.gaebel@kz.ey.com +7 (727) 258 5960Elshad Aliyev elshad.aliyev@kz.ey.com +7 (7172) 58 0400Paul Cohn paul.cohn@kz.ey.com +7 (727) 258 5960Dmitry Mogilnitski dmitry.mogilnitski@kz.ey.com +7 (7172) 58 0400Aisulu Narbaeva aisulu.narbaeva@kz.ey.com +7 (727) 258 5960Gulmira Turmagambetova gulmira.turmagambetova@kz.ey.com +7 (727) 258 5960Evgeny Zhemaletdinov evgeny.zhemaletdinov@kz.ey.com +7 (727) 258 5960TransactionsTimur Pulatov timur.pulatov@kz.ey.com +7 (727) 258 5960Amangeldy Mussayev amangeldy.mussayev@kz.ey.com +7 (727) 258 5960Doing business in Kazakhstan29

AppendixDouble tax treatiesKazakhstan has entered into double tax treaties with the following countries:1. Armenia9. Czech Republic 17. Iran25. Moldova2. Austria10. Estonia18. Italy26. Mongolia3. Azerbaijan 11. Finland19. Japan27. Netherlands4. Belarus12. France20. Korea (South) 28. Norway5. Belgium13. Georgia21. Kyrgyzstan 29. Pakistan6. Bulgaria14. Germany 22. Latvia30. Poland7. Canada15. Hungary 23. Lithuania 31. Romania8. China16. India24. Malaysia 32. RussiaSource: Ministry of Finance of Kazakhstan33. Singapore34. Slovak Republic35. Sweden36. Switzerland37. Tajikistan38. Turkey39. Turkmenistan40. Ukraine41. United Kingdom42. United States43. UzbekistanKey macroeconomic indicators of Kazakhstan 2003—20102003 2004 2005 2006 2007 2008 2009 2010GDP growth 9.3% 9.6% 9.7% 10.7% 8.9% 3.3% 1.2% 7.3%GDP per capita, US$ 2,068.1 2,874.2 3,771.3 5,291.6 6,771.6 8,499.4 7,257.1 9,070KZT/US$ annual average exchange rates 149.58 136.04 132.88 126.09 122.55 120.30 147.50 147.35Inflation rate 6.8% 6.7% 7.5% 8.4% 18.8% 9.5% 6.2% 7.8%Source: the Agency on Statistics of Kazakhstan, the National Bank of KazakhstanGDP of Kazakhstan 2000—2010GDP, US$bOil and gas industry-to-GDPMining industry-to-GDP17.5%19.3%16.1%20.5%104.928.3%148.122.3%21.8%133.4 115.319.5%18.8%17.9%13.1%11.8%11.5%10.9%12.1% 12.7%12.1% 12.1%13.9%13.6%15.8%57.181.014.8%43.218.322.224.630.8200020012002 2003 2004 2005 2006 2007 2008 2009 2010Source: the Agency on Statistics of Kazakhstan30 Doing business in Kazakhstan

FDI dynamics 2000—201072%67%62%FDI, US$bShare of FDI in oil and gas industryShare of FDI in mining industry19.8 19.750%46%18.517.42.84.6 4.1 4.61% 1% 1%2%8.31%6.625%2%10.619%4%27%14%2% 2%21%3%16%5%200020012002 2003 2004 2005 2006 2007 2008 2009 2010Source: the National Bank of KazakhstanInternational trade dynamics 2003—2010Export, US$bImport, US$b71.1The main export goods are mineral products,non-precious metals and food products. Thelargest import areas are equipment, machinery andvehicles.59.812.98.42012.827.817.338.223.647.732.737.943.228.430.82003 2004 2005 2006 2007 2008 2009 2010Source: the Agency on Statistics of KazakhstanDoing business in Kazakhstan31

32 Doing business in Kazakhstan

Ernst & YoungAssurance | Tax | Transactions | AdvisoryAbout Ernst & YoungErnst & Young is a global leader in assurance, tax,transaction and advisory services. Worldwide,our 141,000 people are united by our sharedvalues and an unwavering commitment to quality.We make a difference by helping our people,our clients and our wider communities achievetheir potential.Ernst & Young expands its services andresources in accordance with clients’ needsthroughout the CIS. 3,500 professionalswork at 18 offices in Moscow, St. Petersburg,Novosibirsk, Ekaterinburg, Kazan, Krasnodar,Togliatti, Yuzhno-Sakhalinsk, Almaty, Astana,Atyrau, Baku, Kyiv, Donetsk, Tashkent, Tbilisi,Yerevan, and Minsk.For more information about our organization,please visit www.ey.com.Ernst & Young refers to the global organizationof member firms of Ernst & Young GlobalLimited, each of which is a separate legal entity.Ernst & Young Global Limited, a UK companylimited by guarantee, does not provide servicesto clients.© 2011 Ernst & Young Advisory LLPAll Rights Reserved.This publication contains information in summary form and istherefore intended for general guidance only. It is not intendedto be a substitute for detailed research or the exercise ofprofessional judgment. Ernst & Young can accept no responsibilityfor loss occasioned to any person acting or refraining from actionas a result of any material in this publication. On any specificmatter, reference should be made to the appropriate adviser.