TAX AND CORPORATE MATTERS IN KAZAKHSTAN

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1 TAX AND CORPORATE MATTERS IN KAZAKHSTAN GRATA Law Firm 104, M. Ospanov Str., Almaty, , Republic of Kazakhstan Tel.: +7 (727) ;

2 ADDITIONAL INFORMATION: In order to receive more detailed information, please do not hesitate to contact our lawyers in the following branch offices and representatives of GRATA Law Firm: Almaty: Tel.: +7 (727) Astana: Tel.: +7 (7172) ; +7 (7172) Fax: +7 (7172) Aktobe: Tel.: Atyrau: Tel.: +7 (7122) Fax: +7 (7122) Aktau: Tel.: +7 (7292) ; +7 (7292) Fax: +7 (7292) Kostanay: Tel.: ; Karaganda: Tel.: Kyzylorda: Tel.: Baku: Tel.: +994 (12) ; +994 (50) Fax: +994 (12) Bishkek: Tel.: ; Fax: Dushanbe: Tel.: +7 (727) London: Tel.: +44 (0) ; +44 (0) ; +44 (0) Moscow: Tel.: +7 (727) New York: Tel.: +1 (646) ; (347) ; +7 (701) Tashkent: Tel.: +998 (71) Fax: +998 (71) Ulaanbaatar: Tel.:

3 This information was prepared as a general guidance only, and should not be used as a specialized legal conclusion. TAX AND CORPORATE MATTERS IN KAZAKHSTAN 1. General Information 1. The Republic of Kazakhstan is a country in Central Asia. Kazakhstan is the ninth largest country in the world by land area and also the largest landlocked country in the world. Its territory of 2,727,300 square kilometers (1,053,000 sq mi). It is neighbored clockwise from the north by Russia, China, Kyrgyzstan, Uzbekistan, and Turkmenistan, and also borders on a large part of the Caspian Sea. 2. Population. According to 2011 estimate 16,600,000 people. 2. Legislation 1. The legal system of the Republic of Kazakhstan belongs to the Roman German (continental) legal system. The Constitution of the Republic of Kazakhstan has the supreme legal force. Judicial system of the Republic of Kazakhstan consists of the Supreme Court and local courts established in accordance with the Constitution of the Republic of Kazakhstan and Constitutional Law. 2. Source of Tax law is a Tax Code of the Republic of Kazakhstan. 3. Double tax treaties - The full text of tax treaties between Kazakhstan and other countries are available at the INTAX INFO Library. 4. Tax Information Exchange Agreements Treaty partners may make a request for information for tax purposes to the Controller of Income Tax. The full text of tax treaties between Kazakhstan and other countries are available at the INTAX INFO Library. 5. Currency and Exchange control: Currency of the republic of Kazakhstan is Tenge (KZT). Currency regulation is based on Currency regulation and Currency control law of the Republic of Kazakhstan No.57-III, from 15 June 2005, according to the law the main goals and objectives are: 1. The goal of currency regulation shall be to facilitate implementation of state policy aimed at achieving sustained economic growth and maintaining economic security. 2. The objectives of currency regulation shall be: 1) to establish the procedures of circulation of currency valuables in the Republic of Kazakhstan; 2) to create conditions for further integration of the Republic of Kazakhstan in the global economy; 3) to maintain a database on currency operations and on capital flows. Payments between non-resident and residents are made in any currency, but some transactions should have national bank s notification or registration regime. 3. Company formation

4 The legislation in Kazakhstan provides for rather wide range of organizational forms of business entities. Limited liability partnerships (LLP), joint stock companies (JSC), and branches of foreign legal entities, however, are the most popular. 3.1 Limited liability partnership (LLP) - LLP is the most frequently used type of legal entity, establishing by one or more individuals or legal entities participants who are not liable for its obligations while bearing the risk of losses related to company's activity within the limits of their personal contributions value (participatory interest). The liability of the company is limited to the extent of its assets. The minimum charter capital requirement is 100 times MCI, while participants' interests are proportional to their contributions. Participants have preemption rights on each others' interests. The bodies of a limited liability partnership are: a) the highest body of a partnership shall be its general meeting of participants (GMP) The GMP, which is held not less than once a year, as the supreme management body of the LLP has exclusive power with respect to issues covering business, financial, management and structure issues of the company. b) the executive body of a company (individual or collective) the day-to-day management of the company is performed by the Director or a Board of Directors (collective executive body), who are elected at the GMP. The authority entrusted to the Board of Directors shall be specified in the foundation documents of the company. The company may also have a Supervisory Board and the Auditing commission (the Auditor), which are, however, not mandatory. 3.2 Joint Stock Company (JSC) - A JSC is a legal entity which issues shares in order to raise capital for its activities. A JSC may have an unlimited number of shareholders. Shareholders are not liable for the obligations of JSC, and bear the risks of losses within the value of their shares. A JSC has assets, separate from the assets of its shareholders, and is not responsible for their obligations. The minimum charter capital requirement is times MCI and must be paid in full within 30 days from the state registration of JSC. The JSC is managed by the general meeting of shareholders (GMS), Board of Directors and Executive Body. The GMS is the supreme management body of the JSC, convened once a year, which decides upon the issues of high priority, such as the company's management, administration, business policy, corporate structure, financial aspects, elections and certain other issues. The Board of Directors exercises overall management of the JSC, covering lower priority issues such as financial, preparation and implementation policies, with the exception of issues referred by the Law and the Charter to the exclusive competence of the GMS. The guidance of current activities shall be carried out by the Executive Body. The Executive body may be collective or individual. The executive body shall have the right to take decisions on issues relating to the company's activities which are not considered by the laws/legislative acts of the Republic of Kazakhstan and the company's charter as being the jurisdiction of other bodies and official persons of the company. 3.4 Representative offices and Branches - Representative offices and branches of foreign legal entities are not deemed to be legal entities, but represent the interests of foreign companies in Kazakhstan. Being a subdivision of a foreign legal entity, a representative office is not entitled to conduct business activity which would result in income being generated in Kazakhstan. As a subdivision of a foreign legal entity, a branch may fulfill all or part of the functions of its parent company, including income generating business activity. Both representative offices and branches act on the basis of a Regulation, and are managed by an individual authorized by the parent company under a power of attorney. They are formed in essentially the same manner as a legal entity and

5 are subject to the same formation restrictions applicable to a legal entity with foreign ownership. 3.5 The procedure: - The registration process is performed by registration bodies of the Ministry of Justice. Usually the registration process takes from 3 to 14 working days, however, in practice the general registration term can take one month or longer. In addition registration with the tax authorities should be carried out. The legislation requires a standard pack of documents be submitted in order to successfully complete registration process. It is essential to ensure that the documents have been duly signed, sealed, notarized and legalized or apostilled if the documents are executed abroad, otherwise the registration process may be considerably delayed. 3.6 Costs and fees for company creation - State registration fee for large and medium business is approximately US$ 74 on the date of issues. - State registration fee for small business is approximately US$ Production of a seal approximately US$ Registration of company by GRATA Law Firm US$ Corporate taxation 4.1 Tax residence Taxpayers are legal entities: 1) resident legal entities incorporated under the law of the Republic of Kazakhstan; 2) Non-resident legal entities receiving their income from Kazakhstani sources; 3) Non-residents operating in the Republic of Kazakhstan through a permanent establishment. 4.2 Taxable base for corporate income tax is taxable income, withholding income and the net income of non-resident legal entity, operation in the Republic of Kazakhstan through a permanent establishment. 4.3 Income tax 20%. The tax period is a calendar year. Annual income tax returns must be filed by 31 March in the year following the reporting period. Corporate income tax is paid monthly (not later than 25 th day of the current month). 4.4 Withholding tax - All income paid from Kazakhstan sources to non-resident persons, other than that attributable to a Kazakhstan permanent establishment, is subject to taxes. Tax rate: Interest, dividends, capital gain and royalties 15% Insurance premiums under insurance risk agreements 15% Income from international transportation services and insurance premiums under reinsurance risk agreements 5% Income of a person registered in a tax haven 20% Other income 20% 4.6 VAT/Sales tax - VAT payers are legal entities-residents, individual entrepreneurs, non-residents doing business in Kazakhstan through permanent establishments (structural subdivisions may be recognized as independent

6 payers of VAT by state bodies).the objects of value added tax is the taxable turnover and the taxable imports. Standard tax rate is 12%. A turnover from sales of goods for export and international carriage is subject to zero rate VAT. 4.7 Other taxes: - Land Tax Taxpayers are legal entities and individuals who own land (per hectare), depends on location, quality and water supply of the land. -Social tax- Taxpayers are all employers 11%. -Excise tax Imposed for alcohol, tobacco, petrol (except for aviation fuel), motor vehicles, crude oil and gas condensate, gasoline fuel. - Vehicle Tax applies to owners of vehicles and depends on the type of a vehicle, the year of production of vehicle and vehicle s engine capacity. 5. Individual taxation 5.1 Tax residence Taxpayers are residents (worldwide income) and non residents receiving income from Kazakhstan source. Foreign individuals are considered residents if they are in the country for more than 183 days in any consecutive 12-month period ending in that year. 5.2 Personal income tax The object of personal income tax is the income of individuals. Tax rate is 10%. 5.3 Social Security tax is 5%. -Social security contributions Employers pay it on employee s gross salary. Tax rate - Mandatory pension contributions 10%. 5.4 Property taxes The objects of taxation for individuals are homes, buildings, garden buildings, garages and other buildings, structures, premises located on the territory of Kazakhstan and own by them as property, and objects under construction since the stay of operation. Tax rate: Progressive rate ranging from 0, 05 % -1% and depends on cost of property. 5.5 Inheritance and Gift taxes NO 6. Special regimes Ship and yacht registration Rules of the registration of ships and yachts are regulated by Law of the Republic of Kazakhstan from 17 January, 2002 # 284-II On Merchant Shipping. Vessel should be registered in one of the ship registers of the Republic of Kazakhstan: 1) State register of ships; 2) Ship register book; 3) Bareboat charters register. The right of ownership and other property rights to the vessel (charge to) subject to compulsory state registration in the State Register of Ships or ship register book. It is necessary to pay fee in accordance with the Tax Code of the Republic of Kazakhstan for registration of ship in amount of about US$ 692

7 Aircraft registration Rules on registration of aircrafts are regulated by Law of the Republic of Kazakhstan On the use of the airspace of the Republic of Kazakhstan and aviation. 1) State aircrafts are subjects to the state registration in the Register of state aircrafts aviation of the Republic of Kazakhstan. 2) Civil aircrafts are subjects to the state registration in the Register of Civil aircrafts aviation of the Republic of Kazakhstan. It is necessary to pay fee in accordance with the Tax Code of the Republic of Kazakhstan for registration of civil aircrafts in amount of about US$ 81. Owner of registered civil aircraft receives certificate about state registration of civil aircraft. Owner of registered state aircraft receives guidance on state registration at the Register of state aircrafts aviation of the Republic of Kazakhstan. On-line gaming Legislation of the Republic of Kazakhstan on gambling based on the Constitution of the Republic of Kazakhstan and consists of this Law and other legal acts of the Republic of Kazakhstan. On-line casino is forbidden on the territory of Kazakhstan. Gambling business acts on the basis of license for each gabling establishment with the period of 10 years. E-commerce E-commerce in Kazakhstan is growing step by step 10 years. The demand for on-line stores is increasing, but Kazakhstani market is still small. E-commerce in Kazakhstan is regulated by Article 29 of the Law Regulation of Trade Activities No.544-II dated 12 April 2004 and Rules of Conducting of e-commerce approved by the Government of the Republic of Kazakhstan No. 786 dated 10 September Residence and Citizenship 7.1 Migration policy Migration policy of the Republic of Kazakhstan is a set of principles, priorities, mechanisms, problems and methods of organizing and regulation of migration process. Migration policy is an integral part of state s foreign and internal policy and its implementation should be a priority for the state. The subjects of migration policy are central and local executive bodies. Public associations are the partners of government in implementation of migration policy. Migration policy is based on the Constitution of the Republic of Kazakhstan, the universally recognized principles and norms of international law, international treaties of the Republic of Kazakhstan, the Republic of Kazakhstan laws and other legal acts. 7.2 Conditions for obtaining of temporary residence permit (regulated by the law of the Republic of Kazakhstan On migration from 22 July, 2011) 1) Immigration for the purpose of family reunification can obtain temporary residence. There is a list of members of family who can obtain temporary residence after inviting. If the inviting person is the citizen of the Republic of Kazakhstan temporary residence shall be issued for up to three years with the right of extension.

8 If the inviting person is an ethnic Kazakh or former compatriot who received a temporary residence permit (valid for at least 2 years), temporary residence shall be issued for the same period as for inviting person. Temporary residence permits to family members of inviting person with a permanent residence permit shall be issued for one year with the right to annual renewal. Temporary residence permits to family members of inviting person, who is a business immigrant, issued for one year with the possibility of annual renewal. In this case, a temporary residence permit to family members of inviting person should not exceed the validity of the temporary residence permit of the inviting person. 2) Immigrants for the purpose of getting an education should: -Prove that they are able to pay for the accommodation, as well as for education in accordance with the agreement between the immigrant and the host organization of education, with the exception of ethnic Kazakhs in the manner and amount determined by the Government of the Republic of Kazakhstan; -To present a medical certificate confirming the absence of disease, preventing the passage of an education in their chosen specialty, and to have health insurance; -Present evidence of any lack of a criminal record; -To present the proof about the enrollment and an agreement of inviting educational organization for professional training prior to the entry into the Republic of Kazakhstan. 3) Labor immigrants: - Temporary residence permits to foreign workers who come from countries that have concluded agreements with the Republic of Kazakhstan on visa-free entry and stay, shall be given by the authorized body on migration in accordance with the international treaties ratified by the Republic of Kazakhstan. 4) Immigration for humanitarian and political reasons: - Entry visas of immigrants who came for humanitarian reasons are valid up to one year. - Political immigrants get political asylum in accordance with the legislation of the Republic of Kazakhstan on Refugees. 7.3 Conditions for obtaining of permanent residence permit (regulated by the Standard of the Sate Service on Granting of Certificates of Stateless Persons and Residence Permits to Foreigners which Domicile in the Republic of Kazakhstan approved by the Decree of the Government of the Republic of Kazakhstan No.2101, dated 14 December 2009; Instruction on Application of the Rules on Granting Documents to, and Registration of Population of the Republic of Kazakhstan approved by the Order of the Minister of Internal Affairs of the Republic of Kazakhstan No. 338, dated 4 June 2005). Foreigners and stateless persons permanently resisting on the territory of the Republic of Kazakhstan get following identification documents: 1) Residences permit of the foreigner in the Republic of Kazakhstan. 2) Certificate of stateless person.

9 A foreigner or a stateless person should provide the following documents to obtain the permit for permanent residence: 1) Application form; 2) Written consent of the State of nationality. It can be a leave certificate or other proof of permission to leave for permanent residence abroad; 3) Curriculum vitae; 4) The passport of a foreign state or stateless person's document; 5) The book of registration of citizens with a mark confirming that the applicant has been registered in the district of his permanent residence; 6) An official certificate of medical examination of the alien; 7) Documents confirming the ability to pay debts during the stay in the Republic of Kazakhstan. 8) Payment receipt of the state fee. 9) Two photographs measuring 35x45 mm. Review term of the materials shall not exceed 60 calendar days Condition for obtaining of citizenship (regulated by the Law of the Republic of Kazakhstan On Citizenship of the Republic of Kazakhstan from 20 of December, 1991) Citizens of the Republic of Kazakhstan are those who: -permanently reside in the Republic of Kazakhstan; - were born in the Republic of Kazakhstan and not the citizens of foreign countries; -acquired the citizenship of the Republic of Kazakhstan; -citizen of the Republic of Kazakhstan has not the citizenship of another country. Grounds for the acquisition of citizenship: 1) by birth; 2) by admission to the citizenship of the Republic of Kazakhstan; 3) on other grounds stipulated by the above mentioned law and international treaties of the Republic of Kazakhstan. The citizenship of the Republic of Kazakhstan may be taken by: - persons residing on the territory of the Republic of Kazakhstan legally for at least five years, or are married to citizens of the Republic of Kazakhstan for at least three years. Conditions specified in the first paragraph of this subsection shall not be required for admission to citizenship of the Republic of Kazakhstan of minors, disabled and those who have special services to the Republic of Kazakhstan or have a profession and meet the requirements on a list established by the President of the Republic of Kazakhstan, and their families; -citizens of the former Soviet republics, who arrived for permanent residence to the Republic of Kazakhstan, having one of his close relatives - the citizens of the Republic of Kazakhstan: the child (including adopted), wife (husband), one of the parents (adoptive parents), sister, brother, grandfather or grandmother, regardless of their residence in the Republic of Kazakhstan. - Issues of soldiers performing military service and stationed on the territory of the

10 Republic of Kazakhstan are regulated by Kazakhstan. the international treaties of the Republic of 8. Labor regulations and Expatriates taxation 8.1 Work permits According to the Law of the republic of Kazakhstan On migration from 22 July, 2011 there are three types of labor migrants: 1) Foreign workers; 2) Business-immigrants; 3) Seasonal foreign workers. Work permit for foreign workers is based on quota about professional qualifications established by the Government of the republic of Kazakhstan annually. Foreign workers must: 1) be an adult; 2) show the proof of solvency required to leave the territory of the Republic of Kazakhstan after the expiry of the work permit - or permit to expire foreign labor in the manner and the amount determined by the Government of the Republic of Kazakhstan; 3) have an appropriate education, qualification and experience to perform the work; 4) present the evidence of any lack of criminal record; 5) present the medical certificate confirming the absence of disease which can prevent performing of chosen work; 6) have the medical insurance. Work permit for business-immigrants on the territory of the Republic of Kazakhstan is given only for business activities. Business workers must: 1) be an adult; 2) have an experience in business activity; 3) present the evidence of any lack of criminal record and absence of ban to perform business activity; 4) present the medical certificate confirming the absence of disease which can prevent performing of chosen work; 5) have the medical insurance. Seasonal foreign workers are attracted to work in certain sectors of the economy in accordance with the international treaties ratified by the Republic of Kazakhstan, or on the base of permit for foreign workers within the quota under the conditions and in the

11 manner determined by the Government of the Republic of Kazakhstan and given to the employers by local authorities. Seasonal workers must: 1) be an adult; 2) show the proof of solvency required to leave the territory of the Republic of Kazakhstan after the expiry of the work permit or permit to expire foreign labor in the manner and the amount determined by the Government of the Republic of Kazakhstan; 3) present the medical certificate confirming the absence of disease which can prevent performing of chosen work; 4) have the medical insurance. Taxation of non-residents Taxation of non-residents is made in accordance with tax legislation and international treaties of the Republic of Kazakhstan. According to the Tax Code of the Republic of Kazakhstan tax system of Kazakhstan is unified throughout the Republic of Kazakhstan for all taxpayers. 9. Related Information Jurisdiction news (link) Jurisdiction articles (link) Jurisdiction professional service directory (link) Jurisdiction presentations