*Game Changers
I.     INTRODUCTION        I.     Forms        II.    Comparison of forms        III.   Stages of M&A transaction   II. LI...
*
**      Share deal - purchase of the stock/shares/equity in a      company.          Asset deal - purchase of the assets/p...
Criteria        Purchase of              Purchase of            Founding JV                   shares                   ass...
Labour issues   Work permits for         Work permits for      Work permits for                expatriates are          ex...
*1. SHARE DEAL vs ASSET DEAL vs JV    2. NEGOTIATIONS            3. OBTAINING STATE PERMISSIONS                   4. DUE D...
*
Activity              Limitations for foreign investors          Civil aviation Share of foreigners shall not be more than...
Insurance activity Prohibition on possession/usage/disposition of shares for                   offshore companies and thei...
• Protection   of trademarks, service marks,  inventions, industrial designs, utility models• Objects protection subject t...
    Mandatory forms of legal      entities     Restricting rule “one-in-one” for      LLPs       **linkagemind.com      ...
MANDATORY FORMS OF LEGAL                        JSC   LLP             ENTITESFinancial organization (bank, insurance compa...
MANDATORY FORMS OF LEGAL     JSC   LLP             ENTITES   Guarantors of deposits (when   Х   mandatory)   Audit organiz...
**linkagemind.com
*          49%                       50/50                       > 51%                      75%If the investor acquires   ...
1.    Managing bodies (structure and       authorities) 2.    Board of directors 3.    Signature rights 4.    Control over...
*
1. Disposition of strategic assets2. State priority right over subsoil rights and   permission to transfer them3. Economic...
*Government     of the Republic of Kazakhstan sets up the list of the strategic assets*State has the priority right to acq...
*"Right   of the first night" - the state has a priority    right to purchase the subsoil use rights/objects*Permission   ...
PRIOR PERMISSIONS ARE RUQUIRED FOR:- M&A and the acquisition of more than 25% of the interest in  the company- Acquisition...
*Incorporation the organization*Principal participant of the      organization/ holding company*Creation, acquisition of a...
*(Re)registration   of natural monopoly & registration of termination of an activity*Transactions with property which valu...
*
1. Identifying  legal risks, for example, ownership   rights of a seller, its authorities, etc.2. Minimization of risks3. ...
Seller                 Buyer• Preparation for the sale   • Target evaluation  (elimination of risks &    • Ground for nego...
*        Target of M&A deal        Specifics of the targets activities        Legal form of the company        Cost of...
Ownership rights             Essential disputesCorporate matters            Employment issuesLicenses & permissions  ...
1) Deficiencies in the corporate matters2) Absence of unified database on current legal   proceedings in Kazakhstan: DD is...
*
1. Obtaining all permissions2. Providing with assurance and   guarantees, conditions precedent3. Signing SPA4. Payment to ...
APPLICABLE LAW                     DISPUTES                     DEADLINES            **linkagemind.com                    33
*
There is a Double Tax Treaty between Austrian and Kazakhstan madein December 10, 2004, applicable to:In Kazakhstan:- Incom...
SHARE    DEAL: capital gain tax (a          tax to be paid by the Seller,          however, the duty to withhold it      ...
*
DISPUTE    RESOLUTION       DEPENDS    ON   APPLICABLE LAW  IT IS POSSIBLE TO AGREE ON APPLICABLE   LAW IN THE SALE & PU...
*Established in 2005*Offices: Almaty, Astana, New York*Qualified lawyers with LL.M., MBA, PhD*Working languages: English, ...
ASTANA                        7 Imanova Street                        010000, Kazakhstan                        T + 7 7172...
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M&A in Kazakhstan

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Business Development and Investing in Kazakhstan, Vienna, Austria, on April 19, 2012

Lawyers of “Linkage&Mind” Law firm: Ms. Aizhan Karzhaubayeva and Ms. Aigerim Seifullina will take part in Business forum on “Business Development and Investing in Kazakhstan” speaking on the topic: “M&A deals in Kazakhstan”, which takes place in Vienna (Austria) on April 19, 2012 and organized by the Commercial Section of the Austrian Embassy in Kazakhstan.

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M&A in Kazakhstan

  1. 1. *Game Changers
  2. 2. I. INTRODUCTION I. Forms II. Comparison of forms III. Stages of M&A transaction II. LIMITATIONS III. NEGOTIATIONS IV. STATE PERMISSIONS V. DUE DILIGENCE VI. CLOSING M&A DEALS * VII.TAXATION VIII.DISPUTES IX. ABOUT LINKAGE & MIND*linkagemind.com
  3. 3. *
  4. 4. ** Share deal - purchase of the stock/shares/equity in a company. Asset deal - purchase of the assets/property of the company. JV –incorporation of a new company by two and more companies. Reorganization – mergers (A+B=C) and takeovers (A+b=A).*linkagemind.com 4
  5. 5. Criteria Purchase of Purchase of Founding JV shares assetsBasis A Sale and Purchase SPA is required. Re- JVs in Kazakhstan is Agreement (SPA) of registration in the a form of legal the shares of the justice bodies is entities when some company shall be necessary, if the part of the concluded. asset is real estate. shares/equity The company should Foreign investors belongs to a foreign be re-registered in cannot be the owners investor. the bodies of justice. of the real estate (only through a subsidiary).Management Approval of Approval of the JVs may be formed shareholders/particip authorized bodies of in the form of Joint ants to sell the the corporation is Stock Companies interest is required. required. (JSC) or Limited Liability Partnerships (LLP). *linkagemind.com 5
  6. 6. Labour issues Work permits for Work permits for Work permits for expatriates are expatriates are expatriates are required, except for required, except required, except CEOs of for CEOs of for CEOs of branches/representa branches/represen branches/represen tive offices. tative offices. tative offices.Licenses & No need to re- It is necessary to It is necessary toPermissions register obtain them again obtain them againTax issues In general, dividends No taxes for VAT – 12%; are taxed at 15 % investors during CIT/WHT – 20%; rate for legal sale-purchase branch tax on net entities; phase, then usual income – 15%; 5% - for physical income tax & taxes dividends on non- persons. on capital gains at residents – 15%, the exit. etc. *linkagemind.com 6
  7. 7. *1. SHARE DEAL vs ASSET DEAL vs JV 2. NEGOTIATIONS 3. OBTAINING STATE PERMISSIONS 4. DUE DILIGENCE OF M&A DEALS 5. CLOSING OF M&A DEALS *linkagemind.com 7
  8. 8. *
  9. 9. Activity Limitations for foreign investors Civil aviation Share of foreigners shall not be more than 49% in the charter capital of an aviation company Mass media Prohibition on possession/usage/disposition/control of more than 20% of stocks/shares Telecommunication Prohibition on possession/usage/disposition/control of more than 49% of interest in any formTrunk communications Prohibition on control and operation of trunk line communications linesSecurity guard activity Prohibition on carrying out of security guard activities in Kazakhstan, participation in security guard organizations *linkagemind.com 9
  10. 10. Insurance activity Prohibition on possession/usage/disposition of shares for offshore companies and their participants Banking activity Prohibition on possession/usage/disposition of shares for offshore companies Saving funds * Specified ranking of rating agency is required for participation * Prohibition on possession/usage/disposition of shares for offshore companies and their participants * Overall share capital of foreign saving funds shall not be more that 25% of all saving funds Incorporated Offshore companies cannot be founders/shareholders of investment fund the investment funds *linkagemind.com 10
  11. 11. • Protection of trademarks, service marks, inventions, industrial designs, utility models• Objects protection subject to state protection• Plant protection• Forest management• Protection of selection achievements * *linkagemind.com 11
  12. 12.  Mandatory forms of legal entities  Restricting rule “one-in-one” for LLPs **linkagemind.com 12
  13. 13. MANDATORY FORMS OF LEGAL JSC LLP ENTITESFinancial organization (bank, insurance company, Хsaving fund, professional participant of thesecurity market)Special financial company Х ХAviation company ХStock exchange ХFinancial agency ХOrganization of over-the-counter securities market ХIncorporated investment fund Х *linkagemind.com 13
  14. 14. MANDATORY FORMS OF LEGAL JSC LLP ENTITES Guarantors of deposits (when Х mandatory) Audit organizations Х Security broker Х Х*linkagemind.com 14
  15. 15. **linkagemind.com
  16. 16. * 49% 50/50 > 51% 75%If the investor acquires Decisions of participants Investor has majority of Investor has qualified49% of the shares, then (the investor and the votes and can take majority and cananother participant will another participant) decisions requiring take decisions nothave a simple majority. should be made simple majority. only on questions,Both can take decision unanimously. which require simpleon the general meeting In such situations none majority, but also onon issues requiring of the participants will those which requiresimple majority (for have a simple majority. qualified majority,instance, formation of In such cases the with certainan executive body and shareholders’ exception like changeearly termination of its agreement should of charger capital,activity, the approval of contain provisions on reorganization andannual financial voting and deadlock liquidation, pledge ofreporting, distribution situations. all the property, etc.of net profit). *linkagemind.com 16
  17. 17. 1. Managing bodies (structure and authorities) 2. Board of directors 3. Signature rights 4. Control over financial matters **linkagemind.com 17
  18. 18. *
  19. 19. 1. Disposition of strategic assets2. State priority right over subsoil rights and permission to transfer them3. Economic concentration4. Approvals for financial organizations5. Approval for natural monopolies * *linkagemind.com 19
  20. 20. *Government of the Republic of Kazakhstan sets up the list of the strategic assets*State has the priority right to acquire the strategic assets*Permissions are required for encumbrance or their alienation **linkagemind.com 20
  21. 21. *"Right of the first night" - the state has a priority right to purchase the subsoil use rights/objects*Permission to transfer subsoil use rights/objects * *linkagemind.com 21
  22. 22. PRIOR PERMISSIONS ARE RUQUIRED FOR:- M&A and the acquisition of more than 25% of the interest in the company- Acquisition of assets which value exceeds 10% of the book value of the "seller"- Obtaining the control over the company- Participation of the same individuals in several companiesIF:1. A member of the transaction (including group of persons) is a dominant / monopoly;2. Total book value of assets / sales (including group of persons) during the last year exceeds more than 2 million MCI (~ 21 million USD). * *linkagemind.com 22
  23. 23. *Incorporation the organization*Principal participant of the organization/ holding company*Creation, acquisition of a subsidiary*Significant participation in the charter capital of another legal entity*Changing the foundation documents*Voluntary reorganization*Voluntary liquidation * *linkagemind.com 23
  24. 24. *(Re)registration of natural monopoly & registration of termination of an activity*Transactions with property which value exceeds 0.05% of the book value of assets*Purchase of goods/works/services not for their own consumption*Acquisition of shares in commercial companies*Acquisition of more than 10% of shares in the charter capital of the natural monopoly*Reorganization and liquidation * *linkagemind.com 24
  25. 25. *
  26. 26. 1. Identifying legal risks, for example, ownership rights of a seller, its authorities, etc.2. Minimization of risks3. Providing the buyer with current structure and activities of the target4. Identifying the necessity to obtain required approvals * *linkagemind.com 26
  27. 27. Seller Buyer• Preparation for the sale • Target evaluation (elimination of risks & • Ground for negotiations compliance)• Getting the expected • Structuring the transaction results in due time• Assurance and • Identifying the necessary guarantees conditions of the deal• Pricing • Identifying of measures on minimization of risks * *linkagemind.com 27
  28. 28. *  Target of M&A deal  Specifics of the targets activities  Legal form of the company  Cost of the deal  Strategic purposes  Risks for the buyer  Professional consultants  Budget*linkagemind.com 28
  29. 29. Ownership rights Essential disputesCorporate matters Employment issuesLicenses & permissions TaxationSignificant assets Customs regulationObligations and debt InsuranceIntellectual property Anti-trust regulationSuppliers & consumers * *linkagemind.com 29
  30. 30. 1) Deficiencies in the corporate matters2) Absence of unified database on current legal proceedings in Kazakhstan: DD is always limited by letters of guarantee provided by the Company3) No proof that the target has provided us with all current contracts4) Deficiencies in the registration of titles5) Problems with identification of assets which can be not recorded in balance sheets * *linkagemind.com 30
  31. 31. *
  32. 32. 1. Obtaining all permissions2. Providing with assurance and guarantees, conditions precedent3. Signing SPA4. Payment to the seller5. Re-registration * *linkagemind.com 32
  33. 33. APPLICABLE LAW DISPUTES DEADLINES **linkagemind.com 33
  34. 34. *
  35. 35. There is a Double Tax Treaty between Austrian and Kazakhstan madein December 10, 2004, applicable to:In Kazakhstan:- Income tax (corporate & individual)- Property taxIn Austria:- Income tax (corporate & individual)- Land tax- Tax on agricultural and forest entities- Tax on the value of free plot of land * *linkagemind.com 35
  36. 36. SHARE DEAL: capital gain tax (a tax to be paid by the Seller, however, the duty to withhold it rests with the Buyer) ASSET DEAL: CIT & VAT **linkagemind.com 36
  37. 37. *
  38. 38. DISPUTE RESOLUTION DEPENDS ON APPLICABLE LAW IT IS POSSIBLE TO AGREE ON APPLICABLE LAW IN THE SALE & PURCHASE AGREEMENTS **linkagemind.com 38
  39. 39. *Established in 2005*Offices: Almaty, Astana, New York*Qualified lawyers with LL.M., MBA, PhD*Working languages: English, Russian and Kazakh*Partnership with leading legal firms from 43 countries*Awarded as the best Public-Private Partnership firm and Corporate Tax Law firm in 2011 *Game Changers
  40. 40. ASTANA 7 Imanova Street 010000, Kazakhstan T + 7 7172 200 701, 200 703 F + 7 7172 200 705 info@linkagemind.comAIZHAN KARZHAUBAYEVA ALMATYSenior associate 188 Dostyk avenue 050000, Kazakhstan T + 7 7272 596 260, 597 560 F + 7 7272 596 260 info@linkagemind.com AIGERIM SEIFULLINA, LLM Associate * *linkagemind.com
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