Kazakhstan is a politically stable country with a growing economy focused on oil, gas, metals and agriculture. It has a population of 16.6 million people and GDP over $200 billion. Common business structures include limited liability companies and joint stock companies, which can be registered through a one-stop shop process. Taxes include a 20% corporate income tax and 12% VAT. Employing foreign workers requires work permits, and companies are subject to limits on the percentage of employees who can be expatriates. Setting up a permanent establishment also subjects foreign companies to corporate income tax and potential branch profits tax.

1. Doing Business in
Kazakhstan
Alexander Nisengolts, Esq.
May 17, 2013
1

2. Kazakhstan at a glance
 Politically stable
 Key industries: oil & gas, metals & minerals, agriculture
 9th largest country in the world
 Population: 16.6 million
 GDP: over USD 200 Billion
 High economic growth
• 2000-2007: 9%+; 2010-2011: 7%+; 2012-2013: 5%+
 Average GDP/capita: c. $13,000
 Member of the Customs Union with Russia and Belarus
 WTO accession expected in the near future
 Open to foreign investment
© 2013 Alexander Nisengolts, Esq. 2

3. Available business structures
 Representative office = no commercial activities
 Branch: both commercial and representative activities
 No charter capital
 a permanent establishment (PE) for tax purposes
 Limited liability company (“LLC”) (“TOO” in Rus.)
 ~ $1,200 minimum charter capital (~$1 – small company)
 Joint stock company (“JSC”) (“AO” in Rus.)
 ~ $600,000 minimum charter capital; more regulated,
audit required
© 2013 Alexander Nisengolts, Esq. 3

4. Business set up
 Foreign ownership generally permitted with few
restrictions (except certain industries)
 One-stop shop registration procedure by the justice
authorities, but documents must comply
 Branches/Rep offices governed by their Statute
 LLC/JSC: charter + foundation agreement (if > 1 owner)
 Licenses and permits may be required
© 2013 Alexander Nisengolts, Esq. 4

5. Transactions
 Kazakh Tenge (KZT) – freely convertible: $1 = KZT 151
 Free repatriation of currency
 Transactions between residents (Kazakh individuals,
Kazakh companies, and their branches abroad) must be
in Tenge
 Transactions between residents and non-residents may
be in any currency
 Notification and registration requirements may be
applicable for large transactions
 Watch out for transfer pricing!
© 2013 Alexander Nisengolts, Esq. 5

6. Labor law and work permits
 Labor law has strict requirements and is employee-friendly
 Employment contract required; no employment at will
 Special pregnancy and childcare protections
 Strict overtime limits
 Can’t waive labor protections in employment contract
 Work permits are required for most expats
 Large and medium companies are subject to % limits on
the number of expats they can employ
 Management: no more than 30% expats
 Professionals and skilled labor: no more than 10% expats
 Exemptions for small companies, 3 major oil projects, etc.
© 2013 Alexander Nisengolts, Esq. 6

7. Taxes
 Corporate Income Tax: 20% of net profits
 VAT: 12% (no sales tax)
 Social Tax (paid by employers): 11%
 Personal Income Tax (withheld – all employees): 10% !!!!!
 Mandatory pension contributions (withheld - locals only): 10%
 Other taxes: Land, Property, Excise, Subsoil, misc. duties, etc.
 Dividend and capital gains exempt from tax under right
conditions
 Tax treaties prevail over domestic tax law
© 2013 Alexander Nisengolts, Esq. 7

8. Tax residency
 Residents are taxed on worldwide income and include:
• Kazakh-registered companies (incl. foreign-owned Kazakh subs)
• Foreign companies whose effective place of management is in KZ
• Kazakh citizens & permanent residents (center of vital interest)
• Foreign citizens with more than 183 days in consecutive 12-months
 Non-residents are taxed only on income from Kazakh sources:
• Sale of goods or performance of services in Kazakhstan
• Management, Audit, Legal, Consulting, Financial services to KZ
 Are Kazakh-source income regardless of the place of performance
 Treaty exemptions available
• Services provided by tax-haven residents
• Capital gains, dividends, interest, royalties, rents, etc.
© 2013 Alexander Nisengolts, Esq. 8

9. Watch out for a PE
 A permanent establishment is created, inter alia, in cases of:
• Any place of manufacturing, processing, sorting, packing or supply
• Activities involving mines, oil/gas wells, rigs, pipelines, etc.
• A place of management, office, branch, etc.
• Sale of goods in Kazakhstan
• Any place of construction or construction supervision
• If lasts more than 12 months under US-KZ double tax treaty
• Participation in a JV operating in Kazakhstan
• Rendering services in Kazakhstan through employees/personnel for
more than 183 days in a 12-month period as part of connected projects
• Use of a dependent agent (can sign contracts on non-resident’s behalf)
• A Kazakh subsidiary is generally not a PE unless it’s a dependent agent
© 2013 Alexander Nisengolts, Esq. 9

10. If there is a PE
 Non-residents must register the PE with the tax authorities or
establish a branch
 The PE is responsible for its own tax compliance and tax
payments
 The PE is taxed like a Kazakh company (20% of net profits),
plus a Branch Profits Tax: 15% (5% under the US-KZ DTT)
© 2013 Alexander Nisengolts, Esq. 10

11. If there is no PE
 Under US-KZ DTT, No PE = No KZ withholding tax on services
 Gross income paid to non-residents subject to withholding at source:
• In-country services: 20%
• Capital gains: 15%
 0% if not paid by a subsoil user & 3 year holding period is met
• Dividends: 15%
 5% under the US-KZ DTT if have 10% beneficial ownership
 0% if not paid by a subsoil user & 3 year holding period is met
• Interest: 15% (10% under the US-KZ DTT)
• Royalties: 15% (10% under the US-KZ DTT)
• Payments to tax havens: 20%
© 2013 Alexander Nisengolts, Esq. 11

12. Final tips
 Legislation changes frequently
 Tax and legal planning must be robust
 Use treaty countries; avoid tax havens
 Employ proper personnel
 Do proper due diligence before any investments
 Comply with the law
 Hire the right advisor
© 2013 Alexander Nisengolts, Esq. 12

13. Thank you
Alexander Nisengolts, Esq.
Attorney at Law (Illinois)
Kazakhstan Legal & Tax Counsel
(847) 707-4963
alexander@sshtax.com
alexnisengolts@yahoo.com
© 2013 Alexander Nisengolts, Esq. 13

14. The information contained herein is of a general nature and is not intended to
address the circumstances of any entity or individual. While the goal is to provide
accurate and timely information, there is no guarantee that such information is
accurate as of the date it is received or that it will continue to be accurate in the
future. No one should act on such information without appropriate professional
advice without a full and thorough examination of the specific facts of a particular
situation.
© 2013 Alexander Nisengolts, Esq. 14