Special Economic Zones (SEZs) are areas with special legal status and economic conditions to promote economic development. Kazakhstan has established 10 SEZs since 2001 to stimulate industries like construction, petrochemicals, logistics, IT, tourism, and more. SEZs offer tax and customs exemptions to participants, like corporate income tax reductions of 100% and 0% VAT rates. Legal entities, including foreign companies, can become SEZ participants by registering in the zone and deriving at least 90% of annual income from SEZ operations. Management companies oversee SEZs on behalf of the government and private sector partners.

1. Special Economic Zones
in Kazakhstan
By Aizhan Karzhaubayeva
Linkage & Mind LLP aizhan.karzhaubayeva@linkagemind.com
,
SEZ in Kazakhstan
S
pecial Economic Zones
(SEZs) are limited areas
with special legal status
in relation to the rest of the
territory which have the
special economic conditions
for entrepreneurs. The major
objective of establishing SEZ is
the economic development of
a particular region or country
as a whole, which is provided
by
productivity
growth,
investment and development
of new high-tech industries.
In addition to these main
objectives, SEZs contribute
to the competitiveness of
the region and increase of
employment.
SEZs
differentiate
in
types and can theoretically
be identified as: regional
development zones, free
ports,
export
processing
zones, and specialized area.
SEZs existing in Kazakhstan,
as a rule, are established as
specialized areas (for example,
SEZ “Burabai” aimed to
develop tourism) or zones of
territorial development (for
example, SEZ “Astana - new
city”).
Based on data from
analytical
consulting
companies, the number of
SEZ in the world, as well
as the geography of the
countries creating SEZ, is
steadily increasing, which
once again confirms the
importance of the SEZ for
the economy of the states.
Kazakhstan is no exception,
and if you trace the history
of SEZs in Kazakhstan
since its independence, we
see a change not only in
their quantity but also in
the successive legislative
amendments to the regulation
on the establishment and
functioning of the SEZs,
and sometimes legislative
innovations were cardinal.
Such frequent changes in
legislation in the area of SEZ
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were due to an attempt to
stimulate the development
of SEZs by the Kazakh
Government because they
were not cost-effective for
various reasons. In particular,
the first SEZ appeared in
Kazakhstan in the early
90s and were subsequently
completely
abolished
because of inefficiency. The
current economic zones were
established in Kazakhstan
since 2001, in particular the
first is “Astana - new city”,
created for the purpose of
accelerated construction of
the new capital. Since then,
the law on SEZ has continued
to be modified, as the SEZs
were not able to realize fully
the potential expected of
them. The current law on SEZ
was adopted in 2011 after
studying the international
experience and is the most
progressive in terms of
management, in comparison
with the previous law.

2. At present, Kazakhstan has
ten SEZ:
1) Astana-new city, aimed
at the development of
construction and industry,
created in 2001, includes
some areas of the city of
Astana, and two industrial
zones;
2) National industrial petrochemical indust-rial park,
aimed at the development
of petrochemicals, created
in December 2007, located
in Atyrau region;
3) Seaport Aktau, aimed
at the development of
logistics and transport, set
up in April 2002, located
in the commercial port, as
well as in parts of the city of
Aktau, Mangistau region;
4) Park
of
innovative
technologies, aimed at
the development of the
IT-industry, established in
August 2003, located in the
village of Tau Medeuski
district of Almaty and
Almaty region surrounding
land;
5) Ontustyk, aimed at the
development
of
the
textile industry, created
in June 2005, located in
Sairam district of South
Kazakhstan region;
6) Burabay, aimed at the
development of tourism,
created in January 2008,
located in Burabay district
of Akmola region - along
the lake Shuchie ;
7) Saryarka, aimed at the
development of metallurgy
and
metalworking,
established in November
2011, located in Karaganda
and adjacent lands of
Buhar-Zhyrau district of
Karaganda region;
8) Khorgos - Eastern Gate,
aimed at the development
of trade and logistics,
established in November
2011, located in the Almaty
region;
9) Pavlodar, aimed at the
development of chemical
and
petrochemical
industry,
created
in
November 2011, located
in the Northern industrial
area of Pavlodar;
10) Chemical Park Taraz,
aimed at the development
of the chemical industry,
created in April 2013,
located in Shumsky district
of Zhambyl region.
Who can become a
member of SEZ in
Kazakhstan
Participants
of
SEZs
can only be legal entities,
including foreign companies.
Prior to 2011, registered
branches of foreign companies
could be participants in
SEZs. However, after the
adoption of the current law
in 2011, which provides with
a requirement of central
registry of all members of SEZs
by the Ministry of industry
and new technologies, such
subsidiaries were not included
in the register as members
of the SEZs. There were just
a few branches of foreign
companies that are members
of the SEZs, but even so, based
on the fundamental principle
of non-retroactivity of the law,
the actions of the Ministry to
exclude them, in our opinion,
are not legitimate. Moreover,
such actions can only worsen
the investment climate in
SEZs, as indirect evidence of
problems in guaranteeing the
stability of the investors.
Typically, companies that
are planning to take their
business to the territory of a
SEZ create a completely new
company for the project (SPV),
which will be implemented in
the SEZ, except in cases where
the company plans to cease its
business in any other territory
outside of the SEZ. This is due
to the fact that to get the tax
benefits, at least 90 percent of
the total annual income of the
participant of SEZ should be
59 | SEZ WORLD TRACKER | October 2013

3. derived from the operations
in the SEZ. In addition, a
member of SEZ should be
registered as a taxpayer in
the SEZ and not have the
structural units outside the
SEZ (with the exception of the
SEZ “Information Technology
Park”, which provides for the
principle of extraterritoriality
till 2015).
The legislation provides
for certain exceptions, in
particular,
the
following
entities cannot be members of
SEZ:
1. subsoil users;
2. entities producing excisable
goods;
3. entities applying special tax
regimes (small businesses,
farms
and
producing
agricultural products for
which the government sets
the tax benefits);
4. entities that use investment
tax preferences (under
contracts
with
the
Investments
Committee
of
the
Republic
of
Kazakhstan);
5. entities active in the field
of gambling.
It is important to know
that the company which has
applied for the status of SEZ
participant must submit a
feasibility study of the project
and to have financial security in
an amount set in the feasibility
study. Financial security is
necessary to confirm the
availability of project money,
this measure was provided
for in the law in relation to the
previous bad experience when
applicants who received land,
did not start the project for
many years, due to difficulties
with the financing of the
project. Financial security can
be formed as:
1. money;
2. a bank guarantee;
3. a guarantee;
4. a pledge of property;
5. an insurance contract.
The applicant applying for
status has the right to choose
any type of financial security
including combination of two
or more methods.
Conditions for the
functioning of SEZ
SEZs are created by the
Decree of the President of
Kazakhstan for a period of
up to twenty five years on
the public or private land.
Plots should be rent out for
SEZ participants, and after
the abolition of the SEZ, the
participants have a priority
right to purchase the land into
ownership. When one creates
a special economic zone on his
private land, he can acquire
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the status of SEZ participant as
well and implement the project
on his own land, while taking
advantage of all the benefits
provided tp the participants
of the SEZ. Currently, all
the existing SEZ set up in
Kazakhstan on public land,
but creation of the first special
economic zone on private land
is now being considered.
Management companies
exercise control over SEZs
(with the exception of
“Astana - new city”, where
management is carried out
by the Administration of
Astana), whose shareholders
are the Government or local
authorities in Kazakhstan, as
well as private companies,
including foreign ones, if they
have management experience
over SEZs. Who and in what
proportion will be a shareholder
of the management company
depends on who is the
initiator of establishing SEZ
(government or business), but
in any case, the participation
of the state in the control is
mandatory.
Certain companies which
run support activities can do
that on SEZs, they are allowed
to work under a contract with
a SEZ participant, but they are
not eligible to receive any SEZ
benefits.

4. Tax and customs
exemptions in SEZ
The legislation provides for
the following tax benefits for
SEZ participants:
1. Reduction of the corporate
income tax at 100%;
2. The application of the
coefficient of 0 in the
calculation of land tax and
the calculation of fees for
land use;
3. The use of the 0% rate
when calculating tax on
property;
4. The imposition of VAT
at 0% rate for goods sold
in the territory of the
special economic zone
and fully consumed in
the implementation of
activities that meet the
objectives of the creation
of SEZ, according to the
list of goods identified by
the Government of the
Republic of Kazakhstan;
5. For SEZ “Information Technology Park”, application
rate of 0% for social security tax for a period of not
more than 5 years if:
(1) labor costs over 50%
of the total annual income; and
(2) cost of employees - residents of the Republic of
Kazakhstan – is at least
90% of total labor costs.
Also goods imported into
SEZ can be placed under the
customs procedure of free
customs zones (FCZ) at which
the goods or part of them
are located and used within
the SEZ without payment of
customs duties and taxes and
without application of nontariff regulation. Given that
Kazakhstan is a member of the
Customs Union (CU), together
with Russia and Belarus, the
territory of the SEZ is also a part
of the CU, and the issues of the
customs regulation in the SEZ
are ruled by CU Agreement on
free warehouses and customs
procedure of free storage.
Import into the territory of
FEZ
Exemption from customs
duties
and
taxes
and
application of non-tariff
regulations for goods used
in the implementation of
entrepreneurship activities
The list of goods required for
a SEZ participant to implement
priority activities in respect of
which FCZ will be applied is
determined by the Agreement
on Implementation of the
contract concluded between
the SEZ participant and and
the management company of
SEZ.
The following is a summary
of the customs privileges
within the SEZ to import /
export goods:
Hence, the export of goods
from the territory of SEZ
is based on the concept of
division of goods to those
which have status of CU
Export from the territory of
SEZ
CU goods exported from a
SEZ to the rest of the customs
territory of the CU is not subject
to payment of customs duties
and VAT.
CU goods exported from the
territory of SEZ outside the
customs territory of the CU is
subject to payment of export
customs duties.
Foreign goods that do not have
the status of CU goods exported
from the SEZ to the rest of the
customs territory of the CU is
subject to payment of customs
duties and VAT.
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5. products and those which are
foreign goods. This is quite
important because it is about
export outside the SEZ of
the finished goods made by
participants of SEZ from the
goods (materials) previously
brought to the territory of
the special economic zone to
perform the priority activity.
Goods imported into the
territory of SEZ receive the
status of the CU goods if:
1. goods made (received)
from the CU goods
which are under the FCZ
procedure;
2. products
are
made
(received) with the use
of foreign goods placed
under FCZ procedure,
which meet the criteria of
sufficient processing that
can be:
a) change the classification
code of goods at a
uniform nomenclature
of foreign economic
activity of the CU to any
of the first four digits;
b) mandatory conditions
of manufacturing and
technological
operations sufficient for the
recognition of goods by
the CU;
c) changes in the value
of the goods when the
percentage of the value
of the materials used
or the value added
reaches a fixed share in
the price of the finished
product (the ad valorem
percentage rule).
Foreign employees
In matters of foreign labor,
the law on SEZ remained
fairly conservative as SEZ
participants should receive
a work permit at a local
public body to attract foreign
workers. However, there is
one break made, in particular,
members of the SEZ do not
need to search for relevant
candidates on the domestic
labor market in Kazakhstan
(under regular conditions, an
employer must first carry out
a search the candidates on the
domestic labor market and
only if there are no suitable
62 | SEZ WORLD TRACKER | October 2013
candidates, he has the right
to hire foreign experts).
Conclusion
The level of development
of the above SEZs and their
effectiveness in Kazakhstan
are different: some of them
are very successful and
already fully repaid or close
to a total return of budgetary
investments, while the others
are not that developed. At the
same time, despite a new and
more progressive legislative
act, the government still states
that attraction of investors
into SEZs is not performed
well, and some analysts argue
that because of imperfections
in the functioning of the
institutional
mechanism,
SEZs develop slowly. In this
connection, the Ministry
of
Industry
and
New
Technologies of the Republic
of Kazakhstan intends to
bring the Singapore company
Jurong Consultants to the
management, which, in turn,
will develop a strategy for
each SEZ.