Granting of Investment Preferences in the Republic of Kazakhstan

RusEnergyLaw JOURNAL • 2'2003/Table of Contents • Article

The first decade of existence of independent Kazakhstan is characterized by the influx of investments of considerable volume (both foreign and kazakhstani) to the different areas of the economy of the Republic of Kazakhstan. Kazakhstan is high on the list of Central Asian countries according to the amounts of investments, especially in the oil & gas area.

During a long period of time the activity of investors in Kazakhstan was regulated by the Law "On Foreign Investments" and Law "On State Support of Direct Investments" which became invalid on January 8, 2003 because of adoption of a new Law of the Republic of Kazakhstan "On Investments".

The new Law made alterations to the procedure of granting the preferences to the investors who invest in the priority sectors of economy of the Republic of Kazakhstan.

First of all consideration must be given to the fact that in contrast to the previous Law "On Foreign Investments" the new Law does not include at all the concept of investment benefits. The legislation provides only for the grant of investment preferences to the legal entities of the Republic of Kazakhstan who realize the investment project.

The kazakhstani legal entity who realize the investment project is entitled to get the following investment preferences (hereinafter referred to as "preferences"):

1. Tax preferences

2. Exemption from customs duties

3. State natural grants

The investment preferences are granted provided the compliance with the following main conditions:

1. The investments are made to the priority sectors of economy of the Republic of Kazakhstan, the list of which is approved by the Government of the Republic of Kazakhstan;

2. The investments are made to the fixed assets of legal entity of the Republic of Kazakhstan, at that the new productions are created, expanded and renewed with use of modern technologies.

The additional conditions for granting different types of preferences are given bellow.

The investment tax preferences

The investment tax preferences are granted in the form of:

1. Vesting the taxpayer with a right to make additional deductions from his/her total annual revenue that decreases the amount of corporate income tax payable to the budget;

2. Exemption of the taxpayer from the property tax. This preference is granted only for the permanent assets once again placed in operation, which are on the balance and used in the framework of investment project;

3. Exemption from the land tax on the ground areas purchased and used for the realization of investment project.

The investment tax preferences may be granted for the period up to 5 years depending on the volume of investments.

We would like to draw your attention to the fact that investment tax preferences ARE NOTGRANTED:

1. If the special tax treatment is used with respect to the activity of your legal entity;

2. If your legal entity is the subsoil user on the basis of corresponding Contract concluded with the authorized body of the Republic of Kazakhstan;

3. With respect to the fixed assets of your legal entity if they were given in the form of state natural grants.

The exemption from customs duties

This type of preferences is granted for the import of equipment and its component parts assigned for the realization of investment project in accordance with Investment contract.

It is necessary to comply with the following conditions to get the exemption from customs duties for the imported equipment and its component parts (hereinafter "imported equipment"):

1. There is no production of imported equipment in the territory of Kazakhstan;

2. There is the production of imported equipment in the territory of Kazakhstan, but it is not sufficient to realize the investment project;

3. The equipment produced in the territory of Kazakhstan does not comply with the requirements made in the framework of investment project realization.

The exemption from customs duties is granted for 1 year with possible prolongation of this term. The maximum term of this type of preference is 5 years following the moment of Investment contract registration.

To get this investment preference the Investment Committee of the Ministry of Industry and Commerce of the Republic of Kazakhstan should send the notice about granting the exemption from customs duties for your legal entity to the Customs Supervision Agency of the Republic of Kazakhstan.

The notice should include the following information:

name of investor;

date and number of Investment contract;

list of equipment and its component parts exempted from the customs duties;

validity period of this preference.

After it the Customs Supervision Agency of the Republic of Kazakhstan will send this data to the customs authorities, which will carry out the customs registration and control of the imported equipment.

The state natural grants

The state natural grants are given by the Government of the Republic of Kazakhstan or by the Investment Committee of the Ministry of Industry and Commerce of the Republic of Kazakhstan. The following may be transferred as state natural grants:

ground areas;

buildings, constructions;

machines and equipment, transport facilities (except passenger cars);

computers, measuring and control devices and instruments, production and household equipment.

The provision of state natural grants to the property or to the land tenure is coordinated with state authorities in the area of public property and land resources management. The coordination of state natural grant provision is made within 15 (fifteen) workdays following the moment when the relevant request was made.

The legislation determines the limitations for the provision of state natural grants. The maximum amount of the natural grant is equal to not more than 30% of the volume of investments to the fixed assets of legal entity registered in accordance with the legislation of Kazakhstan. The estimation of the amount of state natural grant is made according to its market value.

The procedure of granting the investment preferences

The Investment contract is the principal document, which includes the detailed information on the preferences provided for your legal entity by the Government of the Republic of Kazakhstan.

To get the investment preferences your legal entity should apply with request to the Investment Committee. The following documents should be produced together with your request:

1. Notarized copy of Legal Entity State Registration Certificate;

2. Notarized copy of Legal Entity Statistical Card;

3. Notarized copy of the Charter of legal entity;

4. Business-plan of investment project which should be made in accordance with established requirements;

5. Documents that prove the budget of building and assembly jobs and charges for the acquisition of fixed assets used during the realization of investment project;

6. Documents that determine the sources and guarantees of project financing;

7. Documents that confirm the amount (cost) of the state natural grant requested by investor and preliminary coordination of its provision.

The Investment Committee examines this request within 30 workdays and, provided the compliance with the abovementioned conditions, makes a decision to grant the investment preferences. Then the Investment Committee prepares the Draft contract within 10 workdays and registers the Contract within 5 workdays following its signing.

The investment preferences terminate:

1. in connection with expiration of Contract;

2. in connection with anticipatory repudiation of Contract under the agreement of parties or on the initiative of one of the parties on the grounds provided in the Contract;

After the expiration of Contract your legal entity should start the payment of taxes and customs duties on general grounds provided by the existing legislation of the Republic of Kazakhstan.

In case of anticipatory repudiation of Contract your legal entity should pay the sums of taxes and customs duties and return the property received as natural grant, imposing a fine and using the punitive measures (in case of Contract repudiation on the initiative of the Investment Committee or investor) or without them (in case of Contract repudiation under the agreement of parties).

The law firm "GRATA" has a many years’ experience of holding the negotiations for granting the Investment preferences and signing the Contract with the Investment Committee on terms which are the most acceptable for the investor.

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