The Present Stage of the legal Regulation of Foreign Investment in Kazakhstan
Republic of Kazakhstan Investor’s Guide 2000
The Present Stage of the legal Regulation of Foreign Investment in Kazakhstan
The legal framework, which provides protection for foreign investors, is the basis for the formation of a favourable investment climate and an open economy in Kazakhstan.
The provisions of the Constitution of the Republic of Kazakhstan – the basic law of the country – acknowledge and protect private property and the freedom of entrepreneurship. Based on these provisions, foreign investors in our country are given constitutional guarantees. In accordance with the Constitution, international agreements ratified by the Republic of Kazakhstan prevail over Kazakhstan’s laws and are directly applicable, except in cases when an international agreement requires laws to be passed. Foreigners and stateless people enjoy rights and freedoms and bear responsibilities provided for citizens of Kazakhstan, unless otherwise stipulated by the Constitution, laws and international agreements.
The international legal regulation of investment activity consists of agreements on mutual protection and the encouragement of investment, signed with the following countries.
All these agreements on investment protection provide four main obligations to be accepted by states in connection with the activities of foreign investors on their territory. In particular, the parties undertake to create a favourable regime for investment and related activities; to ensure the proper protection of foreign property; and to allow foreign investors to freely transfer their income. The states also agree to settle any disputes arising from investment by international arbitration.
Moreover, the Republic of Kazakhstan has ratified a convention on the acknowledgement and fulfilment of foreign arbitration awards, 1958, through the Presidential Decree of the Republic of Kazakhstan No.2485, dated 4th October 1995. At present Kazakhstan is considering its accession to the International convention on the settlement of investment disputes between states and citizens of other countries, open for signing in Washington on 18th March 1965 (ICSID).
The laws which directly regulate relations in the sphere of foreign investment play a special role. First of all, these are the Law of the Republic of Kazakhstan On Foreign Investment, dated 27th December 1996, and the Law of the Republic of Kazakhstan On State Support to Foreign Investment, dated 28th February 1997.
The Law On Foreign Investment provides the following guarantees aimed at protecting the interests of foreign investors:
• the establishment of a legal regime of foreign investment;
• guarantees against amendments to laws;
• an indemnity for expropriation;
• guarantees against illegal actions by state bodies and officials;
• compensation and remedy for losses to foreign investors;
• guarantees of use of profits;
• guarantees of use of own foreign currency funds;
• openness in the activity of foreign investors;
• an indemnity for state audits.
The Law of the Republic of Kazakhstan On State Support to Foreign Investment, dated 28th February 1997, also covers the issues of securing investment activity in the Republic of Kazakhstan.
The modern legal framework for the regulation of foreign investment in Kazakhstan is based on the following:
1. Laws on companies: procedures for their establishment, reporting, merging, and liquidation, including companies fully owned by a foreign investor.
The current law on foreign investment states that companies with foreign capital may be established as a business partnership, a joint-stock company or in any other form which is not contradictory to the laws of the Republic of Kazakhstan. Companies with foreign capital are created in the manner established for legal entities of the Republic of Kazakhstan.
The aforementioned relations are governed by the following legal documents: the Civil Code (general part), passed on 27th December 1994, the law On Joint-Stock Companies, dated 10th July 1998, the Law On Limited Liability Partnerships and Partnerships with Additional Liability, dated 22nd April 1998, the Law On Foreign Investment, dated 27th December 1994, and the Presidential Decree of the Republic of Kazakhstan On Business Partnerships, having the force of law, dated 2nd May 1995.
2. Laws on privatisation and ownership are governed by the Civil Code (general part), dated 27th December 1994, and the Presidential Decree of the Republic of Kazakhstan On Privatisation, having the force of law, dated 23rd December 1995. Furthermore, regarding subjects of privatisation, Article 2 of the Decree defines a buyer as an individual, a private state legal entity or a foreign legal entity acquiring property by privatisation.
3. Laws on granting tax privileges provide tax privileges, including to foreign investors.
Pursuant to contracts with an authorised body for investment, a taxpayer may be exempted from income tax for a period of 5 years from the moment when taxable income is received, but not more than 8 years from the moment of signing the contract.
Pursuant to contracts with an authorised body for investment, a taxpayer may be exempted from tax on land for a period of 5 years from the moment of signing the contract.
Pursuant to contracts with an authorised body for investment, a taxpayer may be exempted from property tax for a period of 5 years from the moment of signing the contract.
Tax privileges are regulated by the Presidential Decree of the Republic of Kazakhstan On Taxes and Other Obligatory Payments to the Budget, having the force of law, dated 24th April 1995, as amended by the Law of the Republic of Kazakhstan On Amendments and Changes to Certain Laws of the Republic of Kazakhstan on Investment, dated 2 August 1999.
4. Banking laws
Foreign investors are entitled to possess a one-third interest in the authorised capital of a second tier bank of the Republic of Kazakhstan, taking into account the restrictions imposed by banking laws.
Non-resident banks are entitled to obtain a permit to open a subsidiary bank after a representative office of the bank has operated within the territory of the Republic of Kazakhstan for one year.
The National Bank is entitled to audit the activity of banks and their branches, including spot checks or audits by invited auditing companies, to receive information which is deemed necessary for proper fulfilment of its controlling and supervision functions, and to demand explanations based on the information received.
According to the banking laws of the Republic of Kazakhstan, the National Bank can receive information during the regulation and supervision of all banks registered in the territory of the Republic of Kazakhstan, irrespective of the availability of foreign share in their authorised capital.
For the purpose of joint projects for crediting and the fulfilment of other tasks, banks are entitled to form consortia based on a contract on joint operation and participate in the activity of other consortia and associations.
Legal entities registered in off-shore zones, or individuals who are founders (shareholders) of legal entities registered in off-shore zones, the list of which is validated by the National Bank, cannot be founders or shareholders of resident banks of the Republic of Kazakhstan.
Non-resident legal entities in the Republic of Kazakhstan, including banks, can hold five or more percent of shares in a resident bank of the Republic of Kazakhstan, provided that these legal entities have the minimum required rating given by one of the major rating agencies, the list of which is established validated by the National Bank.
Kazakhstan has strengthened the control functions of the National Bank. The Bank is entitled to demand information on the financial situation of banks and financial organisations, in the authorised capital of which a non-resident individual or legal entity, which is the founder of the bank, holds interest.
The legal regulation of banking activity is performed through the following laws of the Republic of Kazakhstan: On Monetary Regulation, dated 24th December 1996, and On Amendments and Changes to Certain Laws of the Republic of Kazakhstan, dated 16th July 1999, plus Presidential Decrees of the Republic of Kazakhstan On Banks and Banking Activity in the Republic of Kazakhstan, dated 31st August 1995, On Taxes and Other Obligatory Payments to the Budget, dated 24th April 1995, and international treaties signed by the Republic of Kazakhstan.
5. Laws on securities are represented by the Law of the Republic of Kazakhstan On the Securities Market, dated 5th March 1997. Securities issued by foreigners may be circulated on the Kazakhstani securities market if permitted by the National Commission for Securities of the Republic of Kazakhstan. In pursuance of this, Regulations on the admission of securities issued by organisations of other countries to circulation in the territory of the Republic of Kazakhstan have been confirmed by Resolution No.53 of the National Commission for Securities, on 17th May 1996.
6. Insurance is regulated by the Presidential Decree of the Republic of Kazakhstan On Insurance, having the force of law, dated 3rd October 1995. Pursuant to the decree:
• The participation of foreign investors in the authorised capital of an insurance (reinsurance) company is not limited. However, the overall registered authorised capital of insurance (reinsurance) companies with foreign participation should not exceed twenty-five percent of the aggregate registered authorised capital of all insurance (reinsurance) companies of the Republic of Kazakhstan, except for cases permitted by an authorised state insurance body;
• Foreign insurance (reinsurance) companies can reinsure risks assumed by insurers of the Republic of Kazakhstan through their branches and representatives registered in the manner established, and directly through foreign reinsurers.
7. Laws on external borrowing. The current law On State Borrowing and Debt and Borrowing and Debt Guaranteed by the State, dated 2nd August 1999, contains an article providing for compensation and remedy for losses to creditors. In particular, it states that foreign creditors, suffering losses in the Republic of Kazakhstan due to a war or any other armed conflict, a revolution, emergency, civil conflict and similar causes, as well as due to unlawful legal acts and court decisions or illegal actions by officials of state authorities, shall be granted a regime not less favourable than that applied to legal entities and individuals of the Republic of Kazakhstan, and are entitled to remedy for losses incurred by them as a result of the aforementioned events, and (or) compensation. (the Law of the Republic of Kazakhstan On External Borrowing and External Debt Management, dated 10th April 1997, is nullified).
8. Laws on free (special) economic zones. These relations are regulated by the Presidential Decree of the Republic of Kazakhstan On Special Economic Zones in the Republic of Kazakhstan, having the force of law, dated 26th January 1996, and the Presidential Decree of the Republic of Kazakhstan On Several Issues of Special Economic Zones in the Republic of Kazakhstan, dated 31st March 1999. A special economic zone has been established in the city of Astana.
9. Laws on nature conservation include Laws On Environmental Protection dated 15th July 1997, On Environmental Impact Assessment dated 21st March 1997, and On Specially Protected Natural Areas dated 15th July 1997.
National users of natural resources have been defined as citizens of the Republic of Kazakhstan and Kazakhstani legal entities, including those with foreign capital, whereas foreign users of natural resources are foreign citizens, foreign countries and international associations and organisations.
The Law On Environmental Impact Assessment obliges that environmental impact assessment should cover pre-plan, pre-project and project documentation, and contracts, including international agreements, relating to nature management.
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