REVIEW OF INVESTMENT LAW OF RK As of March 2016

REVIEW OF INVESTMENT LAW OF RK

As of March 2016

 

                                           THE REPUBLIC OF KAZAKHSTAN. ALMATY. 2016

 

Issues for consideration

Review of changes of Kazakhstan legislation regulating investment relations in Kazakhstan, as of March 2016.

 

Directly About investments of RK investment legislation and the changes that occurred in it

On January "8", 2003 the Law of RK"About Investments" which has existed until January "01", 2016, i.e. before introduction of the Commercial Code of RK has been adopted. In the Commercial Code of RK 24 articles are directly devoted to the issue of regulation of investment activity. Mostly standards of these 24 articles are direct copying of the relevant standards of the Law of RK"About Investments", in a type what have the same, unfortunately, yet unresolved, problems. However, this review has the prime purpose publicizing of changes, but not publicizing of problems of the investment legislation, and in this connection, we pass to detailed analysis of standards of the acting Kazakhstan law (in this case will use the term "law", in a view of that we also will mention standard of the intergovernmental agreement of PK and People's Republic of China) which is directly governing the investment relations. 

 

Commercial Code of RK has not made ​​any innovations in terminology that existed in the Law of the RK "About investments", since investor is understood as the physical and legal entities engaged in investments in the Republic of Kazakhstan. The major investor is understood as a natural or legal person carrying out investments in the Republic of Kazakhstan in the amount of not less than two million times monthly calculation index. Investments are understood as all types of property (other than goods intended for personal use), including financial leasing objects from the time of the lease agreement and the rights to them, invested by the investor to the charter capital of the legal entity or increase of fixed assets used for business activities, as well as for the project of public-private partnerships, including the concession project. Investment activities concern activities of physical and legal entities for participation in the charter capital of commercial organizations either the creation or increase of fixed assets used for business activities, as well as for the implementation of public-project private partnerships, including the concession project.

 

Commercial Code of RK, as well as the Law "About investments", entitles the investors to invest in any facilities and types of Commercial activity, except for cases stipulated by laws of the Republic of Kazakhstan.

 

The rights of investors in Kazakhstan.

 

1.) Commercial  Code Kazakhstan, as well as the Law "About investments", provides investors with full  and unconditional  protections of rights and interests, which is provided by the Constitution of the Republic of Kazakhstan, Commercial Code and other normative legal acts of the Republic of Kazakhstan and international treaties ratified by the Republic of Kazakhstan. 

2.) The investor is also entitled to compensation for damage caused to it by the publication of acts of public authorities which do not comply with the legislative acts of the Republic of Kazakhstan, as well as a result of illegal actions (inaction) of these officials, in accordance with the civil legislation of the Republic of Kazakhstan. 

3.) Commercial Code of Kazakhstan, as well as the Law "About investments", provides investors with guarantees of income use (in our opinion, the term "guarantee" in this case, is too loud, in fact it is the usual civil rights, that investors will have, even if Article277 of the Commercial  Code of RK does not exist) So, Article277 of the Commercial Code of RK establishes the following, investors are entitled to:

- to use income derived from their activities at its own discretion, after payment of taxes and other compulsory payments to the budget, in accordance with the legislation of the Republic of Kazakhstan;

- To open bank accounts in national currency in and (or) foreign currency banks in the territory of the Republic of Kazakhstan in accordance with banking and currency legislation of the Republic of Kazakhstan.

 

Investment preferences.

 

State support for investment was not radically changed by the Commercial Code; however, all the same, there are some changes. Thus, specific innovation is introduced by paragraph 7 of Article 282 of the Commercial Code of RK, according to its content: an authorized body on investment issues a request for the investor visa for persons who are non-residents of the Republic of Kazakhstan and who are carrying out investment activities in the territory of the Republic of Kazakhstan in the procedure defined by the authorized body about investments.

 

Article 283 of the Commercial Code of RK establishes the following types of investment preferences: the investment project (including investment priority projects) is provided with the following investment preferences:

- Exemption from customs duties and value added tax on imports;

- State land grants.

 

According to the investment priority projects the following types of investment preferences are granted:

1) Preferences for taxes;

2) Investment grants.

 

Preferences on taxes are granted under the investment strategic project.

 

Considering this article, it should be noted the following innovation, now the legal entities implementing the investment project  or investment priority project having the right to apply for exemption from payment of the  value added tax to import. 

Article 286 of the Commercial Code of the RK, which defines the investment preferences granting conditions contain the following essentially new changes and additions in comparison with Article 15 of the Law of the RK “About investments”. 

According to paragraph1, Article 286 of the Commercial Code of RK the Investment preferences shall be granted:

- To the legal entity of the Republic of Kazakhstan under the investment project;

- To the newly created legal entity of the Republic of Kazakhstan under the investment priority projects;

- To a legal entity that implements a strategic investment project in accordance with the investment contract signed with the authorized body about investments prior to 1 January2015 under the investment strategic project.

 

Thus, in accordance with Article 284 of the Commercial Code of RK an investment project is a set of measures providing for investment in the creation of new, expansion and renewal of existing facilities, including the production started, extended and updated during the implementation of  a project of public-private partnerships, including the concession project. The investment priority project refers to the investment project, implemented by the newly created legal entity according to certain priority activities, the list of which is approved by the Government of the Republic of Kazakhstan, and providing for the implementation of investments in the amount of not less than two million times of monthly calculation index established by the law on the national budget and that is actual at the date of filing applications for investment preferences.  The strategic investment project is an investment project, included in the list determined by the Government of the Republic of Kazakhstan, and is able to exert strategic influence on the economic development of the Republic of Kazakhstan.

 

According to paragraph 1’s subparagraph 2 of Article 286 of the Commercial Code of RK, for the purposes of application of investment preferences for investment priority project the newly created legal entity of the Republic of Kazakhstan is a legal entity that complies with the following conditions:

- The state registration of the legal entity must be carried out no earlier than twenty-four calendar months (in the Law of the Republic of Kazakhstan "About investments", this term was defined in 12 months) before the date of filing of the application for investment preferences;

 

According to paragraph 3, Article 286 of the Commercial Code of RK, for the purposes of the application of investment preferences for the investment strategic project a legal entity must comply with the following conditions:

- A legal entity carries out activities that are included in the list of priority activities identified for the implementation of investment priority projects approved by the Government of the Republic of Kazakhstan;

- Implementation of the investment strategic project is carried out on the basis of the investment contract concluded prior to January 1, 2015.

 

According to subparagraph 2 of paragraph 5, Article 286 of the Commercial Code of RK, the share of the state and (or) the subject of quasi-public sector as the founder and (or) the participant (shareholder) of the legal entity of the Republic of Kazakhstan does not exceed twenty six percent (it is provided with twenty five percent by the Law of RK "About Investments").

 

Article 287 of the Commercial Code of RK regulates the provision of this type of investment preferences, as the "exemption from customs duties." This issue was regulated by Article 17 of the Law of the Republic of Kazakhstan “About investments”. At comparing of specified Articles of legislative acts, it should be noted that they have almost the same meaning, but a little different content. Thus, Article287 PC RK discloses its content in terms such as “technological equipment ", "hardware", "raw materials and / or material" and "work programme". Article 17 of the Law "About investments" did not contain such definitions, but Article 1 of the Act disclosed concepts of “technological “, “hardware” and "work programme", but the concept of "raw materials and / or material" were not disclosed by this law. It is also necessary to note the following distinction, where Article 287 of the Commercial Code of RK states that exemption of the customs duties of taxation at import of raw materials and (or) materials is available for a period of five years from the date of commissioning of fixed assets according to the work programme. Article 17 of the Law "About investments", in turn, contained the following, a little different, rule: exemption of the imposition of customs duty at import of spare parts for technological equipment, raw materials and (or) materials with the term of up to 5 years.

 

Article 288 PC RK and Article 18 of the Law "About investments" are identical, except for the presence of definition standards, disclosing the concept of "state land grants” in Article288 of the Commercial Code of RK and, accordingly, the lack of such a provision in Article 18 of the Law "About investments". State land grants are property owned by the Republic of Kazakhstan, passed for temporary free use or provided on the right of temporary gratuitous land to a legal entity of the Republic of Kazakhstan for the implementation of the investment project with subsequent gratuitous transfer into ownership or land use.

 

The guarantee of stability.

 

Article 289 of the of Commercial Code of RK spreads, unlike Article18-3 of the Law "About investments", its actions towards legal entities referred to in paragraphs 2 and 3 of Article 286 of the Commercial Code of RK and implementing investment strategic projects. Considering the guarantee of stability at changing the legislation of RK, it is necessary to specify paragraph 3 of Article 276 of the Commercial Code of RK, according to which the Republic of Kazakhstan guarantees the stability of the conditions of contracts between investors and state bodies of the Republic of Kazakhstan, except in cases where the changes in contracts made ​​by parties’ mutual agreement. These guarantees do not apply to:

1) Changes in the legislation of the Republic of Kazakhstan and (or) the entry into force and (or) changes in international treaties of the Republic of Kazakhstan, which change the procedure and conditions of import, production and sale of excisable goods;

2) Changes and additions are made ​​to the laws of the Republic of Kazakhstan in order to ensure national security, public order, and health or morals of its population.

 

The investment's preferences on CIT corporate income tax, provided for investment strategic projects.

 

Commercial Code of RK contains provisions setting out the procedure for obtaining investment preferences (Article 285 of the Commercial Code of RK), in comparison with the standards of the Law "About investments", regulating the same relations (Article 14); these provisions contain and further provide for standard relating to gaining the investment's preferences on corporate income tax, provided for investment strategic projects. Thus, according to Article 285 of the Commercial Code of RK: to obtain investment preferences a legal entity of the Republic of Kazakhstan shall send an investment application to the authorized body for investment preferences and documents confirming compliance with the applicant's requirements established by this Code, in the form established by the authorized body about investments. 

 

The investment preferences are granted on the basis of an investment contract between the authorized body about investments and the legal entity of the Republic of Kazakhstan implementing investment projects. Terms of the authorized body on investment preferences on the principle of "single window" to investors implementing investment priority project, shall be approved by the Government of the Republic of Kazakhstan. Investment preferences of corporate income tax, provided for the investment strategic projects are provided by the conclusion of a supplementary agreement to the investment contract with authorized body about investments prior to 1 January 2015.

 

Article 290 of the Commercial Code of RK establishes rules for the granting of tax preferences. In comparison with Article 18-4 of the Law "About investments" Article 290 of the Commercial Code of RK contains two innovations:

1). For investment projects, with the exception of the priority investment projects and investment strategic projects, exemption from value added tax of import of raw materials and (or) materials in the framework of the investment contract is granted;

2). For the investment strategic projects provided:

- A reduction in the corporate income tax calculated on the activities carried out within the framework of strategic investment projects, for 100 per cent;

- The application of the coefficient 0 to the rates of the land tax;

- The calculation of property tax at the rate of 0 per cent to the tax base.

 

The rules of application for investment preferences, consideration of such requests, conclusion of a contract, the content of the model contract conditions, in detail spelled out in the new laws and regulations, such as the Order of the Minister for Investment and Development of the Republic of Kazakhstan "On some issues of state support for investment", Decree of the Government of the Republic of Kazakhstan " On approval of Rules of investment subsidies, "Order of the acting Minister for Investment and Development of the Republic of Kazakhstan "On approval of the Rules of admission, registration and consideration of the application for investment preferences granting".

 

Investment subsidy.

 

Article 291 of the Commercial Code of RK establishes the rules governing the granting of investment subsidies, has the same content with Article18-5 of the Law of Kazakhstan "About investments", except only the content in content-definition standards, disclosing the concept of "investment subsidy".

The priority investment projects might be applied for investment subsidy. According to Article 291 investment subsidy compensate until 30 % of investors expenses on construction work and equipment.    

 

Investment disputes.

 

Article 296 of the Commercial Code of RK defines the rules for resolving investment disputes. The standards of the article do not have significant changes compared with the standards of Article 9 of the Law of RK "About investments" which regulated the   relations. Article 296 of the Commercial Code of RK, unlike Article9 of the Law of RK "About investments", discloses the concept of "investment dispute" and it does not contain any direct opportunity to attract the expert in the resolution of the dispute through negotiation. However, the rules of these articles are standards of reference more than by their nature and refer to the civil procedure legislation of Kazakhstan. In this part, it should be noted that in view of the adoption of the new Civil Procedure Code of the Republic of Kazakhstan, the procedure for settlement of investment disputes (to be more precise, for the most part the jurisdiction) has been changed essentially in the legal process.

 

Thus, in accordance with paragraph 4 and paragraph 5, Article 27 of the Civil Procedure Code of Kazakhstan: Astana City Court according to the rules of the court of the first instance considers and resolves civil matters on investment disputes, except for cases under the jurisdiction of the Supreme Court of the Republic of Kazakhstan, as well as other disputes between investors and state bodies related to the investment activity of investors. Other disputes arising out of legal relations with investors, not related to investing activities, as well as disputes involving investors to be considered in a simplified production, the jurisdiction of the district (city) and equivalent with courts in accordance with the jurisdiction established by chapter 3 of the Code of Civil Procedure of Kazakhstan. Also, according to the Article 28 of the Civil Procedural Code of RK: the Supreme Court of the Republic of Kazakhstan considers and decides civil cases according to the rules of the court of the first instance:

- About contest of decisions and actions (inaction) of Central Election Commission of the Republic of Kazakhstan, decisions and actions (inaction) of the Central commission of a referendum;

- On investment disputes, a party in which is a major investor.

 

Also it is necessary to pay attention to Article145 of the Code of Civil Procedure of Kazakhstan, which, compared with  Article149-2 of the Code of Civil Procedure of RK on July 13, 1999 , has expanded a circle of the cases considered as the simplified production. In particular, now, according to subparagraph 6 of paragraph 1 of this article of the Code of Civil Procedure of Kazakhstan: as the simplified (written) production the cases about performance of the agreements on the disputes connected with business, investment activity, signed as pre-judicial settlement in the cases established by the law or provided by the contract are subject to consideration.

 

The current Kazakhstan legislation, adjusting its investment relations in Kazakhstan.

 

The main legal acts regulating investment relations in Kazakhstan are:

1.)     Commercial Code of RK,

2.)     Decree of the Government of the Republic of Kazakhstan "On some issues of implementation of the state support of investments"

3.)     Decree of the Government of the Republic of Kazakhstan "On approval of the list of investment strategic projects"

4.)     Order of the Minister for Investment and Development of the Republic of Kazakhstan "On some issues of state support for investment"

5.)     Decree of the Government of the Republic of Kazakhstan "About approval of Rules of investment subsidies"

6.)     Order of Acting Minister for Investment and Development of the Republic of Kazakhstan "On approval of the Rules of admission, registration and consideration of the application for investment preferences."

 

 

Review of Investment law of Kazakhstan

Prepared by ZAN Company attorney

Bazhenov Maxim