Kazakhstan's New International Financial Center
In line with Baker & McKenzie's practice of keeping clients informed of important legal developments that might influence your business, we would like to draw your attention to the following recent changes in Kazakhstani legislation.
In an effort to attract further investment into Kazakhstan, President Nursultan Nazarbayev on 19 May issued a decree (the "Financial Center Decree" or the "Decree") which significantly affects the Republic's financial and judicial systems and which, as a consequence, will alter the relative importance of the country's two leading cities, Astana and Almaty. Pursuant to the Financial Center Decree, a new international financial center will be created in Astana (the "Astana Financial Center" or the "Center"), with the goal of becoming one of the top 10 financial centers in Asia, and one of the top 30 financial centers in the world, by 2020. To implement one of the President's recently announced institutional reforms to modernize the country, the Astana Financial Center will include a new court for financial and investment disputes using English law and the English language. Additionally, the Financial Center Decree instructs the National Bank of Kazakhstan (the central bank) and the Kazakhstan Stock Exchange to move to from Almaty (the largest city) to the Astana (the capital).
This Legal Alert summarizes the main points of the Financial Center Decree.
I. ASTANA FINANCIAL CENTER
The Financial Center Decree essentially sets forth the framework for further legislation to be drafted concerning a new international financial center in Kazakhstan. Specifically, the Decree instructs the National Bank of Kazakhstan ("NBK") to draft, by 1 July 2015, a Presidential decree to establish the free economic zone "International Financial Center 'Astana'" and, by 1 September 2015, to draft (together with the Government) a law for submission to Parliament ensuring the establishment and operation of the Astana Financial Center. The NBK (together with the Government) is also charged with submitting proposals concerning the possibility of allocating in the Astana Financial Center the supranational authority for the regulation of the financial markets of the Eurasian Economic Union.
The Astana Financial Center will commence operations on 1 January 2016. To efficiently utilize the massive construction in progress for the EXPO 2017 International Exhibition (World's Fair) in Astana, the Center will be located in the Exhibition's territory from 1 January 2018.
According to the Financial Center Decree, the Center is to operate on standards used by the world's leading financial centers. It is to follow principles of English law and is to use the English language in its documentation. The NBK is to take measures for the Astana Financial Center to enter into strategic partnership agreements with leading international financial centers.
The anticipated activities of the Astana Financial Center are not set forth in the Financial Center Decree, and details of who will be considered a participant in the Center, and the privileges to which they will be entitled, are left to the law to be drafted by the NBK and the Government. But the Decree states that privileges for participants shall include a 10-year exemption from corporate income tax on a participant's income received in the Center's territory and on withholding tax on dividends paid by participants.
Employees of participants will also be exempt from personal income tax and foreign employees will not be required to obtain a work permit. There will be a 30-day visa-free regime for citizens of OECD countries (and the UAE, Malaysia and Singapore), as well as a special 5-year visa regime for employees of participants.
Astana will have direct flight connections with "leading international financial centers" through a phased liberalization of air transportation based on the "open sky" principle.
There will be a Council for the Management of the Center under the President of Kazakhstan, and a joint stock company will be formed to support the activities of the Center. Kazakhstani legislation is to be amended to be "in line with standards adopted by the world's leading financial centers."
II. COURT FOR INVESTMENT DISPUTES
A key part of the Astana Financial Center will be the creation of a "financial court" in the Center. It will engage foreign judges to resolve investment and other disputes. It appears that the new court may hear disputes under agreements governed by English law and that the English language will be used for the proceedings of the new court.
As with other matters raised by the Financial Center Decree, the details of this new court will be set forth in the decree and laws to be drafted by the NBK and the Government. The details to be worked out include (among others):
the types of investment disputes (and other disputes) which may be heard by the new court; the types of parties who may bring claims to the new court; the method of bringing a claim to the new court; the relationship of the new court to other courts in Kazakhstan (in particular, whether decisions of the new court are subject to appeal to the regular courts); whether local judges (not just foreign judges) will be included on panels hearing cases in the new court; whether foreign lawyers may represent parties in the new court; the ability to enforce decisions of the new court outside of Kazakhstan; and the procedural rules to be followed by the new court.
But it is expected that the new court at the Astana Financial Center will have many similarities to the Dubai Financial Center Court or the new Singapore International Commercial Court. During the past several months, high level Kazakhstani delegations have visited and studied those two foreign courts, both of which are well regarded in the international investment community and have been credited with helping Dubai and Singapore become major financial and legal centers. Such a court in Kazakhstan would be the first of its kind in the EEU and former Soviet Union.
III. RELOCATION OF NATIONAL BANK AND STOCK EXCHANGE
To make Astana the center for financial transactions in Kazakhstan, the Financial Center Decree orders both the National Bank and the Kazakhstan Stock Exchange to relocate to Astana. The NBK shall gradually relocate its headquarters by 1 January 2017, but shall maintain a backup center for its database in Almaty. There is no specified deadline for the Exchange's relocation.
Astana replaced Almaty as Kazakhstan's capital in December 1997, and all government bodies relocated there shortly thereafter. However, the NBK (which is an independent body) and the Exchange (which is owned 50.1% by the NBK and 49.9% by 46 private entities) remained in Almaty, where most of the country's commercial banks are headquartered. Almaty then became informally known as the "Southern Capital" or the "Financial Capital" of Kazakhstan. The relocations of the NBK and the Exchange, coupled with the opening of the Astana Financial Center, will clearly affect Almaty's standing vis-à-vis Astana and its ability to use the latter title.
IV. CERTAIN DEBT AND SECURITIES OFFERINGS
The Financial Center Decree also order steps to initiate several serious debt and equity offerings in Kazakhstan. First, it orders the NBK to "create conditions" for the issuance of sovereign Islamic securities by the Republic. Kazakhstan recently amended its legislation concerning Islamic finance but has not yet issued sovereign Islamic bonds
Second, the Decree states that the 5 entities of the National Welfare Fund Samruk-Kazyna which are the "most attractive for investment" shall be identified in order to conduct IPOs of at least 25% of their outstanding shares. Samruk-Kazyna is the Republic's principal sovereign wealth fund and holds the state's interest in over 400 companies. Unlike the "people's IPO's" announced in 2011, shares in the proposed 5 new IPOs will be offered to both domestic and international investors.
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This Legal Alert is issued to inform clients and other interested parties of time-sensitive legal developments which may affect or otherwise be of special interest to them. The comments above do not constitute legal advice or opinion and should not be regarded as a substitute for detailed legal advice in individual cases.
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 The Decree of the President of the Republic of Kazakhstan No. 24 "On the International Financial Center 'Astana' and Relocation of the National Bank of the Republic of Kazakhstan to Astana" dated 19 May 2015.
 In a major speech to the Nur Otan political party on 11 March 2015, President Nazarbayev stressed the need for international investors to have confidence in the fairness of decisions of judges. The President specifically mentioned the possibility of attracting foreign judges to hear investment disputes.
 The Financial Center Decree makes no mention of the Almaty Regional Financial Center established in 2007 pursuant to the Law "On the Regional Financial Center of Almaty" dated 5 June 2006. The stated purpose of the Almaty center was "the development of the financial market of Kazakhstan." Due to the international financial crisis and other factors, the Almaty Regional Financial Center was not successful and in 2011 the agency charged with regulating the Almaty Regional Financial Center was abolished and its functions were transferred to a department of the NBK. The Almaty center had minimal activity for the last several years.
 The Eurasian Economic Union (the "EEU") is the economic union between Kazakhstan, Russia, Belarus, Armenia and Kyrgyzstan. The current EEU treaty (Article 103) calls for such a supranational financial markets regulatory body to be established in Almaty in 2025.