On 12 June 2014 the President signed the Law on Introduction of Changes to Certain Legislative Acts of the Republic of Kazakhstan on Improvement of Investment Climate (the “Law”). The Law became effective on 23 June 2014, although provisions of the Law relevant to tax preferences will come into force on 1 January 2015.
The Law introduces investor-oriented changes in several legal acts including the Law on Investments1, the Tax Code2 the Land Code, the Law on Natural Monopolies, the Law on Employment and others. One of the key benefits envisaged by the Law is to provide stability of tax and labor legislation to investors from the date an investment contract is concluded until the contract expires, but with a limitation of 10 years.
The Law links the provision of benefits to investors with the implementation of a “prioritized investment project” under an investment contract. The term “investor” includes individuals and legal entities performing investments3 in Kazakhstan. According to the Law on Investments the term “investmentproject” refers to a range of activities, associated with investment in a new facility, or expansion and renewal of existing facilities, including various types of manufacturing activities and activities under concession agreements, whereas “prioritized investment project” includes investment projects implemented by newly created legal entities in prioritized types of activities approved by the Government, provided that invested funds are not lower than two million monthly calculated indexes4.
Article 14 of the Law on Investment now specifies that investment preferences may be provided on the basis of an investment contract concluded between Kazakhstan legal entity implementing the project and the authorized body (Committee on Investments of the Ministry of Industry and New Technologies). In addition, the law specifies that investment preferences associated with the implementation of “prioritized investment project” can be granted to a newly created Kazakhstan legal entity that complies with certain requirements. Notably the investment preferences cannot be granted to investors partially owned by the state or quasi-state entities, investors attracting funds from the state budget for implementation of a project, investors implementing projects under concession (PPP) contracts, etc. In order to apply for conclusion of an investment contract, a potential investor should provide a number of documents confirming its financial, technical and managerial abilities and obtain the corresponding Government approval (if necessary).
The list of investment preferences available to investors under the Law on Investments5 has been revised and now includes two sets of investment preferences: (i) investors involved in implementation of “investment projects” are eligible for exemption from customs duties and state grants in kind; (ii) investors involved in the implementation of “prioritized investment projects” in addition to these preferences, might enjoy “tax preferences” and “investment subsidies". These preferences cannot be applied within the territories of the special economic zones.
According to the Law on Investment the new term “investment subsidy” refers to partial reimbursement by the State of the investor’s costs related to construction works and the acquisition of fixed assets upon completion of the working program within amounts indicated in project documentation certified by state expertise. The amount of subsidy should not exceed 30 percent of an investor’s capital costs.
According to the comprehensive action plan for attracting foreign and domestic investments (the “Action Plan”) adopted by the Government, the list of prioritized activities includes: production of machines and equipment for agriculture, oil and gas, mining, chemical and petrochemical industries, production of construction materials, food processing, pharmaceuticals, logistics and transportation services, information technology, etc. The Action Plan includes a list of potential foreign investors for each type of prioritized activities.
The tax preferences envisaged by the Law include the exemption of an investor implementing a “prioritized investment project” from corporate income tax on activities related to the investment project for a maximum period of 10 years from execution of an investment contract, exemption from land tax and property tax. These tax benefits are available to newly created entities implementing prioritized investment projects that derive not less than 90 percent of their gross annual revenues from activities under the investment contract. At the same time the Law extends the statute of limitations for the tax purposes for the life of an investment contract plus five years after expiration or termination of such investment contract.
In addition, the Law exempts investors from compliance with foreign labor quotas and work permit requirements in respect of foreign personnel employed by investors implementing “prioritized investment contract” and their contractors and subcontractors involved in architecture and construction activities until the expiration of one year after the commissioning an investment object. This exemption covers categories of foreign employees including managers, specialists with higher education and skilled workers included in the lists of positions under investment contract.