Although the Astana International Finance Centre (AIFC) is aimed at servicing financial transactions, for Kazakhstan businesses it has become a popular venue to form holding companies, joint ventures or operating companies and to benefit from the flexibility of a special legal regime based on English law principles. From that perspective, certain issues of bridging the AIFC regime with Kazakhstan’s “mainland” regime seem to remain.
Status of AIFC entities in Kazakhstan legislation
Firstly, there is a lack of clarity on the status of entities registered in the AIFC within the context of Kazakhstan legislation. According to various legislative acts of Kazakhstan, certain entitlements and obligations apply specifically to legal entities of the Republic of Kazakhstan (RK legal entities). However, it is not clear whether reference to “RK legal entities” extends to legal entities registered in the AIFC.
In particular, state authorities appear to take the view that AIFC entities are not RK legal entities in the sense of being able to enjoy investment preferences in investment contracts agreed under the Business Code. A similar approach can be seen in other instances, where Kazakhstan law refers to RK legal entities, which would limit the operations of AIFC entities.
In the absence of explicit legal regulation and lacking a common position from the authorities in this regard, the question of whether particular entitlement or restriction under Kazakhstan law extends to AIFC entities needs to be assessed on a case-by-case basis.
Quasi-state sector and AIFC
Under the State Property Law, the entities of the quasi-state sector and their subsidiaries can only own equity in commercial businesses that are registered in the specific Kazakhstan “mainland” forms of limited liability partnerships or joint-stock companies. That means these entities cannot own equity in AIFC companies.
A similar restriction applied with respect to the state’s equity ownership in AIFC companies until recent changes in law removing this restriction. We anticipate a similar amendment to follow in respect of quasi-state sector entities. Meanwhile, investors who consider partnering with the quasi-state sector and their subsidiaries should be aware that, at the moment, doing so through an AIFC joint venture is not possible. We will keep you posted on any developments in this regard.
We understand that AIFC is working closely with the governmental authorities to resolve these matters with a view to improve and reconcile both AIFC and Kazakhstan regulations in that respect.
