Why Set Up Business in Kazakhstan?
Among the main reasons why Kazakhstan is a choice destination for investors is its priceless natural resources. The country is ranked sixth in the world for its mineral resources and is the largest producer of tungsten. Over the years, since gaining independence in 1991, Kazakhstan has made significant progress toward creating a market economy and has achieved considerable results in its efforts to attract foreign investment. One of the most important issues to foreign investors is the repatriation of their profits and the tax implications of their income. Civil legislation allows foreign investors to operate in Kazakhstan through either a local branch of a foreign company or a local subsidiary established as an independent legal entity under the laws of Kazakhstan. As of December 31, 2013, the total stock of foreign investment in Kazakhstan reached $209.1 billion. The majority of foreign investment is in the oil and gas sector, and the United States is a leading source of investment capital with around $31.4 billion invested in Kazakhstan during the period 2005-2013.
Kazakhstan’s efforts to remove bureaucratic barriers have yielded some progress, and the World Bank in 2013 ranked the country 50 out of 189 in its annual “Doing Business” report. The Kazakhstan Constitution gives foreign companies and individuals the same rights and obligations as Kazakhstan nationals. Foreigners may invest in almost all sectors of the economy, but restrictions do exist for specific industries. Kazakhstan has also signed bilateral investment treaties with many countries, including OECD countries, which guarantee national or most-favoured-nation treatment and stipulate the responsibilities of parties, most notably in the event of expropriation.
Like other emerging markets, entry into Kazakhstan poses inevitable risks for foreign investors. Yet, for companies willing to take these initial risks, the long-term returns will more than offset the costs incurred. In 2014, the government announced that it would suspend corporate and land tax for 10 years for foreign investors setting up businesses outside its oil industry in new incentives meant to diversify the economy. Kazakhstan has created the entire necessary legal framework to attract the investments, and according to international experts, the law in Kazakhstan is one of the best investment laws among the countries with transition economies. It guarantees the full protection of the investors’ rights and the stability of contracts, as well as ensures a very structured interaction of the state bodies with investors.
Governmental measures to support the investments
The law facilitates the free capital movement, capital repatriation, freedom of profits use, lands private ownership including by the foreign companies. It also defines the governmental measures to support the investments in the priority sectors of the economy. Currently, those who invest in Kazakhstan and conclude an investment contract for a Project with the Investments Committee under the Ministry of Industry and New Technologies enjoy numerous advantages, including exemption from corporate income tax (20 %) for up to 10 years; exemption from land tax for up to 10 years; exemption from property tax for up to 8 years from the date when fixed assets are commissioned and reimbursement of up to 30 percent of actual expenses on construction works and purchase of equipment.
The Foreign Investors’ Council (FIC) is an advisory body established to promote direct dialogue between the government and those who invest in Kazakhstan in order to efficiently address key issues related to their investment activities in the country, to improve the investment climate of Kazakhstan for the benefit of foreign investors, local and national companies, the economic development and wealth of the country and its people.
Improvement of its business and investment climate
The major objectives of the FIC include developing and submitting recommendations to the President and government on key investment and economic development issues and analyzing and discussing other core investment policy issues upon the instruction of the President. Overall, Kazakhstan is putting its best efforts to ensure the continuing improvement of its business and investment climate. The establishment of a task force on the protection of rights of foreign investors, the so-called “investment ombudsman”, is the most recent example of those efforts. Another key factors for effective development of economic sectors is the availability of an adequate communication and transport infrastructure, thus Kazakhstan is constantly working on the improvement of its own infrastructure. Overall Kazakhstan is among the top countries which achieved the greatest success in creating a friendly environment for business and will the ongoing efforts by the government to draw more investments, the future of the country’s FDI’s certainly looks positive. If you are looking to set up a business in Kazakhstan, contact us.