A new law aimed at bringing about improvements to Kazakhstan's overall investment climate became effective on 24 June 2014 and will apply from as 1 January 2015. The law introduces preferential treatment for investors involved in 'priority investment projects' and other beneficial options for projects that do not qualify as priority investment projects.
A draft list of eligible priority activities is being discussed by various state authorities; a final list should be submitted to the government in the near future, with final ratification expected at the end of September 2014.
'Priority activities' will likely include a wide range of activities; however, certain activities are excluded from the scope of the incentives law (e.g., subsoil use and the production of excisable goods).
The investment preferences for priority investment projects will be available only to newly established legal entities that engage in certain types of priority activities and that commit to a minimum investment of approximately US$20 million in Kazakhstan. An investment project for which incentives will be granted will be governed by an investment contract concluded between the investor and the Government of Kazakhstan.
According to the new incentives law, the following package of incentives will be available to eligible investors:
Preferences for priority investment projects only
Tax incentives: The following tax incentives will be available for eligible investors that realise at least 90% of their annual income from the relevant priority investment project:
- A corporate income tax exemption for a period of up to 10 years;
- A zero rate of land tax for land used for the project for a period of up to 10 years; and
- A zero rate of property tax for up to eight years in relation to fixed assets (that are subject to property tax) that have been brought into use for the first time in relation to the project.
The tax incentives will be detailed in the relevant investment contract and available to eligible investors as of 1 January 2015, when the new incentives become effective.
Investment subsidies and other incentives: Government subsidies may be granted by way of a reimbursement of up to 30% of the actual expenses incurred on construction and assembly work and purchases of equipment (excluding VAT and excise duties, and provided documentation is available to substantiate the expenses), but the subsidy will be limited to the amount of expenses projected in the pre-project documentation.
Investors involved in priority investment projects also may be granted the following incentives:
- A stability regime to apply in the event of changes in tax legislation or legislation related to attracting foreign labour to Kazakhstan;
- An exemption from quota and work permit requirements for the following foreign individuals:
- Individuals working for legal entities that have concluded an investment agreement with the government related to a priority investment project; or
- Individuals working for contractors (or subcontractors) as a general contractor, contractor, or executor of services related to architecture, city construction, and construction activity (including survey and design activity and engineering services).
The exemption may last for the entire period of the project and up to one year after its completion for individuals that serve as project heads or specialists with higher education that are qualified employees and will be based on the provisions set forth in the related investment contract;
- Application of the 'single window' principle, under which the competent authority for investments will provide the bulk of services to a qualifying investor (including the issuance of licenses, permits, etc., if applicable) to limit the need for the investor to contact other state authorities and to reduce the number of documents to be submitted. The relevant rules will be approved by the government; and
- Protection of a qualifying investor's rights and legal interests by the investment ombudsman, who will cooperate with the state authorities on issues raised by the investor.
Preferential treatment of investment projects (including priority investment projects)
Customs duties exemption: Beneficial treatment will apply to imports of technological equipment, components, and spare parts for such equipment, raw materials, and other materials:
- In the case of imports of technological equipment, a customs duties exemption may be provided for the period of validity of the investment contract, but the exemption may not last more than five years from the time the investment contract is registered; and
- In the case of imports of components and spare parts for technological equipment, raw materials, and other materials, a customs duties exemption may be provided for the period of validity of the investment contract, but the exemption may not last more than five years from the commissioning date for the fixed assets.
Property grants: State property may be provided to a qualifying investor for temporary use, or land may be provided to a qualifying investor for use free of charge. The maximum market price of the assets provided cannot, however, exceed 30% of the total value of the fixed assets of the legal entity applying for the preference.
The most crucial outstanding item upon which clarifications are required is that (the list of priority investment projects is not yet available, which is one the most critical concerns for potential investors considering the applicability of investment preferences. Given these uncertainties, clarifying acts and supporting legislation are expected to be finalised in the coming months. Overall, however, the new measures should be viewed as a positive initiative to stimulate new investment in Kazakhstan.