DBG_Kazakhstan_2010-2011_PWC

Doing Business Guide 2010 - 2011 KEY STATISTICS............................................................................................................. 6 Republic of Kazakhstan ................................................................................................ 6 1 KAZAKHSTAN – A PROFILE ........................................................................................ 7 1.1 Introduction ........................................................................................................... 7 Geography and Climate ............................................................................................ 7 History ..................................................................................................................... 7 1.2 Government Structure ............................................................................................ 9 Politics ..................................................................................................................... 9 National Government ............................................................................................. 10 Local Government .................................................................................................. 11 The President ......................................................................................................... 11 The Parliament ....................................................................................................... 12 1.3 Legal System ........................................................................................................ 13 Legislative Framework ............................................................................................ 13 Courts .................................................................................................................... 13 Judicial Administration .......................................................................................... 13 1.4 People .................................................................................................................. 14 Population .............................................................................................................. 14 Language................................................................................................................ 14 Religion .................................................................................................................. 14 Education ............................................................................................................... 15 Living Standards ..................................................................................................... 15 1.5 Economy .............................................................................................................. 16 General Overview ................................................................................................... 16 Transportation ....................................................................................................... 17 Telecommunications .............................................................................................. 19 1.6 Foreign Trade ....................................................................................................... 20 2 BUSINESS ENVIRONMENT ....................................................................................... 21 2.1 Business Climate .................................................................................................. 21 2.2 Free Trade Zones .................................................................................................. 22 2.3 International Agreements ..................................................................................... 22 2.4 Legal Environment ............................................................................................... 22 2.5 Regulations for Business ....................................................................................... 23 Foreign Currency Regime ....................................................................................... 23 Competition Law .................................................................................................... 23 Intellectual Property ............................................................................................... 23 Consumer Protection .............................................................................................. 24 Business Transformations ....................................................................................... 24 2.6 Property Market ................................................................................................... 24 3 FOREIGN INVESTMENT & PRIVATIZATION ............................................................. 26 3.1 Foreign Investment .............................................................................................. 26 4 BANKING, FINANCE AND INSURANCE..................................................................... 28 4.1 Banking System .................................................................................................... 28 4.2 Foreign Currency Market and Foreign Currency Rules .......................................... 28 4.3 Specialized Financial Institutions ......................................................................... 29 PwC

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Doing Business Guide 2010 - 2011 4.4 Investment Institutions ......................................................................................... 29 4.5 Capital Markets .................................................................................................... 30 5 IMPORTING AND EXPORTING ................................................................................. 31 5.1 Trends in Customs Policy ...................................................................................... 31 5.2 Import Restrictions ............................................................................................... 31 5.3 Customs Duties .................................................................................................... 32 5.4 Temporary Import Relief ...................................................................................... 34 5.5 Customs Duties and Customs VAT Incentives ........................................................ 35 5.6 Documentation and Procedures ............................................................................ 36 5.7 Warehousing and Storage..................................................................................... 36 5.8 Re-Exports ........................................................................................................... 37 6 BUSINESS ENTITIES ................................................................................................. 38 6.1 Legal Framework.................................................................................................. 38 6.2 Joint Stock Company (“JSC”) ............................................................................... 38 6.3 Partnerships ......................................................................................................... 41 6.4 Branches and Representative Offices .................................................................... 42 6.5 Registration Process ............................................................................................. 43 7 LABOUR RELATIONS AND SOCIAL SECURITY ......................................................... 44 7.1 Labour Market ...................................................................................................... 44 7.2 Labour Relations .................................................................................................. 44 7.3 Working Conditions ............................................................................................. 44 7.4 Social Security System .......................................................................................... 44 7.5 Foreign Personnel ................................................................................................ 45 8 ACCOUNTING AND REQUIREMENTS ....................................................................... 47 8.1 Accounting ........................................................................................................... 47 8.2 Chart of Accounts ................................................................................................. 47 8.3 Audit Requirements.............................................................................................. 47 9 TAX SYSTEM AND ADMINISTRATION...................................................................... 48 9.1 Tax System ........................................................................................................... 48 9.2 Direct and Indirect Tax Burden ............................................................................. 48 9.3 Principal Taxes ..................................................................................................... 48 9.4 Legislative Framework ......................................................................................... 48 9.5 Income Tax .......................................................................................................... 49 Concepts of Income Tax .......................................................................................... 49 Classes of Taxpayer ................................................................................................ 50 Taxable Income ...................................................................................................... 50 9.6 Tax Treaties ......................................................................................................... 50 9.7 Tax Returns and Payments ................................................................................... 50 9.8 Assessments ......................................................................................................... 50 9.9 Appeals ................................................................................................................ 51 9.10 Withholding Taxes ............................................................................................. 51 10 TAXATION OF CORPORATIONS ............................................................................. 53 10.1 Corporate Tax System ........................................................................................ 53 10.2 Incentives ........................................................................................................... 53 10.3 Taxable Income .................................................................................................. 54 10.4 Deductibility of Expenses.................................................................................... 54 PwC

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Doing Business Guide 2010 - 2011 10.5 Related Party Transactions ................................................................................. 56 10.6 Foreign Exchange ............................................................................................... 56 10.7 Tax Computations .............................................................................................. 57 10.8 Other Taxes ........................................................................................................ 57 10.9 Branch Versus Subsidiary ................................................................................... 58 10.10 Holding Companies .......................................................................................... 59 10.11 Subsurface Taxation ......................................................................................... 59 Tax Regime ............................................................................................................ 59 Special Taxes .......................................................................................................... 59 Mineral Production Tax .......................................................................................... 59 Excess Profits Tax ................................................................................................... 60 Rent Tax ................................................................................................................. 60 Special Provisions ................................................................................................... 60 Deductions ............................................................................................................. 61 Losses ..................................................................................................................... 61 Ring Fencing .......................................................................................................... 61 Stability of Tax Regime ........................................................................................... 61 11 TAXATION OF INDIVIDUALS .................................................................................. 62 11.1 Territoriality and Residence ............................................................................... 62 11.2 Gross Income...................................................................................................... 62 Employee Gross Income .......................................................................................... 62 Capital Gains and Investment Income ..................................................................... 63 11.3 Deductions ......................................................................................................... 63 Business Deductions ............................................................................................... 63 Non-Business Expenses ........................................................................................... 63 Personal Allowances ............................................................................................... 63 11.4 Tax Credits ......................................................................................................... 64 11.5 Other Taxes ........................................................................................................ 64 Social Security Taxes .............................................................................................. 64 Obligatory Pension Contributions ........................................................................... 64 Wealth Tax ............................................................................................................. 64 Local Taxes ............................................................................................................. 64 11.6 Tax Administration............................................................................................. 64 Returns .................................................................................................................. 64 Payment of Tax ....................................................................................................... 65 11.7 Tax Rates ........................................................................................................... 65 11.8 Secondment ....................................................................................................... 65 12 VALUE ADDED TAX (VAT) ...................................................................................... 66 12.1 Introduction ....................................................................................................... 66 12.2 Scope of VAT ...................................................................................................... 66 12.3 Zero-Rating ........................................................................................................ 68 12.4 Exempt Supplies ................................................................................................. 68 12.5 Taxable Amount ................................................................................................. 68 12.6 Non-Deductible Input VAT ................................................................................. 69 12.7 VAT Incentives ................................................................................................... 69 12.8 Simplification Measures ..................................................................................... 69 PwC

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Doing Business Guide 2010 - 2011 12.9 VAT Compliance ................................................................................................. 70 PRICEWATERHOUSECOOPERS IN KAZAKHSTAN ...................................................... 71 APPENDIX A – MACROECONOMIC INDICATORS OF KAZAKHSTAN .......................... 72 APPENDIX B – TIPS FOR BUSINESS VISITORS ............................................................ 73 Visas .......................................................................................................................... 73 Travel ........................................................................................................................ 74 Customs ..................................................................................................................... 75 Registration ............................................................................................................... 75 Accommodations ....................................................................................................... 76 Almaty.................................................................................................................... 76 Astana .................................................................................................................... 77 Atyrau .................................................................................................................... 77 Aktau ..................................................................................................................... 78 Drivers ....................................................................................................................... 78 Interpreters ................................................................................................................ 78 Appointments ............................................................................................................ 78 Working Hours ........................................................................................................... 79 Currency .................................................................................................................... 79 Public Holidays .......................................................................................................... 80 Safety ........................................................................................................................ 80 Traditions .................................................................................................................. 81 Attractions ................................................................................................................. 82 Education .................................................................................................................. 82 Health Care ................................................................................................................ 83 APPENDIX C – TAX RATES ........................................................................................... 85 APPENDIX D – WITHHOLDING TAXES ........................................................................ 86 APPENDIX E – SETTING UP IN KAZAKHSTAN – A CHECKLIST ................................... 89

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Doing Business Guide 2010 - 2011 KEY STATISTICS Republic of Kazakhstan Total Area:

2,724,900 sq. km.

Estimated Population:

16.417.000 million (2010)

Capital:

Astana: 653,529 (2010)

Other Principal Cities:

Almaty: 1.129.000 million, Karaganda: 437 ,000

Languages:

Kazakh (official language), Russian (language of international communication)

Neighboring states:

Uzbekistan, Turkmenistan, Russia, China, Kyrgyzstan

Currency:

Kazakh Tenge (KZT)

Exchange rate:

KZT 147,42=USD 1 (December 2010)

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1 KAZAKHSTAN – A PROFILE 1.1 Introduction Geography and Climate Kazakhstan is the second largest (after Russia) of the former Soviet Republics. It is geographically diverse, comprising extensive grassland, semi-desert and mountainous areas.

Kazakhstan lies in the north of the central Asian republics and is bounded by Russia in the north, China in the east, Kyrgyzstan and Uzbekistan in the south, and the Caspian Sea and part of Turkmenistan in the west. It has almost 1,177 mi (1,894 km) of coastline on the Caspian Sea. Because Kazakhstan has no exposure to maritime weather patterns, the entire country has a continental climate featuring cold winters and hot summers. Rainfall, which varies from 100 to 200 millimeters per year, generally is heaviest in the south and in the eastern mountains.

History Kazakhstan, a vast land of spreading steppe and rugged mountains, is the largest landlocked country in the world. The ancient inhabitants of Kazakhstan developed civilizations in the south over two millennia ago, leaving gold and ceramic relics for archaeologists. Probably considered the greatest relic and now a national symbol of Kazakhstan, the “Golden Man” is a sak warrior clad completely in gold clothing.

The Kazakh people of today emerged from the nomads that inherited the steppes, only to later surrender their nomadic life style under the Soviet system. They typically moved from the rivers in southern Kazakhstan to the north in summer in search of pastures, trading with those passing along the Silk Road. The temporary settlements of yurts, called “aul,” were their only communities. Nonetheless, some settled more permanently in the south. When Islam spread to Central Asia around the 8th Century, it took hold in the southern settlements. The remaining Kazakhs adopted some philosophies from Islam and melded them with their own animistic beliefs. To this day, southern Kazakhstan tends to be more religious while, for some, Islam is merely a part of their heritage. Thus, the PwC

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fundamentalism that spawned conflict in other parts of Central Asia has not affected Kazakhstan.

In the 13th century, Genghis Khan’s Mongolian army invaded the Kazakh Steppe. Genghis Khan left the area, now Kazakhstan, to be ruled by his three sons. The Western, Eastern and Central regions were given to the youngest, middle and eldest sons, respectively. This regional division became an identifying factor for the Kazakh tribes that lived in these Khanates and developed into the “zhuz,” or clan system, after the deterioration of the Mongol Empire.

With the continued threat of raiding tribes from the East, in the 18th century the Kazakhs turned to their neighbors in the north, the Russians, for military assistance. The Tsar was more than willing to help. The Tsar’s Cossack forces had already founded Uralsk in western Kazakhstan and Ust-Kamenogorsk in eastern Kazakhstan. The fortress of Verniy was established in southeast Kazakhstan along the Tien-Shan Mountains in the 1854’s, later to become the city known as Alma-Ata, and eventually Almaty.

The sparse steppe of southern Russia and northern Kazakhstan also became a dumping ground for the Tsar’s unwanted. Russia exiled educated and cultured people to this region, including the Russian writer Dostoevsky. These individuals interacted with the Kazakh people, who eventually spawned the initial literacy among the nomads in the north and influenced such famous Kazakhs as the poet, Abai, and the geographer/scientist, Shokan Valikhanov. The Socialist Revolution and ensuing civil war that swept Russia were not without consequence for the Kazakhs. Bolsheviks established Kazakhstan as an autonomous region of Russia, which, in the late 1930’s, became the Kazakh Soviet Socialist Republic. It was during this period that the Kazakh language adopted a Cyrillic alphabet, after having been penned earlier in Arabic script and, for a brief period, with Latin letters.

The onset of the Second World War brought more forced immigration to Kazakhstan.

Stalin, faced with an invasion by the German Army, decided that certain ethnic groups could not be trusted near the fronts and had them moved to Kazakhstan. With the encroachment of the invading fascists, much of Russia’s industry was moved beyond the Ural Mountains and even to Alma-Ata. The next wave of immigration from Russia was experienced in the 1950’s with Krushchev’s Virgin Lands Plan to cultivate the vast Kazakh steppe. By its independence in 1991, Kazakhstan developed a diverse cosmopolitan society, consisting of Kazakhs, Volga Germans, Koreans from the Far East, Poles, Crimean Tartars, Chechens, and Russians.

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On 16 December 1991, Kazakhstan became the last republic to vote for secession from the Soviet Union and became an independent republic. With the Kazakhs now in total control of their independent republic, many of the non-Turkic ethnic groups emigrated. The trends, until recently, had been a negative population growth, averaging approximately 150,000 people a year since 1991, with the population of 14.8 million in 2003, compared with 16.7 million in 1991.

Even though politically independent from Moscow, most citizens of Kazakhstan continue to monitor Russian politics closely.

1.2 Government Structure Politics From 1964 to 1986, Dinmukhamed Kunayev held the position of General Secretary of the Communist Party of the Kazakh Soviet Socialist Republic. With Gorbachev’s policy to reform the political nature and remove corruption, in 1986 Moscow appointed a Russian, Gennady Kolbin, as the new Party leader. Kolbin was the Communist Party leader in Kazakhstan for a very brief time before his successor, Nursultan Nazarbayev, rose to power.

In December 1991, President Nazarbayev, formerly the Communist Party’s First Secretary for Kazakhstan, ran unopposed in the first presidential election. Nazarbayev began to embrace market-oriented reforms along what appeared to be Korean lines – autocratic leadership combined with a commitment to capitalist ideals.

In the spring of 1995, President Nazarbayev held a national referendum to extend his presidency for another five years, thereby foregoing the presidential election scheduled for 1996. The five-year term and two term limits for presidential rule in the constitution were changed by amendment in the fall of 1998. Elections held in January 1999 resulted in the re-election of Nursultan Nazarbayev for a term to the year 2006. In the latest presidential election held on 4 December 2005, Nursultan Nazarbayev won 91.1% of the vote and was re-elected for another six year term to the year 2012.

However, in May 2007, Parliament voted to abolish term limits, allowing President Nazarbaev to stay in the office indefinitely, while the changes, proposed by the President, gave parliament more power.

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Today’s government structure is based on the three-branch system, with an executive, legislative, and judicial branch.

Though Kazakhstan passed a new constitution as an independent state in January 1993, another constitution was passed by national referendum in August 1995. Both documents guarantee human rights and property ownership for all. In 2005, Kazakhstan ratified two new international treaties – the Pact on Civil and Political Rights and the Pact on Economic, Social and Cultural Rights. According to the Constitution in force, Kazakh is the state language for Kazakhstan, with the Russian language being officially used along with the Kazakh language.

Despite the frequent rotation of cabinet members and other officials, reform continues.

The last election was used in Kazakhstan as a reaffirmation of the President’s power and popularity as well as an indicator of democratic progress. So far, Kazakhstan’s opposition parties have failed to present a serious alternative to President Nazarbayev for a number of reasons.

In December 1997, the capital of Kazakhstan was moved from Almaty to Akmola, now renamed to Astana, by presidential decree and was officially opened on 10 June 1998.

Almaty remains the major business and commercial center.

National Government The Government is responsible for the day-to-day functioning of ministries and agencies.

The Government is chosen by, and is directly accountable to, the President and issues regulations in line with existing legislation. Unless specified by the Ministries as an issue to be resolved by the President or Parliament, the Government is also authorized to decide matters of economic management. The Government is accountable to the Parliament on questions of executing laws.

The Prime Minister is responsible for the direct management of the Government and can sign resolutions drafted by the Government or issue orders.

Aside from the Executive Branch, the government is comprised of the Legislative and Judicial branches. The bicameral Legislative Branch consists of the Senate (Upper House) and the Majilis (Lower House). The Senate contains 39 seats, 15 of which are determined

by Presidential appointment. Senate members serve six-year terms. The Majilis has 107 seats with five-year terms. The Supreme Court is elected by the Senate based on the nominations by the President of the Republic of Kazakhstan.

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Among the parties in Kazakhstan are: Nur-Otan (the party that supports President Nazarbayev), the Kazakhstan Civic Party and the Kazakhstan Agrarian Party (propresident parties), the Communist Party of Kazakhstan, Ak Zhol (a splinter group of the former Democratic Choice of Kazakhstan), the Kazakhstan Patriots Party, and the Kazakhstan Social Democrat Party-Auyl.

Local Government Kazakhstan is divided into 14 administrative regions with separate administrative structures for a few selected cities such as Almaty. Local government budgets are subject to approval by local assemblies.

The head of the regional executive body, the Akim, is directly chosen by the President and serves as a representative of the President at the local level. The Akim’s power terminates when a newly-elected President of the Republic is inaugurated, though the existing Akim will continue to perform his duties until the new President appoints a new Akim.

Regional governments are granted a limited amount of autonomy from Astana. An exception was made for the city of Almaty, which was granted extensive authority.

However, economic decision-making is increasingly being de-centralized.

The President On 30 August 1995, a new constitution was approved in a referendum. The President was re-elected in 1999, his present term extending until 2006. On 4 December 2005, Nursultan Nazarbayev won 91.1% of the vote in the latest presidential election and was re-elected for another six year term to 2012.

The Presidency is the highest executive authority in Kazakhstan. The President is elected for seven-year terms. According to the amendments to the Constitution of 21 May 2007, however, the President will be elected for five-year terms. Candidates for President must not be younger than forty and must have lived in Kazakhstan for not less than the last fifteen years as well as having a perfect command of the Kazakh language. The President not only represents Kazakhstan internationally but also chairs the Government and nominates the Prime Minister. The President nominates the Deputy Prime Ministers, and Ministers of Foreign Affairs, Defense, Finance, and International Affairs, etc. All nominees are subject to approval by the Parliament.

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Additionally, the President is responsible for signing laws for the Republic and can return a law to Parliament for its re-consideration for up to one month. Should the Parliament vote (by a two-thirds majority) to accept the law in its original form, the President is obliged to sign it. If no objection is raised within the original one-month period, it is assumed that a law has been passed. The President is also empowered to form and abolish Ministries, state committees, and other government agencies. He can conduct negotiations, sign international agreements, grant citizenship, and appoint or replace diplomatic representatives.

The Parliament The Parliament is the supreme legislative body of Kazakhstan. Parliament consists of two Chambers acting on a permanent basis: the Senate and the Majilis. Senate deputies’ terms are six years; the Majilis deputies serve five-year terms. As in Russia, the Parliament’s role is to approve the prime minister and other key government positions nominated by the President. The Parliament is responsible for approving the Constitution and passing constitutional amendments, adopting laws and other legislation, exercising control over the implementation of legislation. The Parliament also ratifies international treaties.

The last parliamentary elections were held on 18 August 2007. Nur-Otan, a party, led by Nursultan Nazarbayev, received about 88% of the vote and won all of the available seats.

None of the six other parties contesting the election reached the 7% threshold to win seats.

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1.3 Legal System Legislative Framework The provisions of the Constitution, the laws corresponding to it, other regulatory legal acts, international treaties and other commitments of Kazakhstan as well as regulatory resolutions of Constitutional Council and the Supreme Court of Kazakhstan comprise the functioning law in the Republic of Kazakhstan.

The Constitution has the highest juridical force on the entire territory of Kazakhstan.

International treaties ratified by Kazakhstan have priority over its domestic laws and are directly implemented except in cases when the application of an international treaty requires the promulgation of a law.

Courts The court system of Kazakhstan includes the Supreme Court, local courts and other courts, established by law.

Judicial Administration Within the Judicial Administration, the Senate elects the Chairperson of the Supreme Court, the Chairpersons of the Justice Collegium, and judges of the Supreme Court of the Republic based on the nominations of the President. The regional courts consider civil cases where one of the parties is an international or foreign organization.

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1.4 People Population In 2008, Kazakhstan’s population was estimated to be 15.6 million, in 2007 - 16.8 million, of which about 52 percent was female. Population density was 14.5 persons per square kilometer. Some 53 percent of the population lives in urban areas, and the population is heavily concentrated in the northeast and southeast. In the early 2000s, economic growth brought significant movement from rural to urban areas. Because the annual population growth rate has been negligible in the early 2000s, population growth is a critical issue for policy makers. Although in recent years a large number of legal and illegal immigrant workers have come to Kazakhstan from Kyrgyzstan and Uzbekistan, in 2006 the estimated net migration rate was –3.31 individuals per 1,000 population.

Language The language spoken in business and daily life is Russian, although Kazakh is heard outside of the major cities. However, the Government has decreed that the legal language is Kazakh. Increasingly, Kazakh is taught in schools and children's nurseries.

It may be helpful to learn some Russian or Kazakh words. Like many, the Kazakhstan people seem to appreciate it when foreigners show interest in their way of life and in communicating in the National (Kazakh) or common (Russian) language.

English Hello!

How do you do?

Good-bye!

Thank you!

Russian Zdravstvuyte! / Privet!

Kak dela?

Do svidanya! / Poka!

Spasibo!

Kazakh Salemetsizbe / Assalam aleikum!

Kalynyz kalay?

Sau bolynyz!

Rakhmet!

Religion Some 47 percent of Kazakhs are Muslim, primarily Sunni Muslims; 44 percent are Russian Orthodox, and 2 percent are Protestant. Because the Muslims of Kazakhstan developed their religion in isolation from the rest of the Islamic world, there are significant differences from conventional Sunni and Shia practices. For example, the teachings of the

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Quran are much less central to the Kazakh version of Islam than in other parts of the Muslim world.

Education Education is mandatory between ages seven and 15. Primary school is a four-year period, followed by five years of mandatory secondary school. Two years of specialized secondary school are optional. Beginning in the early 1990s, the primary language of instruction shifted from Russian to Kazakh, although in 2008 many institutions are still instructing in Russian. The public education system has declined since the Soviet era, in part because of insufficient funding and in part because the emigration of Russian and German scientific experts has depleted the teaching corps in the technical fields. From 1999 through 2008, government spending on education increased as a percentage of gross domestic product; it accounted for 3.7 percent of the GDP in 2008. Between 2001 and 2005, enrollment in the primary grades decreased.

Programs to restructure the Soviet-era education system have not been completed.

Between 1996 and 2004, the number of private education institutions nearly quadrupled; private schools increasingly are preferred by those who can afford them because of the deterioration in the public system. In 2005, some 181 institutions of higher learning were in operation, attended by 747,100 students. Enrollment in higher education increased rapidly in the early 2000s; some 440,700 students were enrolled in 2001. According to the 1999 census, Kazakhstan’s literacy rate was 97.5 percent.

Living Standards Kazakhstani citizens are satisfied with the level of living standards in the country, as compared to other people living in the CIS, based on research conducted by the AllRussian Public Opinion Research Center. The sociologists analyzed the opinions of citizens of Russia, Belarus, Ukraine, Kazakhstan, Armenia, Azerbaijan and Kyrgyzstan. Igor Eidman, director of the Russian News Service said, these seven countries have an average level of material wealth as compared to the rest of the world. The highest level of material wealth in the region was reported by the citizens of Kazakhstan. The residents of Kazakhstan are optimistic about their future, and one half of them believe that they will live better lives within one year. Kazakhstan has given the most positive evaluations of the economic situation in its country.

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1.5 Economy General Overview Kazakhstan, the second largest of the former Soviet republics in land mass, possesses enormous untapped fossil fuel reserves as well as plentiful supplies of other minerals and metals. It also has considerable agricultural potential with its vast steppe accommodating both livestock and grain production. Kazakhstan's industrial sector relies on the extraction and processing of these natural resources and also on a relatively large machine building sector specializing in construction equipment, tractors, agricultural machinery, and some defense items. The dissolution of the USSR and the collapse of demand for Kazakhstan's traditional heavy industry products resulted in a sharp contraction of the economy since 1991, with the steepest annual decline occurring in 1994. In 1995-1997 the pace of the government program of economic reform and privatization quickened, resulting in a substantial shift of assets to the private sector.

The December 1996 signing of the Caspian Pipeline Consortium agreement to build a new pipeline from western Kazakhstan's Tengiz oil field to the Black Sea increased prospects for substantially larger oil exports for several years.

Kazakhstan’s impressive economic growth continued in 2007 with GDP annual gross of 8.5%. Principal sectors within the economy are agriculture, non-ferrous metals, chemicals (including petrochemicals), fuel and energy resources. Industry now accounts for 34.7 % of the GDP, transport – 7%, trade – 13.5%, construction – 5.6%, agriculture – 2.1%, according to figures for the first quarter of 2008. Kazakhstan's chemical industry is a major producer of calcium carbide, sulphuric acid, phosphorous and chromium compounds. In recent years, production of mineral fertilizers has increased significantly. Kazakhstan is also home to the Aktau Plastics Factory, one of the largest producers of polyethylene in the CIS. Additionally, Kazakhstan also has large coal deposits in Karaganda, Ekibastuz, Maikubinsk, and Kushmurunsk.

Agricultural is shifting away from the Soviet-era focus on large harvests, and instead attempting to maximize revenue per hectare, particularly through exports. Improved harvest quality in recent years has led to higher exports.

Kazakhstan also has significant reserves of iron ore and non-ferrous metals including lead, magnesium, titanium, zinc, molybdenum, silver, copper, gold, tin, industrial diamonds, chrome, uranium, tungsten, bauxite, manganese, vanadium, beryllium, nickel, rhenium, and gallium.

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With its natural resources, like oil, gas and metals, Kazakhstan is particularly attractive for foreign investments, attracting over USD 34 billion between 1993 and 2004. Most of the major oil companies are represented here. In particular, the Caspian Sea region hosts a number of activities centered on the oil and gas industry. Other foreign investment has been made in the cigarette industry, the energy and telecom sectors, as well as private lending to the government.

In comparison with many of the other former republics, Kazakhstan's economic structure is believed to be relatively well placed for the process of structural adjustment upon which it has embarked. Its rich mineral base and related industries, as well as the wide variety of agricultural goods produced, promise the development of a well-diversified economy.

Because of its strong macroeconomic performance and financial health, in 2000 Kazakhstan became the first former Soviet republic to repay all of its debt to the International Monetary Fund (IMF), 7 years ahead of schedule. In March 2002, the U.S. Department of Commerce granted Kazakhstan “market economy� status under U.S. trade law.

In September 2002, Kazakhstan became the first country in the former Soviet Union to receive an investment-grade credit rating from a major international credit rating agency.

Transportation Roads: In 2007, Kazakhstan had about 93,100 kilometers of roads, 84,000 kilometers of which were hard surface. Of the 23,000 kilometers of main highways, an estimated twothirds are in poor condition. The major artery, the 1,222-kilometer road between Astana and Almaty, was rehabilitated in the early 2000s with funding from three international banks. With assistance from the European Bank for Reconstruction and Development, another important highway is being completed along the Caspian coast between Turkmenbashi in Turkmenistan and Astrakhan in Russia, serving Kazakhstan’s western oil outposts. There are 46 road crossings on the border with Russia, seven each on the borders with Kyrgyzstan and Uzbekistan, and six on the border with China. Spurred by income from oil, ownership of private vehicles increased sharply in the early 2000s, albeit from a very low starting point.

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Railroads: In 2007, Kazakhstan had an estimated 15,100 kilometers of rail line, of which about 4,000 kilometers were electrified. The infrastructure of the railroad system is in poor condition, although Kazakhstan still moves nearly 75 percent of its freight and 50 percent of its passengers by rail. Using foreign funds, state-owned Kazakhstan Railways has undertaken a three-year infrastructure improvement program, and its passenger service was being reorganized in 2006. Rolling stock and spare parts have been in short supply. The system is concentrated in the northern part of the country, where it connects with lines in southern Russia. Lines also run northeast from Almaty to join the TransSiberian Railroad in Russia and westward from Almaty to Shymkent and then into European Russia. The main connector with Uzbekistan runs into Shymkent. Needed reform of the administrative structure and route improvements have gone slowly. A high priority is construction of a shorter rail route across Kazakhstan to link western China with Russia. Kazakhstan and Kyrgyzstan plan a 100-kilometer connector line from Almaty to Lake Issyk-Kul in Kyrgyzstan, to be completed in 2008. A rail line connects Druzhba, on Kazakhstan’s eastern border, with China via the Alataw Shankou Pass. Almaty also plans to build a 35-kilometer subway line.

Ports: Kazakhstan’s major ports are the cities of Aktau and Atyrau on the Caspian Sea and the Irtysh River ports of Цskemen, Pavlodar, and Semey, which serve the northeastern industrial sector. Beginning in 1999, Aktau was upgraded, with the goal of handling 7.5 million tons of oil and 1 million tons of freight per year. A new ferry port opened in Aktau in 2001 added substantially to its capacity and established ferry connections with Azerbaijan, Iran, and Russia.

Inland Waterways: Although Kazakhstan has about 4,000 kilometers of inland waterways, 80 percent of river traffic uses the Irtysh River. Eleven companies carry traffic through the system.

Civil Aviation and Airports: In 2006, some 16 major airports and 51 smaller pavedrunway airports served Kazakhstan. Nine had runways longer than 3,000 meters. Four, at Astana, Almaty, Aktau, and Atyrau, offered international flights. In 2006 a fifth international airport was planned to serve western Kazakhstan. Flights from Almaty connect with Russia, other former Soviet republics, and some destinations in Europe, Asia, and the Middle East. Development of Kazakhstan’s airline service has suffered from political struggles over control of the industry. The government has contracted management of some airports to foreign companies, and in the early 2000s foreign companies began competing with domestic airlines. In 2002 one-third of Kazakhstan’s air companies lost their licenses because of lax safety practices, and many companies merged thereafter. Air Kazakhstan, the state airline, declared bankruptcy in 2004, making its competitor Air Astana the main domestic airline.

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Pipelines: Because Kazakhstan is a vast country producing large amounts of oil and natural gas, pipelines receive high priority in transportation planning, and their location and funding have been controversial issues. In 2007, Kazakhstan had 11,019 kilometers of natural gas pipeline, 10,338 kilometers of oil pipeline, 1,095 kilometers of pipeline for refined products, and 658 kilometers for gas condensate. Poor management and distribution of the domestic pipeline system have necessitated importation of natural gas, and foreign investment has concentrated on export lines. Kazakhstan is linked to the Russian pipeline system by the Atyrau–Samara line, whose capacity was increased in 2001, and to Russia’s Black Sea oil terminal at Novorossiysk by the Caspian Pipeline Consortium line. The Central Asia Oil Pipeline sends oil from Kazakhstan through Turkmenistan and Afghanistan to Pakistan’s Arabian Sea port of Gwadar. In late 2005, the Atasu–Alashankou oil pipeline was completed between eastern Kazakhstan and Xinjiang Province in China. That 970-kilometer line has a capacity of 20 million tons per year. In 2006 work, was underway to extend that line from Atasu to Atyrau on the Caspian Sea, making the total length 2,900 kilometers.

Additional capacity for the export of crude oil is planned through the construction of a new 750 kilometer pipeline from Yeskene, near Atyrau, to Kuryk, close to the Aktau sea port.

From Kuryk, oil would be transported by tanker to Baku, Azerbaijan, where it will be fed into the BTC pipeline. It is expected that the new pipeline would handle increased production from the Tengiz field as well as Kashagan oil once production comes on line.

Telecommunications Although Kazakhstan has the best telephone system in Central Asia, the system rates poorly by world standards, providing only 15 lines per 100 inhabitants in 2004. Attempts to attract foreign investment have largely failed. The state-owned national telecommunications company, Kazakhtelecom, has received assistance from the European Bank for Reconstruction and Development in a nationwide program of expansion and modernization. The company relinquished its monopoly control of international and longdistance telephony in 2005, and several companies now compete in those markets.

Particular growth has occurred in mobile phone access; on 1 July 2008 more than 11 million active subscribers are registered, compared with 29,000 in 1994. The June 2006 launch of the KazSat communications satellite from the Baykonur space platform, with Russian technical assistance, was expected to reduce the dependence of all the Central Asian countries on European and U.S. telecommunications satellites.

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Expansion of Internet use has been limited by the relatively low ownership of computers in Kazakhstan. Most users access the Internet at public or work facilities. Usage is concentrated in the northern urban centers. In 2007, an estimated 1,9 million people (12,3% of the population) were using the Internet.

1.6 Foreign Trade Overall, around three-quarters of Kazakhstan's exports are intermediate goods and raw materials, while finished goods constitute a small part. About half of the finished goods consumed within Kazakhstan are imported. Kazakhstan's exports principally consist of: 73.8% mineral products; 16% metals, of which more than one-quarter are copper and copper products; and the remaining 19.8% divided among grain, machinery, consumer goods and others. Most of the exports from Kazakhstan are to Russia, the Commonwealth of Independent States, the European Union, and China.

The largest importers tend to be Russia, Germany, China, the United States and the European Union, with machinery and equipment representing a significant portion of the imports.

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2 BUSINESS ENVIRONMENT 2.1 Business Climate Modern-day Kazakhstan is a paradox. It hosts relatively sophisticated systems of internal communication, transportation, industry, agriculture, education, housing and health care, although most of the infrastructure suffers from funding restrictions. Kazakhstan is continuing to develop systems of business law, taxation, banking, and external links to the international business community and, most importantly, a market economy.

This paradox presents a unique challenge to business people entering Kazakhstan when attempting to assess real business risks and to make reality-based decisions rather than relying on perceptions. Abundant natural resource wealth and agricultural production make Kazakhstan's population one of the potentially richest countries per capita in the former Soviet Union. However, converting this potential into reality requires many critical factors to function in concert. Attracting and protecting investors is among the most critical of these factors.

As with many developing economies seeking external investment capital, Kazakhstan finds itself in a highly competitive situation. The wealth of its petroleum, mining, and agriculture sectors may be too great a temptation for many foreign investors to pass up.

The question will be whether Kazakhstan's legal and business infrastructure will be able to keep pace with the demands inherent to investment development. Kazakhstan has successfully introduced concepts of property ownership, human rights, environmental protection and investment protection. In so doing, Kazakhstan has taken a giant step in meeting these development needs. New laws that appear to be consistent with the intent of the constitution are written and adopted with regularity. However, a number of operational regulations and legal practices are based on or derived from Soviet law.

In spite of some world-wide market fluctuations in the last few years, of late there seems to be a resurgence of interest in Kazakhstan among foreign investors. Coupled with recent political events in the region, many around the world seem to be focusing more closely on Central Asia as a whole.

Investors, whether multinational oil companies or small trading companies, continue to weigh the risks associated with Kazakhstan investments and are mindful of the impact that a fluctuating commodity price, like oil, can have on this emerging economy that depends heavily on its natural resources.

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2.2 Free Trade Zones There are the following special economic zones established in Kazakhstan which may enjoy certain tax incentives (please refer to the section Taxation of Corporations for details): – – – – – –

"Astana, the New City" (Astana); "Aktau Sea Port" (Aktau); "Park of Information Technology“ (Almaty); “Ontustik” (Sairam district of South-Kazakhstan region); “National Industrial Petrochemical Park” (Atyrau region); “Burabai” Special Economic Zone (Akmola region).

There are potentially more special economic zones in the pipeline.

2.3 International Agreements Kazakhstan is a party to many principal international treaties in various areas – from the protection of the environment to free trade. Notably, it ratified a number of basic international conventions – the Treaty on the Civil and Political Rights (New York, 1966) and the Treaty on Economical, Social and Cultural Rights (New York, 1966).

Whilst Kazakhstan is not yet a member of the WTO, it does its best efforts to become a WTO member and is currently at the final stage to enter the organization. Kazakhstan honors the priority of the international treaties over its domestic legislation.

2.4 Legal Environment The Kazakhstan legal system is based on the Roman-German (continental) legal system.

The principal legal act is the Constitution (1995). In 2007, the Constitution was amended. Notable changes include the expansion of the powers of the Parliament, granting of the possibility for the current President to be elected for an unlimited term, and the effective abolishment of the death penalty.

Key areas of civil society are regulated by respective laws. Ratified international treaties prevail over domestic laws. In most cases, laws are worded widely or vaguely leaving latitude for alternative interpretations.

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State bodies can issue regulations some of which are considered regulatory legal acts.

Sometimes regulations contradict (are not in compliance with) laws. Authorities applying regulations are generally reluctant in applying more general provisions stipulated by laws and are more comfortable in applying more detailed/specific regulations.

While the court system is generally considered a burdensome and time-consuming process, courts are honored and recognized by businesses. Arbitration is in the process of being developed.

2.5 Regulations for Business Foreign Currency Regime As of 1 January 2007, currency control has been significantly liberalized (e.g. licensing regime was abolished, etc.)

Settlements between Kazakhstan residents have to be carried out in the Kazakhstan national currency, the Kazakh Tenge.

Settlements between residents and non-residents are permitted in foreign currency.

Loan and export-import transactions between residents and non-residents for a period of more than 180 days and in excess of USD 100,000 for outbound transactions and USD 500,000 for inbound transactions are subject to obligatory registration with the National Bank of Kazakhstan.

Competition Law The main law governing unfair competition, monopolies and other anti-trust issues is the Law of 25 December 2008 "On Competition ".

The Competition Law deals with issues related to the supporting of entrepreneurship through the prevention, restriction, suppression, and regulation of monopoly activities and grants an extensive range of powers to the Antimonopoly Agency, to prevent abuse of monopolistic or dominant market positions.

Intellectual Property

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A number of laws and regulations are in effect concerning patents, trademarks and copyrights, although the overall concept of intellectual property is relatively new.

Therefore, enforcement of intellectual property rights may still be problematic.

Nevertheless, note must be taken of the speed with which Kazakhstan’s lawmakers and the State Patent Agency (Kazpatent) have successfully drafted and adopted numerous laws in this area. Moreover, Kazakhstan is a signatory of the major international conventions, governing intellectual property.

Consumer Protection The protection of consumers is governed by the Law "On the Protection of Consumer Rights", of 5 June 1991. This law regulates the relationship between consumers and vendors or providers of work and services, and establishes rights and obligations. As per the law, consumers have the following primary rights: to freely purchase commodities, to use work and services, and to enjoy the high quality and safety of goods and services. The law allows for the establishment of associations for the protection of consumer rights.

Business Transformations The main act governing business transformation is the Civil Code dated 27 December 1994, which provides for the following types of commercial organizations: Limited Liability Partnership (LLP); Joint-Stock Company (JSC); General Partnership; Limited Partnership; Additional Liability Partnership; Production Co-operative and State Enterprise.

There are specific laws governing joint stock companies and limited liability partnerships, which would also apply to the transformation to or from such types of entities.

The Civil Code provides for the following types of business reorganization: merger, acquisition, division, appropriation (a regular spin-off of a part of a business enterprise from the entire business), and transformation.

2.6 Property Market Almaty office space is usually less expensive than in Moscow or other European locations.

In Almaty, however, prices are starting to catch up despite the government's move to Astana. This is especially true in the new buildings that are closer to Western standards.

Since a significant portion of property is still state-owned, it is important to find out who has the right to rent property and on what terms.

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A number of real-estate agencies in Kazakhstan can offer assistance in finding office space, as well as provide a number of other services for a reasonable fee (usually equal to onetenth of one month's rent).

The regulations regarding foreign ownership of land and buildings continue to change.

Additionally, different authorities take varying and often contradicting views on the ownership of land and/or buildings by foreign individuals and companies. We recommend checking with legal counsel for the latest interpretations.

Renting an apartment costs anywhere from USD 600 a month for a reasonable two-room apartment in the suburbs to as much as one is willing to pay for a five to six-room flat fully furnished (with local or foreign furniture) in the city's centre. When compared with salaries and other types of income, rental income is substantial for Kazakhstan citizens and provides them with a supplement. Again, it is important to confirm that the person renting the property has its legal title and, therefore, the right to lease the apartment. In addition, proper identification and a simple lease agreement in Russian and English should be obtained. Leases, at a very minimum, should state the terms of renting the property and should form the basis for a working relationship and understanding with a landlord. In some arrangements, the landlord agrees to cover utilities charges (except international phone charges) and to carry out basic repairs.

Activities associated with land usage and ownership are regulated by the Land Code of 2003.

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3 FOREIGN INVESTMENT & PRIVATIZATION 3.1 Foreign Investment The Law "Concerning Investments" (“the Law” or “Investment Law”) was adopted in 2003.

The law replaced both the Law “On Foreign Investments” and the Law “On State Support of Direct Investments” which previously governed investment activity in Kazakhstan and is viewed by the foreign business community as worsening conditions for new investors.

The Law is of a general nature and does not provide detailed regulations in respect of issues governed. That means that its practical application could be problematic, as it also requires consideration and application of other laws. Therefore, new investors will need to negotiate carefully and ensure that all their rights and obligations are clearly addressed and precisely defined in their investment contracts to mitigate the risk of misinterpretations in the future.

One should also remember that the practical application of general statements will be difficult and inefficient without support in other laws or an investment contract.

Below, we discuss in bullet points the most important issues addressed in the Law. o

o

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Definition of investments is limited to: property (except goods for personal use) and property rights contributed into charter capital of legal entities, including objects of financial lease on the basis of a leasing agreement; and increase of fixed assets used in entrepreneurial activities as well as fixed assets produced or received by concessionaire (successor) based on concession agreement.

The Law provides investment incentives (release from customs duty and state grants) which may be granted to Kazakhstan legal entities for realization of investment projects.

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o

o

o

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In case of cancellation or early termination of an investment contract, investors are liable for the payment of taxes and customs duties, which have not been paid due to the investment incentives and return of state grants.

Investors' activities are subject to "supervision and control" of the state authorities.

Investors should be reimbursed for any losses resulting from nationalization of assets (if any), whereas, in case of a requisition, only the market value of assets will be compensated.

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4 BANKING, FINANCE AND INSURANCE 4.1 Banking System Kazakhstan has a two-tier banking system. The National Bank is the central bank of Kazakhstan and represents the upper (first) tier of the banking system of Kazakhstan. All other banks represent the lower (second) tier of the banking system, excluding the Kazakhstan Development Bank that has a peculiar legal status.

The National Bank performs the regulation and supervision over certain aspects of the banking activities within the limits of its authority and contributes to the formation of basic conditions for the functioning of banks and organizations, performing certain banking operations.

Regulatory and supervisory functions of the National Bank in respect of the banks and organizations performing certain banking operations are aimed at the maintenance of the stability of the financial system of the Republic of Kazakhstan.

The National Bank represents, within the limits of its authority, the interests of the Republic of Kazakhstan in relations with the central banks and commercial banks of other countries, and with the international banks and other financial-credit organizations.

The National Bank is not guided by the aim of earning profit in performing its tasks.

The National Bank of Kazakhstan is accountable to the President of Kazakhstan, but within the limits of authority granted by the legislation, is independent in its activity.

4.2 Foreign Currency Market and Foreign Currency Rules Kazakhstan first issued its national currency, Kazakh Tenge, in November 1993. Then, on 5 April 1999, the National Bank of Kazakhstan ceased intervention in the currency's support and allowed Kazakh Tenge to freely float on the Almaty Financial Instruments Exchange (AFINEX).

A market exchange rate is fixed daily at the Kazakhstan Security Exchange (KASE). The market exchange rate is an average weighted exchange rate of Tenge to a foreign currency formed at a substantive session of the Kazakhstan stock exchange and determined in a

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procedure established by the Kazakhstan Ministry of Finance and the Kazakhstan National Bank.

According to Kazakhstan legislation, transactions between Kazakhstan legal entities should be in Tenge. Alternatively, transactions between a Kazakhstan legal entity and a foreign legal entity can be denominated in any currency.

In 2005, a new Law “On currency regulation and currency control” was adopted. In general, the law further liberalized the currency control regime. However, it also introduced certain additional control and reporting requirements (e.g., branches and representative offices of foreign legal entities are now subject to special currency monitoring).

4.3 Specialized Financial Institutions On June 5, 2006 the Law “On the Regional Financial Center of Almaty” was signed. The Regional Financial Center of Almaty (RFCA) is a special legal regime regulating interactions of the Financial Center’s participants and other interested parties aimed at the development of Kazakhstan’s financial sector.

The goals of establishing RFCA are as follows: o

Development of the Kazakhstan securities market;

o

Its integration with international capital markets;

o

Attraction of foreign investment to Kazakhstan;

o

Access of Kazakhstan’s capital to the international capital market.

4.4 Investment Institutions According to the Investment Law, the Investment Committee under the Ministry of Industry and New Technologies provides governmental support to investments by concluding investment contracts and granting incentives to investors.

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4.5 Capital Markets On November 15 1993, the national currency – Kazakh Tenge - was introduced in Kazakhstan. On the second day after that event - on 17 November 1993 - the National Bank of Kazakhstan and 23 leading commercial banks of Kazakhstan made the decision to found the Currency Exchange.

1998 marked the restoration of stock exchange’s government securities market, which occurred due to the entry of a new group of securities markets professional participants – pension assets management companies. In the same year, with the help of the National securities commission of Kazakhstan, an organized secondary market of sovereign eurobonds of Kazakhstan was formed in Kazakhstan. The first trades in these eurobonds were held on the stock exchange on 19 October 1998. Since July 15 of the same year, the stock exchange put into operation the quotation trade system.

Since 1999 the development of the stock exchange market for corporate bonds was started, and the first of them were included in the stock exchange’s official list on February of that year. The year 1999 was also notable for the starting of the stock exchange’s sector for repo transactions on government securities since 5 July and holding of the first auction on municipal bonds floatation on 7 July.

Currently, the Exchange is a universal financial market, which is effectively divided into four major sectors: the foreign currency market, the government securities market, corporate shares and bonds, and the derivatives market.

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5 IMPORTING AND EXPORTING 5.1 Trends in Customs Policy From 1 July 2010, it is contemplated that the Customs Union between Russia, Kazakhstan and Belorussia will start operating. Kazakhstan is not a member of the World Trade Organization (WTO). However, Kazakhstan, including other members of the Customs Union, plans to apply for WTO membership separately in the future.

Kazakh customs legislation is quite developed and to a large extent based on the World Customs Organization principles. Being a member-state of the Commonwealth of Independent States (CIS, which is the former Soviet Union except for the Baltic states), Kazakhstan has been contributing to the alignment and further development of customs rules and regulations across the entire CIS region.

Similar to tax compliance issues, customs issues often require advance planning, and proper risk management in the current Kazakhstan environment.

5.2 Import Restrictions As part of the non-tariff regulations, the Kazakhstan customs legislation prescribes that certain types of goods imported to Kazakhstan must comply with Kazakhstan’s quality standards and must have a certificate of conformity to such standards.

Specific restrictions (bans, quotas, licensing, registration, etc.) may apply to the import or export of certain goods, such as uranium, ozonous products, special-purpose hardware, oil products, weapons, etc.

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5.3 Customs Duties Goods are classified based on the Customs Tariff of the Customs Union, which took effect starting from 1 January 2010 and is generally based on the Harmonized System. The Customs Tariff is determined at the Customs Union level and is subject to changes upon unanimous approval by all Customs Union members.

Under the Customs Code of the Customs Union (expected to be enforced starting from 1 July 2010), the Binding Tariff Information (BTI) will be established separately by each member of the Customs Union and will be binding only for the issuing country within the next 3 years, unless the tariff changes. The Council of the Customs Union may void a particular BTI. All issued BTIs would be publicly available.

A country of origin of goods is determined for the purposes of applying tariff and non-tariff regulatory measures upon importation/exportation of goods to/from Kazakhstan. The country of origin of goods is defined as the country where the goods either (i) were wholly produced or (ii) underwent sufficient processing in accordance with specified criteria.

The customs value of goods should represent the price actually paid or payable for the goods under the sales terms (i.e., the so-called “transaction value of imported goods� method). The customs value of goods should include, among others, transportation costs, insurance, royalties (license), etc. Where a transaction for the delivery of goods is carried out between related parties, the customs authorities may potentially use other alternatives methods for determining the customs value of the imported goods based on customs valuation methods, as follows: o o o o o

On the basis of transaction value of identical goods; On the basis of transaction value of similar goods; Deduction of value; Addition of value; or Reserve method (typically, applied based on statistical data or official publications).

There is no direct relation between the customs value methods and transfer-pricing methodology for the corporate income tax purposes; methods are deemed to be similar to the transfer-pricing methods in calculations, but disputes may arise. Advance Pricing Agreements are not currently binding for the customs authorities for the customs value purposes.

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The importation of goods to Kazakhstan under the “free circulation� customs regime generally attracts import VAT at the current rate of 12%, import customs duties at rates ranging from 0% to 25% (in average; higher rates exist for certain goods) depending on the classification of a particular imported good, and excise duties (in case of importation of excisable goods).

In addition to import VAT, customs duties, and excise taxes (if applicable), importers/exporters incur a minimal customs processing fee of EURO 50 for the main page of a cargo customs declaration and EURO 20 per each supplemental page of a cargo customs declaration Import VAT, customs duties, excise taxes, and processing fees are payable at customs upon importation of goods to Kazakhstan. It is expected that the new intra-community VAT rules will be introduced within the Customs Union by 1 July 2010.

Additionally to membership in the Customs Union, Kazakhstan has concluded a number of bilateral and multilateral Free Trade Agreements within the Commonwealth of Independent States (CIS). Therefore, trade between the CIS member states is not generally subject to import customs duties in the country of destination, provided that all of the following conditions are met: 1. Goods are exported on the basis of a contract between residents of the member states; 2. Goods are imported from the customs territory of a member state to the customs territory of the other member state; 3. Imported goods may not leave the customs territory of a member state; 4. Imported goods are confirmed with a certificate of origin from a member state (i.e., ST-1).

For the purposes of the CIS Free Trade Agreement, the following qualifies as a resident:

o

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A legal entity (i.e. entity incorporated in a member state), or

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o

An entity which does not have the status of a legal entity, but is subject to taxation in the member state on the basis of place of management, registration, establishment or any other similar criteria.

Exports of goods are generally subject to zero-rated VAT and also exempt from customs duties and excise taxes, unless the customs legislation specifically provides otherwise.

The Kazakhstan Customs Code, Customs Code of the Customs Union and international agreements envisages a number of customs regimes with tax and duty consequences, which generally provide for a claw back or suspension of import/export customs duties, VAT, and excise taxes including: – – – –

processing within the customs territory processing for free circulation processing outside the customs territory free warehouse.

5.4 Temporary Import Relief The “temporary import” customs regime may provide for the full or partial exemption from import VAT and import customs duties. Generally, the term of the “temporary import” customs regime may not exceed 3 years.

A) Partial Exemption: Under the “temporary import” customs regime, import VAT and customs duties are payable on a monthly installment basis at 3% of the import VAT and customs duties that would have been paid had the imported assets been imported under the “free circulation” regime (i.e. normal import).

B) Full Exemption: In respect of assets imported under a financial lease arrangement, the Customs Code provides the possibility to enjoy full exemption from Kazakhstan import VAT and customs duties for the period of the financial lease, provided that certain statutory conditions are met.

If the said statutory requirements are met, than the maximum allowable term of the “temporary importation” (i.e., 3 years) may be extended up to the term stipulated in the particular financial lease agreement.

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Upon termination of the “temporary import” customs regime, the imported goods would be required to either be re-exported from Kazakhstan or released under a different customs regime (e.g., “free circulation, “customs warehouse”, etc.) with the obligation to pay any applicable import VAT and import customs duties.

In case of a further classification of goods under the “free circulation” customs regime, the import VAT and customs duties already paid by installments should be offset-able against import VAT and customs duties payable under the “free circulation” regime.

Under the “temporary import” customs regime, imported goods should remain in their original state, except for changes due to natural wear or loss under normal conditions of transportation, storage, and use (operation). Only those actions, which are required to ensure safety, including minor repairs, maintenance, and other operations required to maintain the imported goods in proper condition, are allowed.

5.5 Customs Duties and Customs VAT Incentives Exemptions from customs duties are granted in the case of import of goods, equipment and its component parts, which are imported for the implementation of an investment project for the period of the contract validity but for not longer than 5 years from the time of the investment contract’s registration. Investment contracts are concluded with the government and focus on manufacturing in priority sectors of the economy.

Under the Tax Code, the importer can elect to use a special “offset” mechanism for ‘paying’ import VAT for certain qualified goods, which is intended to effectively eliminate the cash outflow for import VAT and is often viewed as an “exemption” in practice. This “offset” mechanism in general practice allows the amount of import VAT to be reflected in the VAT declaration as output VAT and, at the same time, included as input VAT available for offset (without actually having been paid). The “offset” mechanism is subject to strict statutory requirements and applies to import VAT, while any applicable import customs duties would still be due.

There are certain other customs exemptions from import VAT and/or customs duties envisioned by the Kazakhstan tax and customs legislation.

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contributed to the charter capital, is not. In other words, a taxpayer will have to pay (import) VAT at customs upon importation of goods, but when the taxpayer actually contributes those goods to the charter capital of a company, no (output) VAT should apply.

5.6 Documentation and Procedures To carry out imports and exports of goods, one has to register with the customs authorities and submit a number of documents for that purpose.

In practice, customs clearance under most of the customs regimes is allowed only for Kazakhstan legal entities and for registered non-resident legal entities (e.g., a Kazakhstan branch of a non-resident legal entity) but is not available for non-registered non-residents.

Unlike Kazakhstan legal entities, registered non-resident legal entities must always use a customs broker for customs clearance purposes.

The customs value is to be estimated by the declarer. In order to confirm the declared information in respect of the customs value, the declarer should provide a package of supporting documents. The list of documents necessary to support the declared information is relatively standard and typically includes contracts, invoices, shipping documents, certificate of origin of goods, necessary licenses and permits, conformity certificates, any other documents depending on the specific facts and circumstances.

The customs authorities carry out strict control over the correctness and reasonableness of determining the customs value and method applied.

5.7 Warehousing and Storage All imported goods are generally required to be placed within a bonded warehouse, until the moment when the goods are customs cleared under any of the available customs regimes.

There is also a special “customs warehouse” customs regime, which is a specially identified and constructed premises or place intended for the storage of goods in accordance with the “customs warehouse” customs regime. Customs warehouses may be of an open type, which are available for use by any persons authorized with regard to the goods, and of a closed type, which are intended for storage of goods belonging to the owner of the warehouse or to certain persons specified by the owner of the warehouse. The period for storage of goods at the “customs warehouse” is determined by the person who places the PwC

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goods into the “customs warehouse”. However, this period cannot exceed 3 years from the date when the goods were placed under the “customs warehouse” customs regime.

5.8 Re-Exports The re-export of goods is the customs regime whereby goods, which were previously imported into the customs territory of Kazakhstan, are exported from Kazakhstan, exempt from or with reimbursement of the customs import duties and taxes that were originally paid, and without measures of non-tariff regulation being applied to them, except for measures in the area of export control.

Goods may be re-exported under either of the following conditions: – export of goods which are stored at places of temporary storage (bonded warehouse) until they are placed under a certain customs regime (subject to certain statutory conditions); – export of goods previously declared under the customs regime for release into free circulation, where the goods are returned to the supplier or another person in accordance with the supplier’s instructions due to defects or non-compliance with the requirements of a given foreign economic transaction (subject to certain statutory conditions); – export of foreign goods, which were previously placed under the customs regimes of processing of goods in the customs territory or processing of goods for free circulation, provided that these goods have not undergone processing operations; – export of foreign goods, which were previously placed under the customs regimes of a customs warehouse, free warehouse, free customs zone.

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6 BUSINESS ENTITIES 6.1 Legal Framework Economic and business activities in Kazakhstan are regulated by variety of laws, including such as Civil Code (General Part of 27 December 1994 and Special Part of 1 July 1999), Law on Investments of 8 January 2003 and many others.

Currently, Kazakhstan legislation allows for several forms of business entities, which include a Joint Stock Company, various types of partnerships, etc.

To establish a registered presence in Kazakhstan, foreign companies may choose to operate through a representative office, a branch or a subsidiary. The choice of vehicle is important due to the different financial, legal, commercial and tax implications arising therefrom.

For example, representative offices cannot conduct commercial income-generating activities. Foreign companies that intend to engage in commercial income-generating business activities in Kazakhstan typically structure their presence through a branch or a limited liability partnership.

Individuals, "simple partnerships" and consortiums (none of which are treated as legal entities) may also engage in commercial activities. Non-profit organizations may take the form of institutions, public associations, consumers' cooperatives, social funds and religious associations.

Below we outline the main features of the most common forms of business entities.

6.2 Joint Stock Company (“JSC�)

Joint stock companies are defined as legal entities which issue shares to raise the funds for carrying out their activity. Generally, shareholders are not liable for JSC’s obligations and bear risk of losses associated with activity of JSC within value of owned shares.

A company is formed on the basis of charter and decision of founders. Initial capital is provided by contributions from shareholders and may take the form of cash or other property and property rights assessed in money equivalent.

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Joint stock companies may be founded by one or more individuals or legal entities.

Joint stock companies like other legal entities must have an appropriate state registration.

They acquire legal status only when registered. To register a joint stock company you have to submit to the Centre for Customers Services generally the following list of documents: -

Application form; Charter; Document confirming the address; Minutes of the foundation meeting; Documents confirming the identity of founders and payment of the required fee for state registration.

The charter of a joint stock company must be notarized and should generally specify: full and brief name of the company, location of the executive body, procedure for foundation and competency and activity of the company’s bodies, including procedure for convening general meeting, preparing of and holding a general meeting of shareholders and meetings of collective bodies, procedure for informing shareholders on the company’s activity, information on affiliates of the company provided by shareholders or officials of the company, conditions of termination of the company’s activity, etc.

The minimum amount of charter capital for joint stock company is 50,000 MCI (currently, approximately USD 481,000 based on the current USD/KZT exchange rate).

The share capital must be paid within 30 days from the day of state registration. Higher charter capital requirements are prescribed for banks and insurance companies incorporated in the form of a Joint Stock Company.

Payment for shares can be in monetary form or in kind. Contributions in kind, which may include the contribution of intellectual property rights, must be independently evaluated and assessed in monetary equivalent.

The issue of shares in a joint stock company must conform to the Kazakhstan securities legislation and must be registered with the State Register of Shares. There are two types of shares - ordinary and preferred shares, although the latter must be permitted under the company's charter and may not exceed 25% of the total number of its declared shares.

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The charter capital of JSC is increased by distribution of its declared shares.

The holder of an ordinary share has the right to vote at the general meeting of shareholders and take part in the election of management bodies and the audit committee.

The holding of preferred shares grants to shareholders priority rights to receive dividends and also (as determined by the company’s charter) to participate in prior distribution of property in the event of liquidation. A holder of a preferred share has no right to take part in the management of a joint stock company, except for certain cases provided by the law.

Dividends may be paid in monetary form or in the form of securities.

Kazakhstan legislation recognizes the concept of "golden" shares. The founders’ meeting may introduce one "golden" share which does not form the part of the share capital and whose holder does not receive dividends. The holder of the "golden" share participates in the management of the joint stock company through the right of veto on major decisions to be made by general meetings, the board of directors and the executive body.

A company may be terminated in the following circumstances: - By agreement of its shareholders; - Under the court decision as provided by legislation, including for insolvency reasons.

Termination may be affected through reorganization or liquidation. Liquidation is carried out by a liquidation committee appointed by the general meeting, or in case of insolvency by the courts.

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6.3 Partnerships Kazakhstan legislation provides for four different types of business partnerships which are: general partnership, kommandit partnership (combination of general and limited partners), limited liability partnership and additional liability partnership. The most commonly established form is limited liability partnership which is very similar to a limited liability company in other jurisdictions.

The main laws regulating partnerships are: -

The Civil Code of 27 December 1994; The Law of Business Partnerships of 2 May 1995; and The Law on Limited and Additional Liability Partnerships of 22 April 1998.

Under Kazakhstan legislation, each form of business partnership whether general, kommandit or limited partnership has legal personality. The main difference between them is the extent of the partners' (participant’s) liability.

A general partnership is defined as a business partnership in which all the participants in case of insuffiency of partnership’s property accept joint and several liability for the partnership's obligations to the extent of all their property. General and kommandit partnerships are characterized by the unlimited liability of one or more general partners for the obligations of the partnership to the extent of all their assets. By contrast, limited partners are liable only to the extent of their charter capital’s contributions. General partners must be individuals and an individual may be the general partner in only one general partnership or general partner in one kommandit partnership. The management of a kommandit partnership is carried out by the general partners only. Limited partners have no right to challenge the actions of the general partners.

Both general partnership and kommandit partnership are formed on the basis of a partnership agreement and must have at least two partners. The partnership profit is distributed among the partners in proportion to their shares in the assets of the partnership or by any other method provided for the partnership in the foundation agreement.

The partnership agreement defines the extent of each partner's share in the partnership, the amount and nature of their contributions, the procedure for making contributions, etc.

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A limited partner may transfer his/her share (in whole or in part) to other partners or third parties only with the consent of all the general partners. A limited partner in a general partnership at the end of financial year may withdraw his/her share from the partnership provided that he/she submits a notice at least 6 months prior to the end of financial year.

If partnership continues to exist when a partner leaves, the value of that partner's contribution is paid out to him according to the balance sheet on the day of departure. If parties agree, then the share may be refunded wholly or partly in kind.

In addition, a general partnership ceases to exist if it is reduced to only one partner and this partner fails to accept another partner within 6 months. A kommandit partnership ceases to exist if all of the general partners leave. If all of the limited partners withdraw their shares from partnership, the general partners are entitled to reorganize the partnership as a general partnership.

Claims may be made against a partner's share in a general partnership associated with his/her personal debts only in case of insufficiency of other property to cover his/her debts. If a partner's assets are insufficient to cover his/her personal debts, creditors may require the partnership to allot the debtor-partner’s share and recover the debt from this share. In case of liquidation of partnership, the partners bear collective responsibility for the shortfall to the extent of all their assets (to the extent permitted by Kazakhstani law) If the available assets are not sufficient to cover all its debts. A partner is liable for partnership debts whether incurred before or after the date on which he/she joined the partnership.

In an additional liability partnership (a separate type of private company) partners bear liability to the extent of their contributions to the charter capital of the partnership, however, in case of insufficiency of these funds, partners bear additional liability by their own property in proportion to their contribution. The maximum liability amount is set by foundation documents.

6.4 Branches and Representative Offices A branch and a representative office are not a separate legal entity, but rather an extension of its head office. A branch is permitted to carry out full commercial activities whereas a representative office is allowed only to undertake representative functions and protection of the interests of its head office.

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Neither a branch nor a representative office has charter capital or its own property as a guarantee of its material responsibility and, accordingly, it is the head office that is legally responsible for liabilities of its representative office or branch to third parties.

The registration procedure and filing costs for branches and representative offices are similar to that for Kazakhstan legal entities. A branch may not open another branch or a representative office.

A branch or representative office may be liquidated upon the decision of its head office.

Parent loans or funding is not subject to licensing/registration/notification with the National Bank, and may not be deductible for the Kazakhstan tax purposes unless it is a third party. Funds can be freely transferred back to the head office.

6.5 Registration Process Generally, the registration of a new company in Kazakhstan is done through registration with three different authorities: -

Legal registration with the Ministry of Justice (State Registration Department); Statistics registration with the State Statistic Agency; Tax Registration with the Tax authorities at the place of location (and/or place of activity, location of a taxable object).

Currently, all three registrations are done in one step - this is usually referred to as the "one window registration". As per the law, the legal registration process of small business entities is to be completed in 1 working day after the submission of the application with all required attachments and 7 working days from the date of submission for all other entities.

This period does not include tax and statistic registration. In practice, the registration process takes about 4-5 weeks.

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7 LABOUR RELATIONS AND SOCIAL SECURITY 7.1 Labour Market According to the data obtained from the Statistic Agency website, there were 554,500 registered unemployed at the end of 2009, an unemployment rate remained the same 6.6% as in the previous year. In the year 2009, the workforce was 7.9 million.

7.2 Labour Relations Prior to May 2007, employment relationships in Kazakhstan were largely regulated by the Labor Law dated 10 December 1999. On 15 May 2007, new Labor Code was adopted in Kazakhstan. "Strengthening the Kazakhstan Labour Code‌will promote the adaptation of the labor relations system for accession into the World Trade Organization (WTO) and will guarantee the adherence to conventional principles and standards of international law and obligations, as per international agreements that were ratified by the Republic of Kazakhstan", stated the Ministry of Labour and Social Protection’s press release.

7.3 Working Conditions According to the Labor Code, employment contracts define the terms of employment.

Standard working hours are 40 hours a week, with special provisions for shift work. The amount of work remuneration is established by the employer independently and may not be lower than the minimum amount of work remuneration as established by Kazakhstan's legislation. For 2010, the minimum monthly wage is estimated to be the equivalent of approximately USD 102. Nevertheless, in practice, wages tend to start at the Tenge equivalent of USD 300-400 a month, and salaries continue rising rapidly. Increasingly, qualified specialists with good English skills often receive salaries that are comparable to western standards.

7.4 Social Security System Social tax is payable by the employer. Generally, the social tax base includes the gross remuneration of local and foreign personnel.

Starting from January 2009, the regressive scale of social tax rates has been replaced with a flat rate of 11%. The single rate is applied to both expatriate and local employees.

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Social insurance contributions are payable by Kazakhstan employers for their local employees and foreign citizens with legal permanent residence. For 2010, the social insurance contributions rate is 5% of an individuals’ gross income, capped at 10 times the minimum monthly wage.

Obligatory pension contributions are payable by Kazakhstan citizens and foreign citizens with legal permanent residence at the rate of 10% of their gross income (to be withheld by their employer) and capped at 75 times the minimum monthly wage.

7.5 Foreign Personnel Representative offices and branch offices of foreign legal entities are permitted to pay local employees in hard currency, which are generally made through bank transfers to employee accounts.

Currently, work permits must be obtained for all foreign employees in companies, branches and representative offices, except for the head of a branch or representative office, within 60 days of physical presence in Kazakhstan. Obtaining work permits can be time-consuming, sometimes taking as long as four-five months. In addition, going forward work permits can be difficult to obtain as under the current economic conditions, the Government of Kazakhstan is reducing the quota for foreign personnel attracted to work in Kazakhstan.

For 2010, the Government established the quota for employing foreign labor in Kazakhstan at 0.75% of the Republic’s economically active population. Currently, approximately 63,500 work permits are available for foreigners.

Work permits are obtained by submitting the required documents to the regional representatives of the Ministry of Labor and Social Protection, including copies of employment contracts, educational and specialist certification for each employee. The decision to grant a work permit will depend on the ability to justify the need for the specific specialist in the Kazakhstan labor market.

When a work permit is granted, the employer deposits a guarantee/security payment in a bank account in an amount equal to the cost of a return ticket to the country of the employee's residence. The money will be returned to the employer when the employee leaves Kazakhstan.

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Under the latest regulations, work permits are valid for a period up to one year. However, work permits may be granted for the period of employment contract for heads of legal entities with foreign participations not less than 50% and members of board of directors of JSC which have not less than 50% of state ownership or foreign participation It is also worth noting that, under the current regulations, while visas are generally provided for the entire territory of Kazakhstan, work permits, however, are now being issued for the specific region (Oblast) according to the place of work under the employment contract (but the visa is valid for the entire country of Kazakhstan). There have been instances where the transfer of an employee from one region to another has created work permit issues requiring special attention.

Please be aware that the Work Permit Rules continue to change and are subject to a wide range of local authority interpretation.

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8 ACCOUNTING AND REQUIREMENTS 8.1 Accounting On 28 February 2007, the President signed the new Law on Accounting and Financial Reporting, replacing the previous Law on Accounting of 1995. According to the new Law, large business entities (legal entities with at least 250 average annual number of employees or total annual value of assets more than approximately USD 3,163 thousand) and organizations of public interests (financial organizations, joint stock companies, except for non-commercial, organizations-subsurface users, except for those producing common mineral resources, and organizations, which have a state stake in their charter capital, as well as state enterprises established to manage or established with the right to manage government property) must prepare financial reports in accordance with IFRS. Other legal entities and individual entrepreneurs, at their discretion, may prepare financial reports in accordance with either IFRS or the National Accounting Standards, which generally refer to IFRS. The Law came into force on 24 March 2007.

The accounting method for financial purposes is the accrual method.

8.2 Chart of Accounts For the purposes of the new Law, Kazakhstan adopted a new Chart of Accounts. The Chart of Accounts is a basic classification system for income and expenses, according to which the balance of an enterprise's profit or loss can be determined.

8.3 Audit Requirements Under Kazakhstan legislation, certain companies must undergo an annual statutory audit.

Such companies include, among others, banks, insurance companies, pension funds, and other financial institutions, joint stock companies, and companies operating under an investment contract concluded with the State. An audit company of their choice can perform this audit. Sometimes, however, it may be required that a statutory audit is performed by a Big 4 audit firm.

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9 TAX SYSTEM AND ADMINISTRATION 9.1 Tax System The tax service bodies consist of the authorized state body – the Tax Committee of the Ministry of Finance - and other tax offices, which include regional, oblast tax departments, tax departments of Almaty and Astana cities, tax offices for districts.

9.2 Direct and Indirect Tax Burden All taxes are subdivided into direct and indirect ones. VAT and excise tax are recognized as indirect taxes.

9.3 Principal Taxes Principal taxes include: − − − − − − − − − −

Corporate Income Tax (CIT), including branch profits tax, capital gains tax, and withholding taxes; Individual Income Tax (IIT); Value-Added Tax (VAT); Excise Tax; Rent tax on exported crude oil, natural gas liquids; Taxes and special payments of subsurface users; Social tax; Land tax; Tax on transport vehicles; Property tax.

9.4 Legislative Framework Current tax legislation in Kazakhstan consists of the Tax Code in effect from 1 January 2009, the Law on Introduction of the 2009 Tax Code (which sets out certain transition clauses, which come into force at different points in time during 2009 – 2015) and other normative legislative acts. Letters of the Tax Committee of the Ministry of Finance serve as interpretative guidance but do not have full legal force and are not binding.

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The Tax Code imposes national and local taxes and other payments (duties and fees) and regulates the administration of taxes in Kazakhstan. The inclusion of tax matters, including the granting of exemptions or privileges, in other legislation is specifically prohibited.

The Code of Administrative Violations deals with administrative fines for non-compliance with tax regulations. Kazakhstan also applies the concept of criminal liability with respect to taxes. A criminal violation may occur when the tax amount misreported exceeds 2,000 MCI (currently, approximately USD 17,000).

A salient feature of the Kazakhstan tax system is that the major challenges often lie in the administration of the regulations by the authorities rather than in the legislation itself.

9.5 Income Tax Concepts of Income Tax Corporate income tax is calculated at a rate of 20% applied to a taxable base, which is computed as aggregate annual income less allowed deductions. Corporate income tax is payable via monthly installments (advance payments). Under the Law on Introduction of the 2009 Tax Code, corporate income tax rate is scheduled to be decreased from 20 to 17,5% and 15% from 2010 and 2011, respectively.

In addition to corporate income tax, non-residents operating in Kazakhstan through a permanent establishment are also subject to a branch profits tax at the statutory rate of 15% (reducible to 10% or 5% under an applicable double tax treaty). The taxable base for the branch profits tax purposes is the after-tax profits (i.e., aggregate annual income, less allowed deductions, less 20% corporate income tax). The branch profits tax may be viewed as an equivalent to a dividend withholding tax; however, it is assessed and payable annually, irrespective of whether a distribution of profits has been made.

On the contrary, dividend withholding tax, which is applied to Kazakhstan legal entities making distribution of profits to its foreign parents, becomes due only upon actual distribution of dividends. The dividend withholding tax rate is 15%; however, it may be reducible to 10% or 5% under an applicable double tax treaty or even exempt after a 3year holding period. Dividends paid by a Kazakhstan subsidiary to its Kazakhstan parent (in-country dividends) are exempt from dividend withholding tax.

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Classes of Taxpayer Resident legal entities of Kazakhstan, as well as non-resident legal entities that carry out activities in Kazakhstan though a permanent establishment are recognized as corporate income taxpayers. Non-residents that receive income from Kazakhstan sources without creating a permanent establishment are generally subject to withholding taxes.

Taxable Income Taxable income for corporate income tax purposes is defined as aggregate annual income less allowed deductions.

Kazakhstan tax residents are exempt from corporate income tax in respect of in-bound and in-country dividends received.

9.6 Tax Treaties Kazakhstan has currently concluded Double Tax Treaties with 39 countries and an additional 6 Double Tax Treaties (Spain, Armenia, Luxembourg, Slovakia, Finland and United Arabic Emirates) have been signed, but not ratified yet. For the list of effective Double Tax Treaties, please see Appendix D. 9.7 Tax Returns and Payments Tax reports are compiled by the taxpayer, tax agent or their representatives. Tax reports should be compiled on paper or electronic carriers in the state (Kazakh) or Russian language.

9.8 Assessments Upon completion of a tax audit (see below), the tax authorities issue a tax audit “act”. If no violation of the tax legislation is discovered (rarely), an appropriate note is made in the tax audit act.

On the basis of the results recorded in the tax audit act, the tax authorities issue a “notification” on the assessed amounts of taxes and other obligatory payments to the budget, and penalty interest.

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9.9 Appeals Taxpayers have the right to appeal acts of the tax service bodies to a higher level tax service body or the court.

9.10 Withholding Taxes Non-residents which do not have a permanent establishment in Kazakhstan are subject to Kazakhstan withholding tax on Kazakhstan source income. This is broadly defined to include any income from activity in Kazakhstan. Non-residents’ income from management, financial, consultancy, legal and auditing services, as well as any services rendered or goods sold/work performed to Kazakhstan tax payers by entities resident in a “state with privileged taxation” are also recognized as Kazakhstan source income, regardless of the place where the services are provided. Subject to certain conditions, income from personnel secondment services is not considered income from activity in Kazakhstan.

Non-residents’ income in the form of interest, royalties and dividends is subject to 15% withholding tax, potentially reducible to between 10% and 5% under most tax treaties provided that beneficial ownership criteria and other administrative requirements (tax residence certificate etc.) are met Other Kazakhstan-sourced income (including income from services and management fees) is taxed at 20%, unless a relevant Double Tax Treaty provides otherwise.

Dividends paid by a Kazakh subsidiary to its Kazakh parent company (in-country dividends) are exempt from dividend withholding tax. Furthermore, we note that dividends paid to a non-resident parent company are also exempt provided the holding period is more than 3 years and more than 50% of the equity value of the Kazakh subsidiary paying the dividend consists of non-subsurface use property in Kazakhstan.

This exemption does not apply to constructive dividends.

Starting from 2010 the capital gains realized by a non-resident on sale of a Kazakh subsidiary not involved in subsurface use activities or real estate in Kazakhstan are exempt from Kazakh taxation. Disposal of shares in Kazakh subsidiaries involved in the subsurface use activities is subject to 15% Kazakh withholding tax on capital gains.

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There is an exemption from taxation of shares listed on the domestic and foreign stock exchange and sold via the open auction method. This could apply provided that the shares are officially listed on the stock exchange on the day of the sale. The Double Tax Treaty may provide a capital gain tax exemption, which can be used via the tax refund.

Any income realized by non-residents registered/located in a “black-listed� jurisdiction is subject to special tax rules. The withholding tax rate is generally 20% unless the relevant Double Tax Treaty provides otherwise.

Interest on bonds listed on Kazakhstan Stock Exchange (KASE) is generally exempt from withholding tax in Kazakhstan.

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10 TAXATION OF CORPORATIONS 10.1 Corporate Tax System Corporate income tax applies to the taxable income of Kazakhstan legal entities and branches of foreign legal entities.

Branches of foreign legal entities are taxed on their Kazakhstan source income while Kazakhstan legal entities are taxed on their worldwide income. The net after-tax profit of branches of foreign legal entities is subject to 15% branch profit tax, potentially reducible to 5% or 10% under the most of Double Tax Treaties.

10.2 Incentives The tax legislation currently envisages the following tax incentives: − −

investment incentives; tax holidays for special economic zones.

Investment incentives are available only to certain Kazakh legal entities that fit certain criteria and possess incentive objects. Generally, the investment incentives allow to fully deduct for corporate income tax purposes the cost of the investment objects and the cost associated with their reconstruction and modernization either at once or within first 3 years of their use.

Under the Investment Law, incentives are granted under an investment contract between the Government and companies and focus on priority sectors of the economy, as determined by the Government.

There are the following special economic zones established in Kazakhstan: "Astana, the New City" in Astana (the expiry date is in 2015); "Aktau Sea Port" in Aktau (the expiry date is on 1 January 2028); "Park of Information Technology“ in Almaty (the expiry date is on 1 January 2028); “Ontustik” in Sairam district of South-Kazakhstan region (the expiry date is on 1 July 2030); − “National Industrial Petrochemical Park in Atyrau oblast (the expiry date is on 31 December 2032); − − − −

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−

“Burabai” in Akmola oblast (the expiry date is on 1 December 2017).

In order to enjoy the incentives available in special economic zones the legal entity should meet the following requirements: registered by the tax authorities in the territories of special economic zones; have no structural subdivisions beyond the boundaries of the territories of special economic zones; − 90% of aggregate annual income constitutes income earned from activities in the special economic zone consistent with the objectives of the special economic zone’s formation. − −

The general incentives available for legal entities in special economic zones are: − − −

CIT – 100% reduction; Land tax – 0% rate; Property tax – 0% rate.

10.3 Taxable Income Aggregate annual income comprises all income received by a legal entity, whether in cash or in kind, including: − income from sales; − capital gains; − passive income, including interest but excluding certain types of dividends; − income from derivatives; − income received free of charge; − income from carrying out joint operations; − winnings (any type of income in cash and in kind received from contest, lotteries, etc.); − income from written off debts; − income from doubtful claims.

10.4 Deductibility of Expenses Allowable deductions generally include expenses associated with the earning of aggregate annual income. Certain expenses are deductible within established limits.

Business Trip Expenses. Actual accommodation and travel expenses related to business trips (including expenses for transportation, accommodation, reservations, entry visa and PwC

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per diems) that are reimbursed by the employer can be deducted from aggregate annual income of a taxpayer.

Interest Expense. Interest paid to unrelated third parties and credit partnerships created in Kazakhstan are deducted in full. Deduction of interest paid to related parties or to unrelated parties under related parties warranties or to parties registered in the country with privileged taxation depends on the borrower’s capital structure; such that deductible interest will be limited with reference to an “acceptable” proportion of debt to equity (9:1 for financial institution, 6:1 for all other entities in 2009-2011).

Doubtful Claims. Amounts of receivables from Kazakhstan legal entities, individual entrepreneurs and non-residents operating through a Permanent Establishment for the supply of goods, services (works) that were not paid within three years are to be recognized as doubtful claims. Such claims could be deducted in full by a taxpayer, provided that (i) these receivables were reflected in the books of a taxpayer, and (ii) proper supporting documents are in place.

Depreciation. Depreciation, for tax purposes, is calculated using the declining balance method. For depreciation calculation purposes, taxpayers are required to allocate all assets between relevant groups (the Tax Code envisages four tax groups).

Depreciation assessments for each group is computed by way of applying the relevant depreciation rates, but not higher than the maximum rate, to the value balance of the group at the end of the tax period. Current annual maximum depreciation rates vary from 10% to 40%.

For fixed assets that are introduced into operations in Kazakhstan for the first time a subsurface user can apply double depreciation rates, but only for the first tax period provided that those fixed assets are used for earning aggregate annual income for at least three years. During the first tax period, these assets should be accounted for in a separate fixed asset group.

If the group balance value at the end of a tax period is less than 300 MCI (currently, approximately USD 2,880), a taxpayer has the right to deduct the balance in full in the current tax period.

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10.5 Related Party Transactions As of 1 January 2009 the new Transfer Pricing Law was introduced in Kazakhstan. This Law has significantly changed transfer pricing regulation. According to the provisions of the Transfer Pricing Law both customs and tax authorities have the right to monitor and adjust prices used in cross-border transactions when prices are perceived to deviate from market prices even if those transaction participants are unrelated parties. (It should be noted that the new Transfer Pricing Law is unclear on definitions of related and unrelated parties.) If the authorities adjust prices, the re-assessed liability will include taxes, duties, penalty interest and fines. Transfer pricing rules impact the following transactions: −

international commercial transactions;

−

domestic transactions that directly relate to international commercial operations where: a) the sale relates to a subsurface use contract; b) one of the parties has tax preferences; c) one of the parties has losses for two years prior to the year of the transaction.

Under monitoring procedures of international transactions the Kazakhstan government has issued a list of goods, works and services which are subject to transfer pricing control.

This list includes, among other items, crude oil and petroleum products. That said, transfer pricing may apply to goods and services that are not specifically included in the said government list.

10.6 Foreign Exchange In general, for both accounting and tax purposes, assets and liabilities in foreign currency must be translated into tenge at the official exchange rate of the National Bank on the date on which the transaction is carried out.

Kazakhstan follows the financial accounting principles for the tax treatment of foreign exchange gains/losses. Therefore, any foreign exchange gain recognized in accounting is included in taxable income, and vice versa, any foreign exchange loss recognized is deductible.

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10.7 Tax Computations Corporate income tax is calculated at a rate of 20% (reduced to 17.5% in 2013 and 15% in 2014) of aggregate taxable annual income less allowed deductions.

Corporate tax is payable in equal installments on a monthly basis, by the 25th of each month. Such advance installments are calculated on the basis of estimated income for the reporting year, which must be declared at first not later than 20th January of the reporting year. Certain entities are exempt from calculating and paying advance corporate income tax installments.

If the actual corporate income tax calculated is less than advance payments made during the year, the excess tax payments may be offset against other taxes and non-tax liabilities to the budget (including any relevant fines and penalties), or against future tax payments.

In the absence of any liabilities, the taxpayer may apply for a cash refund of tax overpayments.

Net tax losses accumulated prior to 1st January 2009 may be carried forward for up to three years. Net tax losses accumulated after 1st January 2009 may be carried forward up to 10 years.

Kazakhstan does not have consolidation provisions for tax purposes. The government retains the right to tax branches and representative offices of foreign legal entities as separate taxpayers without creation of a separate legal entity. Income received by each partner in consortia and entities operating under joint operation agreements is assessed for taxation separately with respect to the individual participant’s share and taxed only at the participant level. Thus, consortia and entities operating under joint operation agreements are not taxpayers in their own right, and income and expenses flow through to the participant entities for tax reporting purposes. Kazakhstan limited liability partnerships are taxed as corporations.

10.8 Other Taxes Excise Tax. Excise duties apply to the sale and importation of all types of spirit, alcohol products, tobacco, petrol/gasoline (excluding aviation fuel), diesel fuel, cars, crude oil and natural gas condensate. Excise duty rates vary and are subject to frequent changes.

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Property Tax. Property tax is calculated at a rate of 1.5% of the average book value of taxable items as determined in accounting. Certain taxpayers are taxed at reduced tax rates. Property tax is paid in four installments during the reporting year with the final payment of the actual tax to be made by the 10th April. The reporting requirements include the submission to the tax authorities of (i) the Calculation of current payments of property tax by the 15th February of the current tax period; and (ii) Property Tax Declaration by the 31st March of the year following the reporting year.

Land Tax. The rate of land tax is contingent on the use of the land and the land quality rating set by the Government. The Tax Code sets different tax rates for various types of land for legal entities and individuals. Land tax is paid in four installments during the reporting year with the final payment of the actual tax to be made by the 10th April. The reporting requirements include the submission to the tax authorities of (i) the Calculation of current payments of land tax by the 15th February of the current tax period; and (ii) Land Tax Declaration by the 31st March of the year following the reporting year.

Vehicle Tax. The tax rate depends on the type of the vehicle, and the engine size. Vehicle tax payable by legal entities is paid annually not later than 5 July of the current tax period.

The reporting requirements include the submission to the tax authorities of (i) the Calculation of current payments of vehicle tax by the 5th July of the current tax period; and (ii) Vehicle Tax Declaration by the 31st March of the year following the reporting year.

Environmental Tax. Kazakhstan has a levy for the pollution of the environment which depends on industry type and the region of activity. All environmental levies rates are determined on the basis of the monthly calculation index, established for the appropriate financial year and may be increased by local authorities.

10.9 Branch Versus Subsidiary There are certain advantages to the use of a branch as a business vehicle rather than a Kazakhstan legal entity (“KLE�). This explains why the branch has traditionally been the preferred choice of entity by foreign investors, unless partner considerations or legal restrictions (e.g. licensing issues, local content rules, and eligibility for investment incentives) are applicable.

Please see Appendix E for more details on advantages and disadvantages of a branch and a KLE.

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10.10 Holding Companies Kazakhstan tax residents are exempt from corporate income tax in respect of inbound and in-country dividends.

10.11 Subsurface Taxation Tax Regime The tax regime envisages use of one model where subsurface user computes the tax obligations under the tax legislation in effect at the time when such tax obligation arise.

Special Taxes All subsurface users carrying out activities in Kazakhstan are required to pay special taxes and other obligatory payments. These include: signature and commercial discovery bonuses, payment for historical costs, mineral production tax (MPT), excess profit tax, rent tax on exported crude oil, and excise taxes.

Although the list of special payments and taxes applicable to subsurface users is the same, the economics of a project generally determine amounts of applicable bonuses.

Payment for historical costs is designed to recover historical costs previously incurred by the Government for exploration and development of reserves of mineral resources.

Mineral Production Tax Mineral production tax is levied upon the cost of produced volumes of minerals. Currently, the rates established for crude oil and gas condensate range from 5% to 18%. The current rates for other minerals are fixed depending on the type of a mineral. MPT rates apply to the value of produced mineral, while value is based on world price of minerals. For hydrocarbons, rates can be reduced by 50% if they are supplied to domestic refineries on the basis of a sale/purchase agreement or tolling agreement.

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Excess Profits Tax Subsurface users are liable to pay excess profit tax on net income for a reporting period.

However, excess profits tax applies to a part of net income exceeding 25% of deductions.

In addition to general corporate deductions, it is also allowed to deduct cost of fixed assets and capital repair. Excess profit tax is based on a progressive sliding scale where the maximum tax rate of 60% applies to amounts of net income exceeding 70% deductions.

Rent Tax The rent tax on exported crude oil and gas condensate applies to legal entities and individuals selling crude oil and gas condensate for export (except for certain subsurface users that concluded production sharing agreements prior to 1 January 2009). It also applies to exporters of coal. Similar to mineral production tax, the taxable base for crude oil is determined based on “the world price� regardless of adjustments for quality discounts and certain transportation costs. For coal, taxable base is calculated on the basis of actual selling price. Rent tax rates for export of crude oil and gas condensate are determined by reference to the "world price" of exported crude oil and vary from 7% if the market price is above USD 40 per barrel, to 32% if the market price exceeds USD 200 per barrel. Rent tax rate for export of coal is 2.1%.

Special Provisions Upon transfer of hydrocarbons for processing on a basis of tolling agreement or transfer of minerals for primary processing within the same or separate legal entity, revenues for corporate income tax and excess profits tax purposes are determined in a specific way.

Revenues are computed on the basis of production cost, including primary processing, determined under IFRS increased by 20% mark up. The same approach is applied to define taxable base for mineral production tax in similar cases.

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Deductions Exploration and development expenditures incurred by subsurface users prior to commercial production (including: geological studies, geological prospecting, exploration, appraisal and development of natural resources, general and administrative costs, signature and commercial discovery bonus payments, expenditures for the purchase of fixed and intangible assets, and other tax deductible expenses, except for mineral selling expenses) should be deductible from aggregate annual income through depreciation charges. These expenditures form a separate group with a maximum depreciation rate for tax purposes of 25%. The pool of capital expenses accumulated in the course of Exploration Contract is carried over to Production Contract for further depreciation and deduction for CIT purposes.

The same depreciation procedure applies to expenditures for the acquisition of intangible assets incurred by a subsurface user in relation to the acquisition of subsurface rights.

Losses Losses incurred from operations under subsurface use contracts may be carried forward for up to 10 years; however certain restrictions apply.

Ring Fencing Ring fencing provisions apply to prevent multiple contract areas as well as non-contractual activities from being combined for the purposes of applying the tax regime under a subsurface use contract.

Stability of Tax Regime The tax stability clauses of PSAs signed prior to 1 January 2009 and contracts signed by the President of Kazakhstan will remain intact for the life of the contract. Generally, PSAs were used for major oil and gas fields such as Kashagan, Karachaganak and offshore projects in Kazakhstan sector of Caspian Sea. However, the stability of tax regime still remains to be an issue as the Kazakhstan tax authorities continue to encourage subsurface users with PSAs to move from the stabilized tax regime to the current tax regime.

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11 TAXATION OF INDIVIDUALS 11.1 Territoriality and Residence Kazakhstan residents, including foreign citizens who are resident for tax purposes, should be taxed on their worldwide income. Foreign citizens and Kazakhstan citizens who are not resident for tax purposes are taxed on their Kazakhstan source income.

For tax purposes, individuals, who are permanently residing in Kazakhstan (physical presence criteria), or whose centre of vital interests is in Kazakhstan (centre of vital interest criteria), are treated as residents. Individuals are considered as permanently residing if they spent more than 183 days.

Foreign individuals meeting the above criteria may claim Double Tax Treaty protection in respect of their residency status, provided they are tax residents in the country with which Kazakhstan has concluded a tax treaty and have tax residency certificate issued by the tax authorities of that country.

Certain types of income of nonresident individuals, who spent less than 183 days in Kazakhstan and employed by non-resident legal entities with no permanent establishment in Kazakhstan, should not be subject to Kazakhstan individual income tax.

11.2 Gross Income Employee Gross Income With few exceptions, all types of direct and indirect income are included in taxable compensation.

Under “the controlled foreign companies” (CFC) regime, a Kazakhstan resident individual may be taxed on a proportion of the undistributed profits of certain Kazakhstan controlled non-resident companies in which the resident has an interest. There is a special list of “black-listed” jurisdictions approved by the Government of Kazakhstan, for which CFC rules would apply.

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Capital Gains and Investment Income Capital gains are subject to ordinary income tax rate at 10 %. However, some exemptions exist.

Capital gains from securities sale (in Kazakh entity registered in accordance with Kazakhstan legislation) are excluded from taxable income unless they relate to the sale of shares in subsurface user.

Generally, dividends and interest income earned by individuals are taxable at 5% and 10%, respectively, at source. An exception from tax on interest income and dividends exists in relation to certain categories of securities. Currently, there is an exemption from tax on interest earned on deposits with financial institutions.

11.3 Deductions Business Deductions There are no business deductions allowed for employees. An individual may claim business deductions if registered as an entrepreneur.

Non-Business Expenses Deductions for non-business expenses include: • • • •

Obligatory and voluntary pension contributions; Insurance premiums payable by individuals in their own favor under accumulation insurance agreements; Amounts aimed at repayment of interest on housing loan provided to a resident by housing construction savings banks; Expenses on medical services with certain limitations.

Personal Allowances The most notable allowance is a general deduction based on the minimum monthly wage of KZT 14,952 or KZT 179,424 per annum (approximately USD 1,220).

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11.4 Tax Credits Taxpayers may be allowed a tax credit for certain foreign taxes paid, limited to Kazakhstan taxes due on that income. In order to apply tax credit, the taxpayer should satisfy the documentation requirements.

11.5 Other Taxes Social Security Taxes Social tax is payable by employers at 11% of gross remuneration of all employees (i.e., both local and expatriates).

Social insurance fund contributions are payable by employers to the state social insurance at 5% in 2010 of monthly income accepted for calculating social contributions at a rate not exceeding 10-times minimum salary.

Obligatory Pension Contributions Obligatory pension contributions are withheld at a rate of 10% of employees’ gross income. The gross income subject to obligatory pension contributions is capped at 75times minimum salary or approximately USD 7,630 per employee per month. Kazakhstan citizens and permanently resident foreign citizens are subject to pension contributions, unless otherwise stated in international agreements.

Wealth Tax There is no wealth tax in Kazakhstan.

Local Taxes There are no additional local taxes on income.

11.6 Tax Administration Returns

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In respect of individual income tax withheld at source, tax agents file quarterly reports on income paid to residents, non-residents, and on paid dividends, interest and winnings by 15 May, 15 August, 15 November and 15 February.

There is also a self-assessment system whereby all taxpayers who have taxable income (in the absence of a tax agent) are required to submit tax declarations by 31 March in the year following the tax year-end.

Payment of Tax Tax agents withhold income tax not later the date of income payment. Tax is due prior to the 25th day of the month following the month of income payment.

For income not taxed at source, income tax payment generally should be made not later than 10 April of the year following the reporting one, however, other deadlines could apply for certain categories.

11.7 Tax Rates Single flat rate of 10% is applicable to most types of individual income.

11.8 Secondment If properly structured, personnel secondment services would not lead to permanent establishment in Kazakhstan and income form such services would not be considered a Kazakh source income. Please note, however, that under secondment arrangements, an entity to which personnel is seconded is generally expected to pay / withhold all applicable Kazakhstan payroll taxes from remuneration of personnel.

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12 VALUE ADDED TAX (VAT) 12.1 Introduction All taxpayers registered for VAT purposes are required to charge VAT on their taxable supply, and calculate and report their VAT obligations.

The VAT rate is 12%.

Taxpayers are required to register for Kazakhstan VAT purposes if their taxable supply in the preceding 12 months exceeded 30,000 MCI (currently, approximately USD 290,000).

Even if an entity is not required to register for VAT purposes, it may still voluntarily do so by submitting an application to the appropriate tax committee.

It is expected that starting from 1 July 2010, under the new Customs Code of the Republic of Kazakhstan and amended Tax Code (both to be enacted) the new VAT rules will be introduced. They apply for import/export of goods and provision of services within the territory of the Customs Union. The Customs Union members are Russia, Kazakhstan and Belorussia.

12.2 Scope of VAT Taxable supplies of goods include: transfers of title to goods, including the sale, exchange, contribution to the authorized capital, and payment of salary (wage) in kind; − transfers of goods under a finance lease contract; and − transfers of goods by one division of a legal entity to another, provided that both divisions are registered as separate taxable persons. −

Taxable supplies of services are any supplies of the services, both chargeable and nonchargeable, as well as the following: transfers of copyright or intellectual property, including those contributed to a company's authorized capital; − services performed by an employer for the benefit of an employee as a form of wages; and − services supplied between two or more divisions within one legal entity, provided that the divisions are registered as separate taxable persons. −

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The following items are not treated as taxable transactions: − − −

transfers of goods with a value not exceeding 2 MCI for advertising purposes; provision of reusable packaging materials; and export of goods for exhibitions and other similar activities, under the customs regime for temporary export of goods.

Goods and services are subject to VAT if they are deemed to be supplied in Kazakhstan under the place of supply rules. According to these rules, transactions are deemed to be supplied: −

in respect of goods: a) if the goods are transported by the supplier, customer or third party, at the place where transport of the goods begins; and b) in all other cases, at the place where the goods are transferred to the customer; and

−

in respect of services: a) in the case of services relating to immovable property, at the place where the immovable property is located; b) in the case of services relating to movable goods, at the place where the services are actually performed (these services consist of assembly, installation, and repairs). c) in the case of services in the sphere of culture, art, education, physical training or sports, at the place where the services are actually performed; d) in the case of the following services, at the place where the recipient (buyer) of the services has established his place of business: - the transfer of rights to intellectual property; - consulting, auditing, engineering, legal, accounting, advertising and information processing services; - hiring out of staff; - leasing of movable property (excluding vehicles); - telecommunications services; - tourist services; and - intermediary services specifically relating to the above categories of services. e) in all other cases, at the place where the service provider has established his

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place of business.

If a service is supplementary to another service, the place of supply is determined as the place of the latter.

12.3 Zero-Rating Turnovers taxable at the zero rate include: − − −

export sales of goods; international transportation services; sales of goods in the territory of special economic zones under certain conditions.

12.4 Exempt Supplies Turnovers and import exempt from VAT include: turnovers associated with residential buildings; qualified financial services; transfers of assets under finance leases; geological exploration and geological prospecting operations; turnovers from sales of work and services, associated with the implementation of infrastructure projects; − the assignment of subsurface rights under certain conditions; − sale of an enterprise; − import of certain assets, the list of which is approved by the Government. − − − − −

12.5 Taxable Amount VATable Supplies. Taxable supply includes any sale of goods, works and services, and taxable import in Kazakhstan, unless the supply is specifically exempted or if the place of supply is outside Kazakhstan.

VAT Offset. VAT paid on services and goods purchased by a VAT payer (i.e., input VAT) including reverse-charge VAT and VAT paid at customs should generally be available for offset (credit) when determining a taxpayer’s VAT liability to the budget. However, offset is not available for VAT incurred for the purpose of supplies which are either exempted or which are deemed to be supplied outside of Kazakhstan.

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VAT Calculation and VAT Offset Carry-Forward. The VAT liability of a taxpayer is calculated as output VAT (i.e., VAT charged by a taxpayer) less input VAT (i.e., VAT paid by a taxpayer to its suppliers) in a reporting period.

The excess of input VAT over output VAT may generally be carried forward against future VAT liabilities. In practice refunds are difficult to obtain, although the rules do prescribe a procedure for refunds related to the export of goods, under certain conditions.

12.6 Non-Deductible Input VAT The following input VAT is not allowed for offset if it is subject to payment in connection with the receipt of the following: goods (work, services) not related to entrepreneurial activity; goods (work, services) not related to taxable turnover; building (part of a building) for residential housing, except for buildings which are used as hotels; − passenger cars which are purchased as fixed assets; − goods (work, services) used for the repair of leased buildings for residential housing, except for the cases where repair costs are reimbursed by the lessor in accordance with the lease agreement and are taxable turnover of the lessee who made the repairs; − assets (goods, work, services) received free of charge, in most cases. − − −

12.7 VAT Incentives There are certain exemptions from import VAT. Please refer to the section Importing and Exporting.

12.8 Simplification Measures None

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12.9 VAT Compliance The tax period for VAT is a quarter. Submission of the VAT Declaration is due by the 15th and VAT payment is due by 25th day of the second month following the reporting quarter.

Reverse-Charge VAT. Under the “place of supply” rules, certain services are deemed to be supplied at the location of the business activity of the purchaser of services. These services include: consulting, audit, engineering, legal, accounting, advocacy, advertising, and information processing services. Where such services are rendered by a non-resident not registered for VAT purposes in Kazakhstan, the Kazakhstan purchaser of these services is required to self assess and pay VAT to the budget via a “reverse charge” mechanism.

The obligation to pay the reverse-charge VAT will be on the Kazakhstan purchaser of the services, which should be allowed to offset the amount of the reverse-charge VAT paid, subject to the general offset procedure.

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PricewaterhouseCoopers in Kazakhstan Almaty Office: Contact Names Assurance and Advisory (AA) Alper Akdeniz, Managing Partner for Eurasia, based in Almaty

Address

Communications

PricewaterhouseCoopers

Main office numbers Tel: +7 (727) 298 0448 Fax: +7 (727) 298 0252

34 Al-Farabi Ave. Building A, 4th Floor Almaty, 050059, Republic of Kazakhstan

Tax Services (TS) Richard Bregonje, Partner, Leader of Tax and Legal Services, based in Almaty

Astana Office: Contact Names

Address

Communications

Assurance and Advisory (AA)

PricewaterhouseCoopers 6 Saryarka street Business Center “Arman�, 16th floor Astana 010000 Republic of Kazakhstan

Main office numbers Tel: +7 (7172) 55 0707 Fax: +7 (7172) 55 0708

Alper Akdeniz, Managing Partner for Eurasia, based in Almaty Tax Services (TS) Richard Bregonje, Partner, Leader of Tax and Legal Services, based in Almaty

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Appendix A – Macroeconomic Indicators of Kazakhstan GDP growth: (December 2010) Inflation: (December 2010) Refinancing rate: (January 2011) Foreign currency reserve: Country rating:

7.1% (year-to-year) 7.8% (year-to-year) 7% National Bank – USD 27.700 ml National Fund – USD 30.600 ml S&P – BBB+ Moody’s – Ваа2 Fitch – BBB

Currency:

Kazakh Tenge (KZT)

Exchange rate:

KZT 147.42 = USD1 (December 2010)

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Appendix B – Tips for Business Visitors Visas Kazakhstan requires a Kazakhstan visa for travel to the Republic. Also the Kazakhstan transit visa is mandatory, with the exception of Russian visa holders, if you are in transit (i.e., when you are traveling to another country through Kazakhstan). A transit can last no longer than three days. A visa usually costs between USD 35-400, depending on its status and term. A visa typically takes about two weeks to obtain. For more details on visas, contact the nearest Kazakhstan embassy.

Visas are sometimes difficult to obtain at airports on arrival in Kazakhstan, with the exception of diplomatic visas. Therefore, when checking in for a flight to Kazakhstan, the airline will check all documents, including visas, and might not allow a person on the airline if the documents are not in order.

Since there are few Kazakhstan embassies in the world, procuring a visa will require some organization and advance planning. If there is no Kazakhstan embassy in your country, you may try to apply for a Kazakhstan visa in the nearest country with a Kazakhstan embassy or consulate.

In some countries, it may be possible to request that a Kazakhstan visa be arranged by a Russian embassy if a Kazakhstan embassy does not have a presence. It is worthwhile to confirm this with the Russian embassy first and to inquire about any additional documents that will be required.

When obtaining a visa through a Kazakh embassy or consulate, an invitation from a host organization in Kazakhstan, three passport photos and the completed application form (which should be available from the embassy) are usually required. The validity of passport should not expire earlier than three months after expiration of the requested visa.

Upon receipt of the visa, confirm that the dates in the visa are correct and cover the period of stay. Should travel to other countries be included in the itinerary during the visit to Kazakhstan, ensure that the Kazakhstan visa is not limited to a single entry.

One-month, single-entry visas obtainable upon arrival to Kazakhstan are available to citizens of certain countries. Please check with the nearest Kazakhstan Embassy or Consulate to verify qualification for these simplified procedures.

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Doing Business Guide 2010 - 2011 Belgium 30 Avenue Van Bever, 1180 Brussels, Belgium Tel: 32 (02) 374-9562 Fax: 32 (02) 374-5091

Canada 347 Bay Street, Suite 600 Toronto, Ontario M5H 2R7 Tel: 1 (416) 593-4043 Fax: 1 (416) 593-4037 (Consulate)

France 59, rue Pierre Charron, Paris, 75008, France Tel: 33 (1) 4561-5200 33 (1) 4561-5206 Fax: 33 (1) 4561-5201

Germany Nordenstrasse 14-17, Berlin, Germany 13156 Tel: 49 (30) 470-07-111 49 (30) 470-07-160 Fax: 49 (30) 470-07-125

United Kingdom 33 Thurloe Square London SW7 2SD United Kingdom Tel: 44 (207) 581-4646 44 (207) 590-3480 Fax: 44 (207) 584-8481

United States 1401 16th Street, N.W. Washington DC. 20036 Tel: 1 (202) 232-5488 1 (202) 550-9617 Fax: 1 (202) 232-5845

Travel Four of the well-known European airlines fly to Almaty and, together, give the traveler the opportunity to fly to and from Kazakhstan on every day of the week.

Almost all flights arrive in Almaty between 00.00 a.m. and 04.00 a.m., under the current schedules: Airlines

Flights to Almaty

British Airlines, London (Heathrow)

Monday, Wednesday, Saturday

KLM, Amsterdam

Monday, Tuesday, Thursday, Friday, Saturday

Lufthansa, Frankfurt Turkish Airlines, Istanbul

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Seven days a week

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To travel to Astana, most travelers fly into Almaty and then take Air-Astana to Astana. There are several flights in the morning and evening to and from Astana all days except Saturday and Sunday. There are now, however, a few flights into Astana from Moscow (Monday, Wednesday, Friday), Hanover (Thursday, Sunday), and Frankfurt (Wednesday, Friday, Sunday).

The national air carrier, Air-Astana, also operate most of the internal flights between cities in Kazakhstan. It currently also offers flights to some international destinations such as Budapest, Hanover, Beijing and Urumqi (China), Dubai, Istanbul, Bangkok, London, Seoul, Frankfurt, Amsterdam and Moscow. Trains frequently provide an alternative for journeys in Kazakhstan and to certain neighboring countries.

Customs Currently, customs declarations are required if items to be declared exceed USD 3,000, and/or more than USD 3,000 in cash. The customs declaration describes the currency and amount of money, valuables, and other items being imported. If a customs declaration is submitted, both forms would be stamped and one will be returned. The one that is returned must be submitted upon departure from Kazakhstan together with a departure declaration. The departure declaration again requests information concerning money and valuables being exported from the country. Typically, the authorities seek to confirm that valuables were not sold and that more money is not being taken out of the country than was brought in.

Individuals are not permitted to take more than USD 10,000 cash out of the country. It is worth mentioning that Tenge may not be exported.

Registration Within five days of arrival in Kazakhstan, an individual is required to register with the Migration Police (former Office of Visa and Registration-OVIR). As proof of registration, the passport will be stamped with dates corresponding to the visa. If an individual does not obtain the required Migration Police stamp, a penalty fee may be assessed if stopped by the police or upon passport inspection at the airport during departure.

According to Kazakhstan legislation, foreigners must carry their passport with the visa and the OVIR stamp or, recently, a copy of all three (provided it is notarized by the foreigner's embassy) at all times. The police can stop anyone at any time and ask to see their documents. Failure to produce the requested document can result in PwC

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detainment until the original passport is produced, complete with a visa, an OVIR stamp and, often, a penalty.

Accommodations In Almaty, travelers have several options for hotel accommodations, including the Hyatt Regency Almaty and the Regent Ankara – international five-star hotels; the Hotel Astana and Hotel Ambassador – international three-star hotels; Hotel Dostyk (former communist party hotel) and the Otrar Hotel (former Inturist hotel) – both well-known national hotels.

When traveling to Astana, one has fewer options, but business people who frequent Astana recommend the Intercontinental Hotel – international five-star hotel; Rixos Hotel - international five-star hotel; Comfort Hotel, and Akku Hotel. In Atyrau Hotel Atyrau, Shagala, The River Palace, and Riverside Inn – are international hotels. In Aktau – Renaissance (Marriott hotels).

The hotels listed above accept all major credit cards. For more information on hotels and restaurants, please contact: PricewaterhouseCoopers in Almaty and ask for a copy of our PricewaterhouseCoopers Telephone Directory.

Almaty Hyatt Regency Almaty

The Regent Almaty-Ankara Hotel

Rates: USD 430-2,400 (exclude 12% VAT) Breakfast is not included Tel: +7 (727) 250 1234 Fax: +7 (727) 250 8888

Rates: 430-4,000 USD (exclude 12% VAT) Breakfast is not included Tel: +7 (727) 250 3710 Fax: +7 (727) 258 2100

Hotel Ambassador

Astana Hotel

Rates: USD 200-415 (include 12% VAT) Breakfast is included Tel: +7 (727) 250 8989 Fax: +7 (727) 269 8441

Rates: USD 180-240 (include 12% VAT) All major credit cards are accepted Breakfast is included Tel: +7 (727) 250 7050 Fax: +7 (727) 250 1060

Hotel Dostyk

Hotel Otrar

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Rates: USD 190-365 (include 12% VAT) Breakfast is excluded Tel: +7 (727) 258 2270 Fax: +7 (727) 263 6804

Rates: USD 130-745 (include 12% VAT).

Breakfast is included Tel: +7 (727) 250 6806 Fax: +7 (727) 250 6809

Astana Intercontinental Hotel

Comfort Hotel

Rates start at USD 299 (exclude 12% VAT) Breakfast is included Tel: +7 (7172) 39 1000 Fax: +7 (7172) 39 1010

Rates start at USD 144 (include 12% VAT) Breakfast is included Tel: +7 (7172) 22 1021 Fax: +7 (7172) 22 1030

Radisson SAS

Rixos Hotel

Rates: USD 285-3,500 (exclude 12% VAT) Breakfast is included Tel: +7 (7172) 99 0000 Fax: +7 (7172) 99 2222

Rates: USD 398-911 (include 12% VAT) Breakfast is included Tel: +7 (7172) 24 5050 Fax: +7 (7172) 24 2760

Atyrau Hotel Atyrau

Shagala

Rates: USD 160-640 (include 12% VAT) Breakfast is included Tel: +7 (7122) 92 1100, 92 1110 Fax: +7 (7122) 27 1827

Rates start at USD 115 (include 12% VAT) Breakfast is included Tel: +7 (7122) 35 4033, 32 8490 Fax: +7 (7122) 35 4034

The River Palace

Riverside Inn

Rates start at USD 170 (exclude 12% VAT) Breakfast is included Tel: +7 (7122) 35 5241, 35 5239 Fax: +7 (7122) 35 5236

Rates: USD 480-640 (exclude 12% VAT) Breakfast is excluded Tel: +7 (7122) 45 0498 Fax: +7 (7122) 58 6402

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Aktau Renaissance (Marriott) Rates: USD 235-1,000 (exclude 12% VAT) Breakfast is included.

Tel: +7 (7292) 30 0600 Fax: +7 (7293) 30 0601

Drivers Drivers are a necessity for foreign business people in Almaty as business hours in Kazakhstan can be long and sometimes irregular. Drivers are most easily and reliably hired through the inviting organization. Current rates are about USD 10-12 per hour or USD 35 a day on a temporary basis. Very few drivers speak English or any other western European languages, however, more and more do understand directions and one should be able to communicate without a translator.

It is possible to hire a car from Europecar*. Payment can be made by major credit cards like American Express, Visa, Diners Club, MasterCard/Eurocard. Both the Hyatt Regency Almaty and the Regent Hotel have hotel cars available for personal hire. It is best to check the hourly and daily rates charged by each hotel. ______________________ * Europecar Tel: +7 (727) 258 1681

Interpreters Even moderately fluent Russian speakers sometimes find an interpreter useful in business negotiations. It is also becoming more and more important to have an interpreter who speaks both Kazak and Russian and can interpret actions as well as words. Interpreters could be best arranged through the inviting organization, and cost between USD 50 and USD 150 per day.

Appointments Appointments are generally kept in Kazakhstan unless there is a good reason for breaking them. However, in the business climate in Kazakhstan, meetings can be frequently cancelled because other issues became even more urgent.

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Therefore, one should try not to schedule appointments more than two days in advance. If possible, confirm the appointment an hour before arrival.

Working Hours Standard working hours are nine to six, five days a week, with most people working a 40-hour week. Shops tend to be open later on weekdays and on Saturday, while most are also open on Sunday. Most offices and banks close for an hour or so during the day between one and two p.m. for lunch. Bazaars (baraholkas) are open every day from 9:00 a.m. until 5:00 p.m. except Mondays.

Currency Kazakhstan has a cash and, increasingly, a credit economy. Plan to have cash (Tenge) in the event that your credit card does not work at the restaurant or shop.

There are many foreign exchange points around, but it may be more reliable to use the banks or the hotels, where possible, since rates and security measures vary across the country. When changing money, worn or damaged bills must be avoided as most places accept only bills in good condition. US dollar bills, as well as the Euro bills, must be post-1990, ensuring that they have a metal strip encoded in them.

Automated teller machines (ATMs) can now be found in many places in Kazakhstan and especially in Almaty. ATMs typically dispense local currency and usually offer a reasonable exchange rate.

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Public Holidays Before investing in a round-trip ticket to Almaty, it is prudent to be aware of the following official Kazakhstan public holidays: January 1,2

New Year

March 8

International Women's Day

March 21-23 May 1 May 9

Nauryz (Central Asian New Year) Day of Unity of the People of Kazakhstan Victory Day

July 6

Day of Kazakhstan Capital

December 16-17

Independence Day

Christmas and Easter are not public holidays in Kazakhstan. Also, please be aware that, where the holiday falls on Saturday/Sunday, typically the next Monday is a day off.

Safety In any city where disparities in income levels are large, crime tends to be targeted at the (comparatively) wealthy and Kazakhstan is no exception. Recently, Kazakhstan has been experiencing an increase in violent crime.

Foreign visitors are advised not to dress in a flamboyant fashion and to be discreet in their conduct. It is also recommended to drink in moderation and to exercise caution when leaving nightclubs and discos late at night. In particular, use known taxis or arrange for a hotel or company car to pick you up. Hotel safes should be used, where possible, to avoid carrying excess sums of cash.

Never walk alone, especially at night. If someone walks toward you, stops in front of you, and/or starts talking to you, do not stop. If somebody in front of you drops a wallet or anything valuable, do not pick it up or you may find yourself the target of a scam.

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When staying in a hotel room or apartment, never open the door for anyone who is unfamiliar.

While in a car, always lock the doors as soon as you get in and keep windows closed even if temperatures are high. Avoid driving late at night, especially in deserted areas.

Always be alert in public places. If you are uncomfortable or suspicious of the situation, do not hesitate to alter your plans or route.

Almaty is no different from other big cities. If you are being robbed, do what they want. It is not worthwhile to be brave, risking injuries or worse while protecting your replaceable goods.

Traditions When invited by a Russian or Kazakh as a guest in their home, consider it an honor.

Thus, it is impolite to decline the invitation. It is customary to bring something for the house and, if dinner will be served, (which is usually the case), something for the table. Shoes should be removed when entering the house. Greeting traditions, such as kissing each other or shaking hands, depend on the relationship with the host(s). If shaking hands, never shake hands over the doorstep.

Once seated at the dinner table, the host is likely to offer a glass with vodka and will give a toast in the guest's honor. The host is likely to toast to the health of everyone present, as well. All guests are expected to say a toast. The guest should stand, hold a glass of vodka (or alternative beverage) high, and speak to the host of the table.

Something should be said in honor of the host and/or hostess, wishing long and happy lives with family and friendship, complementing Kazakhstan, then followed by 'Vashe zdarovje' and a sip, after which the speaker may sit down. 'Vashe zdarovje' means, in English, 'to your health'.

Stories abound about eating sheep heads and other pieces of meat to which many foreign individuals are not accustomed. These menus may not be offered in the larger cities, like Almaty, because the hosts are usually aware that the foreigners are not familiar with these dishes. In rural areas, though, anticipate a menu including the native Kazakh dishes.

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Attractions Even though business in Kazakhstan can be time consuming, your schedule may allow you to see something of the city. Here are some ideas for Almaty: Zelyony Bazaar Zelyony Bazaar means Green Market, called this since it is largely a food market with quality caviar from the Caspian region. Some traditional Kazakhstan souvenirs may be found. Bargaining is common in this region. Always be aware of potential pickpockets.

Panfilov Park Park is in downtown Almaty, near the Zelyony Bazaar. A memorial demonstrating a common Soviet design bears an eternal flame in commemoration of those who died during the Civil War of 1922-1924 and the Second World War. In the center of the park is the spectacular Cathedral. Built entirely out of wood, without nails, this cathedral survived a major earthquake at the beginning of the century. The Russian Orthodox Church restored the cathedral in the early 1990's.

Medeo This is the world's most famous open-air skating rink on which 200(!) records were broken. Situated within thirty minutes of Almaty, one can enjoy the breathtaking views all year.

Kok-Tobe Needle Closer than Medeo, a television tower sits atop the hills to the east of Almaty. It has nice views and shashlyk (similar to kebabs) restaurants, with a gondola ride to and from.

Education The Almaty International School opened in September 1993 and offers education to pupils between three and fourteen years of age. This is the first school to be opened in Almaty specifically for foreign nationals. The instruction language is English.

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In the fall of 1999, another international school names “Miras� opened. This institution, sponsored by the First Lady Mrs. Sara Nazarbayeva, is based on an international educational system, with some instruction in English.

Most recently, a Montessori school opened in Almaty.

There are also a number of state and private local schools with instruction in Russian. The standards can be high, but the number of expatriate children in such schools is small.

Health Care More often than not, a change in diet and partaking of the local custom, vodka, is the cause of stomach complaints in Kazakhstan. The treatment usually requires a few days for acclimation. Although Kazakhstan citizens may believe that water out of the tap is potable, it is not recommended. Bottled water and soft drinks are readily available at stores and kiosks.

While Kazakhstan is presently not known for any particular diseases, travelers planning to spend extended periods of time in the Republic should make sure that they are up to date with tetanus, rabies, hepatitis, polio, cholera, typhoid inoculations, and encephalitis vaccines. Even for short visits, it is strongly advisable to be appropriately vaccinated. Consult a doctor or a travel clinic before traveling to Kazakhstan, allowing time for vaccination series.

Foreigners are advised to bring ample supplies of required medications for their use in an emergency, as the medicine supply in Kazakhstan tends to differ from what foreigners are used to in their home countries.

To date, a couple of international medical centers have been set up in Almaty.

Interteach Clinic Tel: 7 (3272) 582-332; 588-100 Fax: 7 (3272) 582-332 SOS Clinic Tel: 7 (3272) 581-912 PwC

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The clinics usually require a prepaid annual membership fee to provide medical service. Other services available in Almaty are usually considered questionable for emergency operations and other similar requirements. For extensive and detailed medical services, outside services should be sought through Moscow or other internationally operated emergency evacuation services.

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Appendix C – Tax Rates CIT

20% - 2009 - 2012, 17.5% - 2013 and 15% from 2014

Tax Depreciation

10% - 40%

Withholding Tax

Dividends, interest and royalties – 15%, services – 20%

Individual Income Tax

10%

VAT

12%

Property Tax

1.5% of net book value of immovable assets

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Appendix D – Withholding Taxes Withholding Tax Rates Between Kazakhstan and Treaty Countries (The letters in parentheses refer to the notes below)

Recipient Nontreaty Austria Azerbaijan Belarus Belgium Bulgaria Canada China Czech Republic Estonia France Germany Hungary India Iran Italy Japan Korea Kyrgyzstan Latvia Lithuania Malaysia Moldova Mongolia The Netherlands Norway Pakistan Poland Romania Russia

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Dividends Interest 15 15 Treaty: 5/15 (4) 10 10 10 15 10 5/15 (5) 10 10 10 5/15 (1) 10 10 10 10 10 5/15 (2) 10 5/15 (10) 10 5/15 (2) 10 5/15 (9) 10 10 10 5/15 (6) 10 5/15 (5) 10 5/15 (1) 10 5/15 (1) 10 10 10 5/15 (2) 10 5/15 (2) 10 10 10 10/15 (2) 10 10 10 5/15 (5) 10 5/15 (12) 10 12,5/15 (8) 12,5 10/15 (3) 10 10 10 10 10

Royalties 15 10 10 15 10 10 10 10 10 15 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 15 10 10 10

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Singapore Slovakia Sweden Switzerland Tajikistan Turkey Ukraine United Kingdom United States Uzbekistan

5/10 (13) 10/15 (7) 5/15 (14) 5/15 (12) 10/15 (7) 10 5/15 (15) 5/15 (1) 5/15 (16) 10

10 10 10 10 10 10 10 10 10 10

10 10 10 10 10 10 10 10 10 10

Notes referring to the table above:

1.

5% if the beneficial owner is a company which controls directly or indirectly at least 10% of the voting power in the company paying the dividends.

2.

5% if the beneficial owner is a company (other than partnership) which holds directly at least 25% of the capital of the company paying the dividends.

3.

10% if the beneficial owner is a company which directly or indirectly holds at least 20% of the capital of the company paying the dividends.

4.

5% if the beneficial owner is a company which holds directly at least 10% of the capital of the company paying the dividends.

5.

5% if the beneficial owner is a company which holds directly or indirectly at least 10% of the capital of the company paying the dividends.

6.

5% if the recipient is a company (excluding partnership) which holds directly at least 20% of the capital of the company paying the dividends.

7.

10% if the beneficial owner is a legal entity and directly holds not less than 30% stake in the company paying the dividends.

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8.

12.5% if the beneficial owner is a company which holds directly or indirectly at least 10% of the capital of the company paying the dividends.

9.

5% if the beneficial owner is a company which holds directly or indirectly at least 25% of the capital of the company paying the dividends.

10. 5% if the beneficial owner is a company which owns directly at least 10% of the capital of the company paying the dividends.

11. 5 % if the beneficial owner is a company (other than a partnership) which holds at least 10% of the capital of the company paying the dividends.

12. 5% if the beneficial owner is a company which holds directly at least 10% of the capital of the company paying the dividends.

13. 5% if the beneficial owner is a company which holds directly at least 25% of the capital of the company paying the dividends.

14. 5% if the beneficial owner is a company (other than a partnership) which holds directly at least 10% of the voting power of the company paying the dividends.

15. 5% if the beneficial owner is a company, and that company owns at least 25% of the capital of the company paying the dividends.

16. 5% if the beneficial owner is a company which owns at least 10% of the voting stock of the company paying the dividends.

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Appendix E – Setting up in Kazakhstan – a checklist

Registration/ Liquidation

General

Branch versus Kazakhstan Legal Entity (KLE)1 Branch of Foreign Legal Entity

Kazakhstan Legal Entity

− A branch is not a separate legal entity, but rather an extension of its head office. − A branch is permitted to carry out full commercial activities. − A branch may not conclude a contract with its head office, thus direct transactions between a branch and its head office should not entail immediate tax and legal implications (e.g., funding is not treated as income). − Any transactions are carried out by a branch on behalf of its head office. − A branch has no charter capital or own property as a guarantee of its material responsibility and, accordingly, it is the head office that is legally responsible for liabilities of its branch to third parties.

− KLE is a separate legal entity, and is most commonly established either in the form of a limited liability partnership or a joint-stock company. − KLE is permitted to carry out full commercial activities. − Transactions between a KLE and its parent organization require the use of a contract, invoices, or other supporting documentation, and usually entail relevant tax and legal implications. − KLE is an independent party to any transactions. − KLE is legally responsible for its own liabilities to third parties.

Shareholders of a KLE are generally responsible for the KLE’s liabilities within the respective limits of their contributions to a charter capital of the KLE (e.g. LLP or JSC).

− Registration procedure and filing costs are similar for KLEs and branches of Foreign Legal Entities (FLE’s). − A branch may not open another branch or a representative office. − A branch may be liquidated upon the decision of its head office.

− Registration procedure and filing costs are similar for KLEs and branches of FLEs. − KLE may open branches or representative offices. − KLE may be liquidated upon the decision of its shareholders, or upon the court’s ruling in case of bankruptcy.

1

This summary is based on the rules effective as of 1 January 2010 and is provided for general guidance only. It is not intended to replace professional advice based on the details of a particular transaction or situation. Please contact your PricewaterhouseCoopers tax advisor at 7 (327) 298-04-48.

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Work permit

Labor

Local content

Licensing

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− Licensing restrictions may apply depending on type of activity. − It might be more difficult, in practice, for a branch of FLE to obtain certain licenses (e.g. a license to perform audit activity is not available for a branch of FLE). − Certain licenses are granted to branches of FLEs on a one-off basis (e.g., construction licenses are usually limited to a specific single project).

− Licensing restrictions may apply depending on type of activity. − It might be easier, in practice, for a KLE to obtain certain licenses. − KLEs are typically granted with a general license (i.e., not limited to a specific project). − A license to perform audit activity is only available for KLEs in the form of LLP.

If there are local content requirements, a branch of FLE will not satisfy the criteria of the definition of “local content”.

KLE might be advantageous for local content requirements depending on the evolution of local content rules and their interpretation by customers.

Full compliance requirements with the local labor legislation. Note, employment contracts may be denominated in any currency, and Salary payments to employees may be made in any currency as well.

Full compliance requirements with the local labor legislation. Note, employment contracts with local employees may be denominated only in local currency, and salary payments to local employees may be made only in local currency as well. This, however, is not applicable to expatriates.

Full compliance requirements. Note, the foreign head of a branch is not required a Kazakhstan work permit.

Full compliance requirements. Note, individuals working as chief executives of organizations that entered into contracts with the Kazakh government for investment worth more than 50 million US Dollars, or that are investing in priority sectors and that entered into contract with the designated authority responsible for investments do not require a Kazakhstan work permit.

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Foreign currency control

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A branch may operate in hard currency: − Payments may be made in any currency as agreed by the parties to a transaction. − Salary payments to employees may be made in any currency. − Contracts/agreements (including supply contracts, engagement letters, employment contracts, etc.) may be denominated in any currency.

KLE should generally operate in local currency – the Kazakh Tenge: − Payments between KLEs are required to be carried out only in local currency.

Note, payments between a KLE and a foreign legal entity (or branch thereof) may be made in any currency as agreed by the parties to a transaction. − Salary payments to local employees may be made only in local currency (note, exception for salary payments to expatriate employees). − Contracts/agreements between KLEs (e.g., supply contracts with KLEs, engagement letters with KLEs, employment contracts with local employees, etc.) may be denominated only in local currency.

Note, contracts/ agreements between a KLE and a foreign legal entity (or its branch) may be denominated in any currency as agreed by the parties to a transaction.

May have offshore bank accounts without mandatory notification of the National Bank.

The National Bank should be notified upon opening offshore bank accounts.

Foreign currency control rules are much less restrictive.

Full compliance requirements, including obtaining registration or notification certificates from the National Bank in respect of certain currency transactions.

Note, a branch of foreign legal entity that operates in Kazakhstan for more than one year is subject to “currency monitoring” (which is carried out merely for information purposes), if the branch is engaged in one of the following types of activity: − crude oil and natural gas production, − construction, − minerals production, − architect, engineering, and other technical services, − research and development or experimental development work.

Exports/imports of goods, including oil and gas sales, do not currently require special transaction passports.

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Exports/imports of goods with value in excess of USD 50,000 currently require, in most cases, special transaction passports and provision of contracts.

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There is no mandatory funds repatriation requirement for a branch of foreign legal entity.

Effective from 1 January 2007, there is a requirement for mandatory repatriation of foreign and national currency (i) received by a KLE into its offshore bank account for exports of goods and services by the KLE, and/or (ii) paid by a KLE for importation of goods and services, in case of their non-receipt/incomplete receipt by the KLE.

Profit Distribution

Interest Expenses

Financing

The National Bank registers direct investments made by non-residents into Kazakhstan and by residents abroad.

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May be funded by its parent company, where the funding is not treated as income.

May be funded by either contributions to charter fund or loans. Otherwise, the funding will be treated as the legal entity’s income.

Parent loans or funding is not subject to licensing/registration/notification with the National Bank, and may not be deductible for the Kazakhstan tax purposes unless it is the third party loan to the head office.

Loans (both pure cash loans as well as deferral of payment/advance payment) between a KLE and a FLE in excess of $500,000 (inbound transactions), 100,000 (outbound transactions) and for the term of more than 180 days are subject to registration with National Bank.

Interest payments to related parties are subject to Thin Capitalisation rules whether the other party is foreign or resident in Kazakhstan. Note, branches are generally funded by their head offices, and interest charged is not deductible.

Interest payments to a foreign entity are subject to 15% WHT and treaty protection may be obtained to reduce this. If the foreign company is in a ‘blacklisted’ country the WHT rate is increased to 20%.

Interest payments to related parties are subject to Thin Capitalisation rules whether the other party is foreign or resident in Kazakhstan.

Interest payments to a foreign entity are subject to 15% WHT and treaty protection may be obtained to reduce this. If the foreign company is in a ‘blacklisted’ country the WHT rate is increased to 20%.

Funds can be freely transferred back to head office. However, a branch profits tax of 15% is assessed, which may be reduced to 5% under most double tax treaties (e.g., KZ-UK DTT).

The branch profits tax applies annually, regardless of whether or not the profits are distributed.

Dividends can be paid from after tax profits (i.e., accumulated retained earnings, after payment of corporate income tax). Dividends can be exempt from withholding tax subject to a 3-year holding period for the shares. Otherwise, they would be subject to a 15% withholding tax, which may be reduced to 5% under most double tax treaties (e.g., KZ-UK DTT). Withholding tax to the extent applicable is due upon payment of dividends.

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Land / Property

Customs

Taxation

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Full taxpayer status.

Full taxpayer status.

Exceptions (as compared to KLE): − Taxed on Kazakhstan-sourced income only. − Subject to branch profits tax, which is paid annually. − Deductions for overhead expenses of head office if located in a country that has concluded a double tax treaty with Kazakhstan.

There should be no withholding tax or reverse-charge VAT consequences of head office overhead cost allocations (if properly structured). − Certain tax incentives are not available to branches of foreign legal entities (i.e., investment tax preferences, special economic zones, etc.).

Exceptions (as compared to branch of FLE): − Taxed on world-wide income. − Subject to dividend withholding tax, which is paid upon actual distribution of dividends. − No automatic deductions for overhead expenses incurred by parent organization. Deduction may be possible with the use of a contract and invoices (amongst other supporting documentation); however, there could be withholding tax and reverse-charge VAT consequences. − Tax incentives should be available to KLEs (i.e., investment tax preferences, special economic zones, etc.).

− The current Kazakhstan customs implications both for KLE and Branches are similar, however it is expected that new separate customs provisions will be applied for KLE and Branches with introduction of the new Customs Code of the Republic of Kazakhstan starting from 1 July 2010, which is contemplated to be based on the Customs Union Unified Customs Code − The legislation allows foreign legal entities (including their branches) to own land plots for the purpose of construction of (or constructed) commercial and non-commercial buildings and facilities, including residential buildings and land plots used for servicing these buildings. The “agricultural” land plots may not be owned by foreign legal entity.

No restrictions, including the possibility to own “agricultural” land plots.

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