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Legal Aspects of Establishing a Company in Kazakhstan



22.04.2016Ryskiyeva and Partners, www.ryskiyeva.com

Today, Kazakhstan, being one of the leading economies of the CIS countries, is "a jurisdiction open to investment activities", which opens great economic opportunities for foreign investors due to the favorable investment climate and a fairly high level of development of legislation and business-oriented tax and customs policies.

 

If we add to the above the presence of a high solvent demand, the absence of customs barriers with the Eurasian Economic Union countries, and a relatively soft and transparent tax regime, then it is possible to make an unambiguous conclusion that Kazakhstan is among the most attractive countries in the CIS to start up a new or expand an existing business.

 

It is obvious that anyone interested in conducting business activities in Kazakhstan, first of all, can ask himself the following questions: "What legal instruments and structures are fixed in the legislation of the country? What steps need to be taken in the first place?" A proper start-up of a business requires possession of the relevant information without analysis or comprehension of which it is difficult to start the implementation of a desired goal.

 

The first step to start up a business in the Republic of Kazakhstan is to obtain the status of "an individual entrepreneur" or to establish a legal entity. According to the legislation of the Republic of Kazakhstan, legal entities whose primary activity is deriving of profit, can be established in the form of a state enterprise, a business partnership (general partnership, partnership in commendam, limited liability partnership, a additional liability partnership), joint stock company or a production cooperative.

 

Statistics indicate that in most cases, limited liability partnerships and joint stock companies are established to conduct a private business in Kazakhstan.

 

In this article we will look through the procedure of establishing one of the most common legal forms of legal entity which is Limited Liability Partnership (hereinafter referred to as "LLP").

 

The LLP is a partnership established by one or more entities, the charter capital of which is divided into shares determined by constituent documents and whose participants (shareholders) are not liable for its obligations and bear the risk of loss associated with the activities of the partnership to the extent of their contributions. The legal status of LLP, the rights and obligations of its participants, the procedure of establishing, activity, reorganization, and dissolution of the partnership are regulated by the Civil Code of the Republic of Kazakhstan and the Law of the Republic of Kazakhstan “On Partnerships with Limited and Additional Liabilities” (dated April 22, 1998 No.220-I).

 

The LLP can be established by one or several individuals and/or legal entities. At the same time, the partnership consisting of one participant (shareholder) cannot be a sole participant (shareholder) in another LLP.

 

When LLP is established by one entity, this entity (participant) shall make (sign) an individual decision about its establishment. When LLP is established by two or more entities, a foundation agreement is concluded between them (the participants) in a written form, signed by each of the participants or by their authorized representatives. Herewith, the foundation agreement needs be notarized, except for the foundation agreement of LLP which is a small or medium business entity.

 

Also, the participant(s) shall approve the charter of LLP, a document that defines the legal status of the partnership as a legal entity. The charter of LLP is approved by the sole participant’s decision or by the minutes of a general meeting of participants (shareholders). This decision or minutes also approves the size of the charter capital of LLP, elects its executive body (collective and (or) sole), selects its location (legal address), and resolves other issues related to the establishment of LLP.

 

It should be noted that if the participant(s) intend(s) to appoint a foreign citizen as the executive body (General Director, Director, etc.) of LLP or for any other position, a work permit for such foreign citizen should be obtained after LLP has been established. As for the hiring citizens of member states of the Eurasian Economic Union (Armenia, Belarus, Kyrgyzstan and Russia), as well as for foreign citizens holding a permanent residence permit in the Republic of Kazakhstan, obtaining of such work permit is not required.

 

In accordance with the Entrepreneurial Code of the Republic of Kazakhstan (adopted by law No.375-V ZRK on October 29, 2015), LLP can be attributed to different categories, the division onto which is based on the criterion of average annual number of employees and average annual income:

 

1) Small business entity is a partnership with the average annual number of employees not more than 100 (one hundred) persons AND the average annual income not more than 300,000-fold (three hundred thousand) MCI* (approximately US$ 1,88 mln.) established by law on republican budget and valid on January 1st of the respective financial year. At the same time, the LLP engaged in certain activities specified in the Entrepreneurial Code cannot be attributed to small business entities.

 

Herewith, this category includes micro-business entity - a partnership with the average annual number of employees not more than 15 (fifteen) persons OR the average annual income not more than 30,000-fold (thirty thousand) MCI (approximately US$ 188,000), established by law on republican budget and valid on January 1st of the respective financial year.

 

2) Medium business entity is a partnership that is not related to small and large business entities;

 

3) Large business entity is a partnership that meets one or two of the following criteria: the average annual number of employees is more than 250 (two hundred fifty) persons AND/OR the average annual income is above 3,000,000-fold (three million) MCI (approximately US$ 18,8 mln.), established by law on republican budget and valid on January 1st of the respective financial year.

 

* MCI is a monthly calculated index equal to 2,121 tenge as of 12.04.2016 (approximately US$ 6.30 at exchange rate of the National Bank of Kazakhstan).

 

The "average number of employees" of the LLP shall be determined by taking into account all employees, including employees of branch offices, representative offices and other separate subdivisions of the LLP, and "average annual income" shall be the amount of total annual revenue or income of the LLP, using a special tax system on the basis of a patent or simplified declaration, for the last three years, divided into three.

 

The initial size of charter capital of LLP:

·         for small business entities – can be equal to zero or another amount;

·         for medium and large business entities - cannot be less than one hundred times of MCI size (i.e. 212,100 tenge, approximately US$ 630) on the date of submission of documents for state registration of the partnership.

 

Money means, securities, things, property rights, including land use rights and the right to intellectual property and other assets, can be contributed by participant(s) as a contribution to the charter capital of LLP. The charter capital of special financial companies established under the laws of the Republic of Kazakhstan on project finance and securitization, as well as Islamic special finance companies established under the laws of the Republic of Kazakhstan on the securities market, is formed exclusively in money means. However, personal non-property rights and other intangible benefits cannot be introduced as a contribution to the charter capital of LLP.

 

The LLP acquires the status of a legal entity after state registration implemented by the Ministry of Justice of the Republic of Kazakhstan and its territorial subdivisions.

 

State registration of small business entities

 

The state registration procedure for small business entities has some differences from that of medium and large business entities. In particular: for the purpose of development of small business, the legislative body of the Republic of Kazakhstan has established a notifying order of establishing LLP which relate to small business entities, and thus simplified the procedure of state registration of such companies.

 

For state registration of LLP which relate to small business entities, the participant(s) shall submit a completed electronic form of Notice about Commencing Business Activity to the registration authority via the “Electronic Government” Internet resource (www.egov.kz). It should be noted that prior to submission of the electronic Notice, each participant will need to obtain an individual identification number (IIN) and electronic digital signature (EDS), as each participant shall approve the above Notice through their own EDS.

 

No registration fee is paid for the state registration of LLP – small business entity.

 

For LLP one or more participant of which are foreign individuals or foreign legal entities, electronic copies of the documents below shall also be attached to the above Notice:

 

a) in case the participant is a foreign legal entity - a legalized extract from the Trade Register or another legalized document certifying that the participant, the foreign legal entity, is indeed a legal entity under the legislation of a foreign country, with a notarized translation into Kazakh and Russian languages;

 

b) in case the participant is a foreign individual -  a copy of passport or another identity document of the participant, the foreign individual, with a notarized translation into Kazakh and Russian languages.

 

The fact of registration of the legal entity on a notification basis shall be confirmed by “Certificate of State Registration of Legal Entity” to be sent electronically to the personal account of the applicant (applicants) opened in the “Electronic Government” Internet resource (www.egov.kz). The certificate shall be issued by the registration authority not later than 1 (one) business day following the Notice submission day.

 

The state registration of medium and large business entities

 

For state registration of LLP which relate to medium and large business entities, the following documents shall be submitted to the registration authority (via the Public Service Center):

 

1) An application for state registration which shall be signed and submitted to the registration authority by participant or one of participants (if they are more than one). If the sole participant is a foreign individual or foreign legal entity, the Government of the Republic of Kazakhstan or public authorities or the National Bank, the application shall be signed and submitted by a person authorized by the participant, together with constituent documents duly certified by a notary public (for foreign legal entities - legalized documents).

 

2) A receipt of paid state registration fee (for large business entity only). The fee for LLP which is an entity of large business equals to 6.5 MCI (i.e. 13,786.5 tenge, approximately US$ 40) and shall be paid through payment system of the “Electronic Government”. No registration fee is paid for the state registration of LLP – medium business entity.

 

3) For LLP one or more participants of which are foreign individuals or foreign legal entities:

 

a) in case the participant is a foreign legal entity - a legalized extract from the Trade Register or another legalized document certifying that the participant, the foreign legal entity, is indeed a legal entity under the legislation of a foreign country, with a notarized translation into Kazakh and Russian languages;

 

b) in case the participant is a foreign individual - a copy of passport or another identity document of the participant, the foreign individual, with a notarized translation into Kazakh and Russian languages.

 

If the documents submitted comply with the legislation of the Republic of Kazakhstan, the registration authority shall implement the state registration of LLP within 1 (one) business day, after which it shall grant a “Certificate of State Registration of Legal Entity”.

 

The “Certificate of State Registration of Legal Entity” contains information about the date of its issue, state registration date, the name, location (legal address) and business identification number (BIN) of LLP.

 

The state registration of the LLP which relate to medium and large business entities can also be made ​​on the basis of the electronic application for state registration filed via the “Electronic Government” Internet resource (www.egov.kz). In this case, the participant(s) will also need to obtain IIN and EDS, similarly to the procedure of state registration of small business entities.

 

It should be noted that neither small business entities nor medium and large business entities shall submit the foundation agreement and charter of LLP to the registration authority during the state registration process.

 

After the state registration of LLP, its executive body (General Director, Director) may order the production of a partnership’s stamp, open bank accounts of the partnership, and commence carrying out the planned business activity. It should be noted that in order to conduct certain activities the list of which is stipulated in the law of the Republic of Kazakhstan “On Permits and Notifications” (dated May 16, 2014 No.202-V ZRK), it is required to obtain relevant licenses/permits, and only after receiving them the LLP can perform such activities.

 

Conclusion

 

Given the above description of registration procedures, as well as an open feedback of registration authority’s employees, any interested parties may independently initiate and successfully complete the LLP’s registration process in the Republic of Kazakhstan. However, it should be noted that the issue on the start-up of a business in Kazakhstan, as in any other country, must be approached in a more integrated and systematic way, simultaneously resolving the issues related to visa support of foreign employees, obtaining work permits by a legal entity for its foreign employees, interaction with tax authorities and banking institutions, and many other associated matters.

 

Another important thing is optimization of contractual work, book-keeping, and personnel operations in the activity of a legal entity, considering the specificity of legal regulation in the Republic of Kazakhstan, which in most cases cannot be achieved without professional legal support by internal legal services of a company or by specialized law firms.

 

 

Jamol Ryskiyev, Partner

Ryskiyeva and Partners Law Firm

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