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JULY 2013
Legal Focus
89
Finally, as ENRC case revealed recently, there is a problem with qualified personnel in the country as well. It is difficult to find experienced professional project managers.
One of the biggest risks for investors in Kazakhstan is constantly changing legislation. The revision of the laws creates the conditions for a double interpretation; there is no united position of regulatory bodies on various issues, in particular, on tax and antitrust. There is no even uniform judicial practice.
What regulatory restrictions are there?
In general, the legislation of the Republic of Kazakhstan grants national regime to foreign investors. However, M&A is a complex field of law which consists of civil, investment, corporate and other regulations, and it is not governed by a single legal act. Therefore, restrictions in regard to M&A deals in Kazakhstan arise from the specific rules for certain industries, for example, financial sector companies shall be incorporated in the form of a joint-stock company. Also, merger or reorganization of such entities will trigger preliminary compliance with relevant state authorities, like with the National Bank in the example above.
There are strict rules on economic concentration under antitrust and natural monopoly laws, where approvals shall be received prior to conclusion of the M&A transactions.
The same is applicable to subsoil users, when one of the most common requests for legal services is obtainment of the consent for acquisition/transfer of the shares in a mining company from the Ministry of Industry and New Technology. Acquisition of strategic facilities and undertaking of major transactions also will require compliance with certain regulatory procedures.
Also, it is very important to mention that there are strict local content rules, when certain number of personnel and procured goods, works and services shall be from Kazakhstan sources.
Finally, there are restrictions on the volume of share that a foreign investor can possess or even manage. It includes airlines, mass media, magistral lines, investment funds, insurance and other companies. Foreigners cannot own agricultural land in Kazakhstan. However, if structured properly, the ownership can be established indirectly.
What are the key taxation considerations for investors when embarking upon mergers and acquisitions in your jurisdiction?
Kazakhstan tax regime is quite favorable with corporate income tax at 20%, VAT at 12%, individual income tax at 10%. Kazakhstan has ratified Double Tax Treaties with many countries. Also, the Tax Code provides with investment tax benefits in the form of deductions of the value of the items of such benefits and (or) subsequent expenses on reconstruction and modernization. If a company is registered in a special economic zone (SEZ) on the territory of Kazakhstan, it receives substantial tax and customs privileges and exemptions.
Still, the major problem is ambiguous approach and interpretation of the tax law and procedures by the tax authorities and courts.
In your experience, what are the most common challenges that arise?
The biggest challenge that arises during M&A transactions in Kazakhstan is a long process of negotiations and compliance among participants, especially with national companies. Then, even after successful completion of the deal, regardless all covenants, representation and warranties, charter and founders’/shareholders’ agreements, local partners tend to run business according to common practice but not arrangements with investors.
To hedge these risks, we highly recommend consulting with lawyers who work closely with state agencies, i.e. has a developed government relations practice. LM
Contact: Madina Sypatayeva
Madina Sypatayeva, LLM/MBA, Phd (candidate) Linkage & Mind Law Firm
Email: Madina.sypatayeva@linkagemind.com tel: + 7 7272 596 260