Kazakhstan ranked 25th in the World Bank´s Ease of Doing Business report in 2020. This is a comparatively great result, and doing business in Kazakhstan is generally not difficult or easier compared to other countries in the region.
Foreign and local investors may use a variety of legal entities to conduct business in Kazakhstan. The most commonly used ones are Joint Stock Companies, Limited Liability Partnerships, Representative Offices and Branch Offices.
Joint Stock Companies or JSCs issue shares to attract investments and capital to finance their activity. They may have one or more shareholders, and the shareholders are not liable for the JSC´s liabilities. The minimum capital for a JSC is approximately EUR 300,000 and it may have one or more shareholders.
Limited Liability Partnerships or LLPs differ from JSCs in the way that they do not issue shares, but instead the participants hold interests in the partnership. The minimum capital requirement for a LLP is approximately EUR 600 and it may have one or more participants. The participants are generally not liable for the LLP´s liabilities outside of their capital contribution, but there are some exceptions.
Foreign companies can also establish representative offices (RO) and branch offices (BO) in Kazakhstan. These entities are considered a part of the parent entity. The main difference between them is that a RO can only perform representative activities on behalf of the parent entity, such as marketing and advertising. A BO can perform all or part of the activities of the parent entity, including entering into commercial agreements and activity.
Accounting & TAXATION
Accounting and payroll in Kazakhstan
Managing accounting and payroll according to local laws is mandatory for any organization working under Kazakh law. Accounting and payroll in theory is not so different between various countries, but in practice there is always an ocean of details to consider. To make sure your organization is compliant, it is necessary to use an accountant who has plenty of experience
As in other CIS countries, the fiscal year in Kazakhstan is the same as the calendar year. Also similarly, the 1C accounting and ERP program dominates almost all of the market. Finding accountants with skills to use other programs can be difficult. Multinational organizations who wish to work within their own ERPs may find themselves having to do double accounting in the local and in their own software.
What are the controlling institutions?
The Ministry of Finance of the Republic of Kazakhstan is the controlling body for accounting legislation. Companies´ tax payments are controlled by the State Revenue Committee which works as part of the Ministry of Finance. The Ministry of Labor and Social Protection of the Population controls issues connected to labor law, labor protection and payroll.
Tax rates in Kazakhstan
Here are the most common tax rates in Kazakhstan:
- Corporate Income Tax - 20 %
- Value Added Tax - 12 %
- Property Tax - 1,5 %
- Personal Income Tax - 10 %
- Social Tax - 9,5 %
- Social Security Contribution - 3,5 %
- Compulsory contribution to Social Medical Insurance Fund - 3 %
These are the basic rates that companies should consider. There are several exceptions, caps to tax rates and other taxes that are not mentioned here. Kazakhstan additionally has a wide range of various Withholding Taxes that are applied for cross-border transactions. Special attention should be paid to documenting cross-border transactions to avoid unnecessary withholding taxes.
Additionally, companies in Kazakhstan may operate in one of several Special Economic Zones or SEZs that will affect their tax rates. For example, companies operating in the Astana Hub SEZ for IT companies enjoy an exemption from Corporate Income Tax, plus other deductions in payroll taxes.
Some tips for business in Kazakhstan
As in other countries in the CIS region, the local legislation in Kazakhstan is usually subject to rapid changes. These changes can affect companies´ accounting and payroll as well as the legal environment they operate in during short notice. This means that it´s very important to make sure the right professionals are supporting you with accounting and legal matters. Using accounting outsourcing in Kazakhstan is a good choice precisely for the reason that accounting companies have the resources to constantly monitor and stay ahead of changes in the local legislation.
The tax rates for businesses in Kazakhstan especially in payroll, are quite low in comparison to international standards. Additionally companies can lower these rates further via tax planning or working in one of the Special Economic Zones. It's important to note though, that although the tax rates may be low, the penalties for non-compliance or non-payment are very high. For this reason we recommend that businesses pay special attention to taxes payable in Kazakhstan.
Employment matters in Kazakhstan are regulated by the local Labor Code. The code states that labor relations are regulated via employment agreements, which must be concluded in written form and conform to the local minimum requirements.
Companies working in Kazakhstan generally have a freedom to employ without using employment agencies. In some dismissal cases, the local Employment Center has to be notified. Employment Centers are local subdivisions of the Ministry of Labor and Social Protection of the Population. Employers have to follow requirements such as providing a working place which complies with regulations as well as providing their employees workplace accident insurance.
Employment agreement may be concluded as fixed-term for a term of no less than one year, or non-fixed term. Fixed term employment agreements are considered as changed to non-fixed term agreements after they are extended two times. Probation periods are generally used, and they may not exceed three months apart from some management positions.
Employers are not free to dismiss employees without basis. Employment relations can be terminated in three ways:
- Mutual agreement of the parties;
- Termination by the employee´s initiative;
- Termination by the employer´s initiative.
In case of termination by the employer´s initiative, the labor code sets out a number of possible reasons for this. All of them are quite serious, such as working in an intoxicated state or revealing employer trade secrets. The labor code and courts are protective of employees in Kazakhstan, so employers need to be careful when managing their labor relations.