Kazakhstan – the best place for foreign investments

Dec 13. Nine O’Clock

Kazakhstan - the best place for foreign investmentsKazakhstan, the largest Central Asian economy, is the best place for business in the region, according to the World Bank survey Doing Business 2012, published in October 2011. The country moved up 11 spots from the last year and is now ranked 47th in the world. According to the survey, Kazakhstan reported significant progress in the areas of Protecting Investors and Paying Taxes, climbing 34 and 13 spots, respectively, in the world rankings of these indicators.In the last few years the policymakers of the Central Asian countries have worked hard to improve the business environment in the region, and the region has become more attractive for foreign investors. For example, foreign-owned fixed assets in Kazakhstan rose by 82% over the last five years. For instance, last month, in Almaty region on the basis of LLP “Magnetic”, the main supplier of concrete sleepers for JSC “National company “Kazakhstan Railways”, Kazakh-Polish enterprise LLP “Tines Manufacture Railway Kaz” launched a production line for the manufacture of concrete blocks. The implementation of the investment project is supported by the National Export & Investment Agency «KAZNEX INVEST» under the Ministry of Industry and New Technologies of the RK. Also, Kazakhstan is the most stable country in the Central Asia and a regional leader in terms of social and economic development. The 2010 Global Economic Forum rated Kazakhstan 72nd of the 139 most competitive countries in the world. This relatively high international rating warrants a closer look at the country’s investment climate. There are three factors that have an impact on how attractive Kazakhstan is to investors: The first one is the country’s business climate – a rather good one thanks to favourable investment laws and a number of measures taken to support investments. The second factor is the large quantities of natural and mineral resources available. The third factor is a most favourable geographical location of Kazakhstan giving it easy access to the Central Asia, Russia and China – the consumer markets totalling almost half a billion people. Attracting and efficiently utilising foreign investments is a key priority in Kazakhstan. Foreign investments can help to significantly improve the country’s unbalanced economy, create new high-tech manufacturing facilities, modernise the plant and equipment, upgrade the production capacity, train new technicians and workers, introduce cutting edge management and marketing practices and know-how, supply sufficient numbers of high-quality domestic goods to the local market as well as increasing exports simultaneously. Today Kazakhstan has all the necessary laws to regulate investments. According to international experts, the country’s Law On Investments is one of the best laws of its kind in the countries with a transitional economy. The law guarantees 100% protection for the rights of investors and the stability of the contracts they enter into. It also provides strict regulations on the interaction between state authorities and investors (free flow of capital, repatriation of capital, freedom to use profit in any way investors see fit, property rights to land, including the right of foreign companies to own land in the country).

Subsidiaries

A foreign investor can choose to create a subsidiary in Kazakhstan in the form of a joint stock company (JSC) or a limited liability company (LLC). Sometimes potential foreign investors confuse Kazakh LLCs with Russian “limited liability partnerships” and question whether LLCs are “flow through” entities whose revenues and expenses flow through the entities and are attributed to the partners owning them, in accordance with the partnership taxation principles that are common in many countries. However, LLCs are not flow-through entities, therefore JSCs and LLCs are taxed similarly in Kazakhstan. Both are subject to corporate profit tax and their profit distributions are subject to income tax withheld at the source of payment at the rate of 15 percent. Profits distributed by JSCs are called dividends, while profits distributed by LLCs are referred to as income from equity investments, because LLCs do not issue shares. The difference in nomenclature has no impact on the taxation of the profit distributions though. As a result of the 2004 law, JSCs usually function as public companies and LLCs as private, the most common organizational form for companies in Kazakhstan.Any income derived from a Kazakh source that a subsidiary company pays to a foreign parent company is subject to the same rate of income tax withholding. This is regardless of the type of entity paying the income, unless tax privileges have been granted by an international agreement.

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