Timur Shalabayev, Executive Director of the Solar Power Association of Qazaqstan ALE

Inclusion of RE into the list of priority activities

In accordance with the Entrepreneurial Code of the Republic of Kazakhstan, previously RE projects were entitled to such investment preferences as: exemption from customs duties, value added tax (VAT) for imports, and state in-kind grants.

Per Resolution of the Government of the Republic of Kazakhstan No. 81 dated February 24, 2020, “On Amendments and Additions to the Resolution of the Government of the Republic of Kazakhstan dated January 14, 2016, No.13 “On Some Issues of the Implementation of State Support for Investments”, RE was included in the list of the priority investment projects. This grants the new investment preferences for the implementation of renewable energy projects in Kazakhstan.

In particular, the CCEA (Common Classifier of Economic Activity) 35.11 “Electricity production, with the exception of electricity production by thermal and nuclear power plants” was added to the list of priority project activities identified for the implementation of priority investment projects.

In general, this class of CCEA 35.11 includes the electricity production using any sources, including heat power, nuclear power, hydropower, power from renewable sources, and electricity produced by gas turbines and diesel engines.

The CCEA code 35.11 is a group containing the following subgroups:

CCEA code 35.11.1 – Electricity production by thermal power plants, including activities to ensure the operability of power plants.

CCEA code 35.11.2 - Electricity production by hydroelectric power plants, including activities to ensure the operability of power plants.

CCEA code 35.11.3 - Electricity production by nuclear power plants, including activities to ensure the operability of power plants.

CCEA code 35.11.4 - Electricity production from renewable energy sources, including electricity generated by solar, wind, geothermal power plants, including activities to ensure their operability.

Given that the amendments to the Resolution of the Government of the Republic of Kazakhstan exclude the possibility of applying for support measures for heat and nuclear power plants projects, the priority activities will include CCEA 35.11.2 “Electricity production by hydroelectric power plants” and CCEA 35.11.4 “Electricity production by other power plants”, which implies electricity from RES.

A full list of priority activities can be found in the text of the Resolution of the Government of the Republic of Kazakhstan dated January 14, 2016, No.13 “On Some Issues of the Implementation of State Support for Investments”.

Investment preferences in the framework of priority investment projects implementation

According to Art. 284 of the Entrepreneurial Code of the Republic of Kazakhstan, the priority investment project means an investment project for:

- the development of new production facilities implying a legal entity's investment in the construction of new production facilities (factory, plant or workshop) in the amount of at least 2 million monthly calculation indices (about 5.3 billion tenge, given the MCI level of 2651 tenge in 2020);

- the expansion and/or renovation of existing production facilities, implying a legal entity's investment in an amount not less than 5 million monthly calculation indices (about 13.2 billion tenge, given the MCI level of 2651 tenge in 2020).

The priority investment project for the development of new production facilities or expansion and (or) renovation of existing production facilities shall be implemented by a legal entity operating in one of the priority business activities defined by the Government of the Republic of Kazakhstan.

Given the inclusion of RE in the number of priority investment projects by the decision of the Government of the Republic of Kazakhstan, the RE projects are now granted additional investment preferences.

According to paragraph 3 of Art. 283 of the Entrepreneurial Code, the following types of investment preferences are provided for the priority investment project (hereinafter referred to as investment preferences for the priority investment project):

1)      tax preferences;

2)      investment subsidy.

An investment subsidy is not provided to the investment priority projects for the expansion and (or) renovation of existing production facilities.

Tax preferences

According to subparagraph 1 of paragraph 2 of Article 290 of the Entrepreneurial Code of the Republic of Kazakhstan, the following tax preferences are granted to the priority investment projects:

• Reduction in the amount of calculated CIT (Corporate Income Tax) by 100%;

• Application of the coefficient of 0 to the land tax rates;

• Calculation of the property tax at a rate of 0 percent to the taxable base

An investment contract determines the validity period for each type of tax preference, but no more than the deadline for their application, determined in accordance with the Code of the Republic of Kazakhstan «On Taxes and Other Obligatory Payments to the Budget» (Tax Code).

Also, the application of tax preferences is canceled in case of the early termination of the investment contract in the manner prescribed by this Code.

Taxation of organizations implementing priority investment projects

According to Art. 712 of the Tax Code of the Republic of Kazakhstan

1.       Organization that implements the priority investment project for the development of new production facilities or expansion and (or) renovation of existing production facilities:

1) reduces corporate income tax, calculated in accordance with Article 302 of this Code in relation to the income, received from the implementation of priority activities specified in the investment contract, by 100 percent.

The income of an organization implementing an investment priority project from the implementation of other activities not related to priority business activities is subject to corporate income tax in accordance with the generally established procedure.

An organization implementing a priority investment project shall maintain separate tax records of taxable items and (or) items related to taxation in order to calculate tax liabilities for a priority type of activity under an investment contract.

If the provisions of the investment contract for the implementation of the priority investment project for the expansion and (or) renovation of existing production provide for the phased commissioning of fixed assets that produce products, then separate tax accounting is maintained for each fixed asset that produces products, then separate tax accounting is maintained for each fixed asset that produces products in accordance with the tax accounting policy.

An organization implementing a priority investment project shall not use other provisions of this Code for such a project, which provide for a 100 percent reduction in the corporate income tax;

2) determines depreciation deductions on the value balances of the groups (subgroups) of fixed assets commissioned as part of a priority investment project by applying the depreciation rates determined in paragraph 2 of Article 271 of this Code to such value balances of the groups (subgroups) at the end of the tax period.

2.       The absolute deadline for the application of paragraph 1 of this article on investment contracts for the implementation of a priority investment project:

1)      for the development of new production facilities:

starts on January 1 of the year when the investment contract for the implementation of the priority investment project was concluded;

ends no later than ten consecutive years, calculated from January 1 of the year following the year when the investment contract for the implementation of the priority investment project is concluded;

2)      for the expansion and (or) renovation of existing production facilities, with the exceptions of cases specified in subparagraph 3) of this paragraph:

starts on January 1 of the year following the year when the last fixed asset producing products was commissioned as part of an investment contract for the implementation of the priority investment project;

ends no later than three consecutive years, which are calculated from January 1 of the year following the year when the last fixed asset producing products was commissioned under an investment contract for the implementation of the priority investment project;

3)      for the expansion and (or) renovation of existing production facilities during the phased commissioning of fixed assets that produce products, provided for by the investment contract for the implementation of the priority investment project

starts on January 1 of the year following the year when a fixed asset producing products was commissioned under an investment contract;

ends no later than three consecutive years, which are calculated starting from January 1 of the year following the year when the fixed asset was commissioned, the product put into operation under the investment contract.

The absolute deadline applies to each fixed asset producing products and provided for in the investment contract for the implementation of the priority investment project aiming to expand and (or) renovate existing facilities.

3.       An organization implementing a priority investment project for the creation of new facilities applies a coefficient of 0 to the corresponding land tax rates when calculating the land tax for land plots used for implementation of the priority investment project.

The absolute deadline for the application of part one of this paragraph:

1) begins on the 1st day of the month when the investment contract for the implementation of the priority investment project for the development of new facilities was concluded;

2) ends no later than ten consecutive years, which are calculated from January 1 of the year following the year when the investment contract for the implementation of the priority investment project for the development of new facilities was concluded.

The provisions of the first part of this paragraph shall not apply to cases of the lease of property (rent) of the land or a part of it (together with buildings, structures, structures on it or without them) intended for the implementation of the priority investment project, to be used on other grounds.

4.       An organization implementing a priority investment project for the development of new production facilities for the objects first commissioned in the Republic of Kazakhstan calculates the property tax at a rate of 0 percent to the taxable base.

The provisions of the first part of this paragraph apply to assets accounted for as property, plant and equipment in accordance with international financial reporting standards and the requirements of the legislation of the Republic of Kazakhstan on accounting and financial reporting and provided for in the work program, which is an annex to the investment contract concluded in accordance with the legislation of the Republic of Kazakhstan in the field of entrepreneurship.

The deadline for the application of part one of this paragraph:

1) begins on the 1st day of the month when the first asset is recorded down as property, plant and equipment in accordance with international financial reporting standards and the requirements of the legislation of the Republic of Kazakhstan on accounting and financial reporting;

2) ends no later than eight consecutive years, which are calculated starting from January 1 of the year following the year during which the first asset is accounted for as property, plant and equipment in accordance with international financial reporting standards and the requirements of the legislation of the Republic of Kazakhstan on accounting and financial reporting.

The provisions of the first part of this paragraph shall not apply to the cases of transfer of objects of taxation for use, trust management or lease.

5.       The provisions of this article shall apply if the investment contract for the implementation of the priority investment project for the development of new production facilities provides for the use of

100 percent reduction in the corporate income tax calculated in accordance with Article 302 of this Code;

coefficient 0 to land tax rates;

rates of 0 percent to the tax base when calculating property tax.

An investment subsidy

According to Art. 291 of the Entrepreneurial Code of the Republic of Kazakhstan, an investment subsidy is a type of the budget subsidy provided as an investment preference on a gratuitous and irrevocable basis to a legal entity in the Republic of Kazakhstan that has entered into an investment contract providing for investments in the

amount of at least five million times the monthly calculation index, determined by the law on the republican budget and the effective on the date of filing an application investment preferences and implementation of the priority investment project.

In order to promote regional development, an investment subsidy is granted on the basis of a decision of the Government of the Republic of Kazakhstan to an investor implementing an investment priority project.

An investment subsidy is granted to priority business activities determined by the Government of the Republic of Kazakhstan for the investment subsidies.

An investment subsidy is provided through reimbursement of up to thirty percent of the cost of construction and installation works and the purchase of equipment excluding value added tax and excise taxes foreseen by the work program of the investment contract.

Payment of the investment subsidy on the actual costs of construction and installation works and the purchase of equipment takes place upon submission of supporting documents, but does not exceed the value of the costs listed in the pre-design documentation, which shall include a state expert conclusion statement in the manner determined by the legislation of the Republic of Kazakhstan.

Documents confirming the actual costs of the investor include::

1) primary accounting documents issued in accordance with the legislation of the Republic of Kazakhstan on accounting and financial reporting;

2) invoices issued in accordance with the tax legislation of the Republic of Kazakhstan;

3) customs declarations issued in accordance with the customs legislation of the Republic of Kazakhstan.

The schedule and annual amounts of payment of the investment subsidy are established within the framework of the investment contract by distributing the investment subsidy in equal shares for a period of at least three years, but no more than the duration of the investment contract.

Payment of the investment subsidy is carried out in coordination with the local executive body of the region, city of republican significance and the capital at the place of project implementation after the full commissioning of the production facility into operation, subject to the fulfillment of performance indicators established by the investment contract.

The rules for providing investment subsidies are approved by the Government of the Republic of Kazakhstan.

Resolution of the Government of the Republic of Kazakhstan dated December 29, 2015, No. 1120 “On Approval of the Rules for the Provision of Investment Subsidies”.

The procedure for obtaining investment preferences

According to Art. 285 of the Entrepreneurial Code of the Republic of Kazakhstan, in order to receive investment preferences, a legal entity of the Republic of Kazakhstan shall submit an application for investment preferences and documents confirming compliance of the applicant with the requirements established by this Code to the authorized investment body in the form established by the authorized investment body.

Investment preferences are granted on the basis of an investment contract concluded between the authorized investment body and a legal entity of the Republic of Kazakhstan implementing the investment project.

The rules for the authorized investment body on granting the investment preferences to investors implementing an investment priority project, using the «one-stop shop» principle, are approved by the Government of the Republic of Kazakhstan.

The order of the acting Minister of Investment and Development of the Republic of Kazakhstan dated December 30, 2015 No. 1281 “On Approval of the Rules for Admission, Registration and Consideration of Applications for the Provision of Investment preferences”.

Implementation of the investment priority project is carried out exclusively within the framework of one investment contract.

According to paragraph 5 of Art. 286 of the Entrepreneurial Code of the Republic of Kazakhstan, investment preferences for an investment priority project are granted subject to the following conditions:

1) the recipient is a legal entity of the Republic of Kazakhstan;

2) the legal entity invests in the amount of at least two million times (for the development of new production facilities) or five million times (for the expansion and (or) renovation of existing facilities) the size of the monthly calculation index determined by the law on the republican budget and valid on the date of application for investment preferences ;

3)      republican budget funds are not used as sources or guarantees of financing for the implementation of the priority investment project, with the exception of money allocated on terms of repayment, urgency and serviceability, including leasing financing and lending through financial institutions;

4)      a legal entity is not:

an autonomous education organization as specified in the tax legislation of the Republic of Kazakhstan and the legislation of the Republic of Kazakhstan on education;

an organization operating in the territory of a special economic zone as specified in the tax legislation of the Republic of Kazakhstan and the legislation of the Republic of Kazakhstan on special economic and industrial zones;

5)      the share of the state and (or) of the quasi-public sector entity as the founder and (or) participant (shareholder) of the legal entity of the Republic of Kazakhstan does not exceed twenty-six percent.

The participation of the state and (or) the quasi-public sector entity - the legal entity of the Republic of Kazakhstan as the founder and (or) participant (shareholder) of the legal entity of the Republic of Kazakhstan shall be no more than five years from the date of registration of the investment contract. Within five years, the state and (or) the quasi-public sector entity are required to withdraw from the founders and (or) participants (shareholders) of the legal entity of the Republic of Kazakhstan. In case of failure to fulfill this condition, the application of investment preferences is suspended until it (them) is completely withdrawn from the founders and (or) participants (shareholders) of the legal entity of the Republic of Kazakhstan, but not more than one year.

Failure to fulfill the conditions for withdrawal from the composition of the founders and (or) participants shareholders) of a legal entity of the Republic of Kazakhstan during the suspension period entails the early termination of the investment contract and the return of previously granted investment preferences.

The provisions of this subparagraph shall not apply in the event that a quasi-public sector entity in which the share of the state and (or) quasi-public sector entity as the founder and (or) participant (shareholder) of a legal entity of the Republic of Kazakhstan is less than fifty percent, carries out its activities within the framework of implementing the coal mine methane priority investment project;

6)      budget funds shall not be attracted as sources or guarantees of financing for the implementation of the priority investment project, with the exception of money allocated on the terms of repayment, urgency and serviceability, including leasing financing and lending;

7)      investment activity shall not be not carried out under a public-private partnership agreement, including a concession agreement.

According to paragraph 6 of Article 286 of the Entrepreneurial Code of the Republic of Kazakhstan, the timeline for applying investment preferences is established by this Code and other legislative acts of the Republic of Kazakhstan and is indicated in the investment contract for each type of investment preference.

Requirements for an application form for the provision of investment preferences

According to Art. 292 of the Entrepreneurial Code of the Republic of Kazakhstan, an application form for the investment preferences is accepted and registered in the format established by the authorized investment body, subject to availability of:

• certificates of state registration (reregistration) of a legal entity;

• copies of the charter of a legal entity, certified by the signature of the head and the seal of the legal entity.

• If the legal entity is a private business entity, the seal is not required on the documents;

• a business plan for an investment project developed in accordance with the requirements established by the authorized investment body;

• documents confirming the size (cost) of the state in-kind grant requested by the applicant legal entity of the Republic of Kazakhstan and preliminary approval of its provision;

• certificates from the state revenue authority at the place of registration about the absence of tax debt, and debts in mandatory pension contributions, mandatory professional pension contributions and social contributions;

• copies of the passport or identity document of the attracted foreign employee (with translation into Kazakh or Russian), an employment contract concluded between the employer and the attracted foreign employee (with translation into Kazakh or Russian), and documents confirming his qualifications and (or) education (with translation into Kazakh or Russian).

If the application for the investment preferences foresees tax preferences and (or) investment subsidies, the investor shall submit a conclusion statement from a comprehensive extradepartmental examination of construction projects, certified by the signature of the head, as determined by the legislation of the Republic of Kazakhstan.

Application forms for investment preferences, requirements for the preparation of a business plan for an investment project, a semi-annual report on the implementation of the investment contract, the act of the current execution of the work program of the investment contract are approved by the order of the Minister of Investment and Development of the Republic of Kazakhstan dated November 30, 2015 No. 1133 “On Some Issues of State Investment Support”.

Timelines for consideration of an application for investment preferences

 An application for the investment preferences is submitted for consideration to the authorized investment body, which, in accordance with the requirements established by Articles 285 and 286 of the Entrepreneurial Code of the Republic of Kazakhstan, makes a decision within twenty business days from the date of registration of the application.

The procedure for considering an application for the investment preferences in the form of an investment subsidy is determined by the rules for the provision of investment subsidies. Resolution of the Government of the Republic of Kazakhstan dated December 29, 2015, No.1120 “On Approval of the Rules for the Provision of Investment Subsidies”.

The procedure for the receipt, registration and consideration of applications for the provision of investment preferences is determined by the authorized investment body. The order of the acting Minister of Investment and Development of the Republic of Kazakhstan dated December 30, 2015, No.1281 “On Approval of the Rules for Receipt, Registration and Consideration of Applications for the Provision of Investment Preferences”.

Conclusion of an investment contract

According to Art. 294 of the Entrepreneurial Code of the Republic of Kazakhstan, an investment contract is an agreement for the implementation of an investment project, which provides for the implementation of investments and granting the investment preferences.

The authorized investment body within ten working days from the date of the decision for granting the investment preferences prepares an investment contract for signature using the provisions of the model contract as a basis.

A model contract is a standard contract approved by the Government of the Republic of Kazakhstan and used for concluding investment contracts.

The model contract can be found in the text of the Resolution of the Government of the Republic of Kazakhstan dated January 14, 2016, No.13 “On Some Issues of The Implementation of State Support for Investments”.

The investment contract is registered by the authorized investment body within five working days from the date of signing and comes into force on the day of its registration.

The date of conclusion of the investment contract is the date of its registration by the authorized investment body.

The duration of the investment contract is determined by the duration of the investment preferences. The deadline for completion of work under the work program must end no later than nine months before the end of the investment contract.

In the case of implementation of the investment project by a legal entity of the Republic of Kazakhstan that has concluded a financial leasing agreement, the investment contract shall expire nine months after the expiration of the financial lease agreement.

Termination of an Investment Contract

According to Art. 295 of the Entrepreneurial Code of the Republic of Kazakhstan, the investment preferences are terminated upon expiration of the investment contract or may be terminated before the expiration of such a period in the order prescribed by this article.

The investment contract may be prematurely terminated:

1) by the agreement of the parties;

2) unilaterally.

If the investor fails to fulfill or improperly fulfills the obligations under the investment contract and if the investor fails to submit documents justifying the possibility of further implementation of the investment project, in order to make amendments to the contract, the authorized investment body prematurely and unilaterally terminates the investment contract in three months from the date of notification.

In case of termination of the investment contract, the indicated legal entity pays the amount of taxes and customs duties not paid to the budget due to the investment preferences provided under the investment contract.

In case of the unilateral early termination of the investment contract at the initiative of the legal entity of the Republic of Kazakhstan that concluded the investment contract, the mentioned legal entity pays the amount of taxes and customs duties not paid due to the investment preferences provided under the investment contract.

In case of the early termination of the investment contract by agreement of the parties, the legal entity of the Republic of Kazakhstan that concluded the investment contract shall pay the amount of taxes and customs duties not paid due to the investment preferences granted under the investment contract.

In case of the early termination of the investment contract, the legal entity of the Republic of Kazakhstan that concluded the investment contract shall return the property provided in kind to it as a state in-kind grant, or its initial value on the date of the transfer in accordance with the terms of the investment contract.

In case of the termination of the investment contract, the legal entity of the Republic of Kazakhstan fully reimburses the amount of the investment subsidy paid under the investment contract.

The return of the state in-kind grant shall be carried out by the legal entity of the Republic of Kazakhstan that concluded the investment contract within thirty calendar days after the decision of the authorized investment body on the early termination of the investment contract.

Investment Dispute Resolution

According to Art. 296 of the Entrepreneurial Code of the Republic of Kazakhstan, an investment dispute is a dispute arising from contractual obligations between the investors, including large investors, and the government bodies in connection with the investor's investment activities.

Investment disputes are resolved through negotiations or in accordance with the dispute resolution procedure previously agreed by the parties.

If it is impossible to resolve investment disputes in accordance with the provisions of paragraph 2 of this article, disputes shall be resolved in accordance with international treaties and legislative acts of the Republic of Kazakhstan in the courts of the Republic of Kazakhstan, as well as in arbitrations determined by the agreement of the parties.

Disputes not related to investment are resolved in accordance with the legislation of the Republic of Kazakhstan.