The new Law of the Republic of Kazakhstan “On special economic and industrial zones” which should encourage Kazakhstan and foreign companies to invest in industrial facilities in Kazakhstan was adopted in Kazakhstan this year.In an interview with petrocouncil.kz, the Investment and Construction Law Expert Mira Dossova told on modifications in legislation and on the prospects for domestic entrepreneurs.

– What are the key law modifications?

– To understand the essence of the main points on the issue, let mestart from the fact that, as you know, in addition to a number of commercially and economically significant preferences,territories are allocated on special land plots in order to stimulate the establishment of production facilities. Firstofall, they are provided with all engineering and technical infrastructure necessary for business (power, water and gas supply; transport and logistics infrastructure etc.).Also, there are subdivisions (of management companies) which maintain this infrastructure. In addition, tax and customs departments are expected to be available. Such an“establishment” requires streamlining, including through the “common rules”. Inparticular, the “novelties” of the new law of the Republic of Kazakhstan “On special economic and industrial zones” specifically covered these aspects.

Investment projects are implemented both in economic (SEZ) and separately – in industrial zones (IZ). Butthepointisthatthe activities of the former were legally regulated, which is not the same for the latter.Now, figuratively speaking, in addition to theprocedural clarifications, the text of the former law of the Republic of Kazakhstan “On special economic zones” was supplemented with new provisions on IZs – but only in terms of regulating the IZ activities. This did not affect the preferences similar to those provided in SEZ (comments on preferences are presented below).

Thus, the new document regulates the procedure for establishing, function ing and abolishing not only special economic zones, as it has been before, but also industrial zones – according to the principles provided for special economic zones earlier. In essence, they have been calqued.

The competences of the central and regional state bodies, as well as the rights and obligations of special economic and industrial zones participants are established.

The law institutionalizes the following types of industrial zones: republican and regional, as well as small industrial zones. Now there is an option toestablish private industrial zones.

The procedure for granting land plots is determined essentially on the basis of already established practice.

– What additional opportunities for domestic entrepreneurs have appeared?

– Despite the fact that some “confusion” and “misunderstandings” are still present in the new law, probably, a clearer understanding – in an open format – appears on how the industrial zone is functioning and how to interact with the management company.

The term for obtaining land plots is expected to be reduced due to the newly registered mechanisms.

It is provided to create a uniform coordination center to develop, promote and increase the investment attractiveness of special economic and industrial zones. IZ participants can use state and other services ona “one stop” principle, as in SEZ.

Time will show how the new law will be implemented in practice. However, representing a new milestone in the development of industrial facilities in SEZ and IZ, it should be noted that the previous law of the Republic of Kazakhstan “On special economic zones” has undergone repeated amendments during investment projects implementation in SEZ. Each time it was necessary to “grind”the provisions of this law, basing on current practice and experience. This maybe expected in relation to then ewlaw.

– Are there any preferences provided for those who plan to produce goods in industrial zones: customs duties, tax cuts?

– Regarding the preferences, absolutely nothing has changedin essence with the new law adoption. All preferences provided in the framework of SEZ are preserved and reflected in the new law.

AsforIZ, we should base on the accepted practice.ThemajorityofIZparticipants, whoimplementinvestmentprojects, includinginthe field of industry, agro-industrial complex, tourism, transport logistics, waste management etc., use investment preferences provided by other regulatory acts.

Forinstance, the Entrepreneurial Code of the Republic of Kazakhstan prescribes the most common investment regimes, according to which new production can be created or expanded and (or)the existing production can be renovatedwithin the framework of provided investment projects, priority investment projects, special investment projects (the difference is in the “set of preferences” depending on the activities).

– What do contractors and subcontractors of TCO, NCOC and KPOneed to know? Are there any preferences for them?

– The main preferences for implementing industrial projects depend on the types of activities chosen and the corresponding investment regimes

Forexample, special investment projects implemented in SEZ, or “free warehouse owners” are exempted from import customs duties and import VAT.

Also, this regime provides tax preferences accordingto the tax law of the Republic of Kazakhstan. SEZ participants and their construction contractors are exempted from quota requirements and from demands to obtain permits to engage foreign labour.

Investment projects participants are exempted from customs duties. Government grants-in-kind are provided for them in the form of land plots, buildings, structures, equipment, etc. – in amount of not more than 30% of investments in fixed assets of a legal entity of the Republic of Kazakhstan.

Investment priority projects participants are also exempted from customs duties and import VAT.Inaddition,they have the opportunity to obtaingovernment grants-in-kind.

Also, entities which implement priority projects obtain tax preferences in the form of the calculated CIT amount reduced by 100%, 0 coefficient application to land tax rates, property tax calculated at 0 percent to the tax base.

Such projects are provided with investment subsidies. They are reimbursed up to 30% of the actual costs of construction and installation works and equipment procurement. Benefits are not provided only for the projects to expand and (or) renovate existing production facilities.

Also, investors who have concluded investment contracts for an investment priority project implementation and their construction contractors are exempted from quota requirements and from demands to obtain permits to engage foreign labour.

As for the main investment regimes and preferences in the free trade zone (FTZ)and the EAEU, they provide the exemption from import customs duties in the framework of the Eurasian Economic Union under the Treaty on the EAEU. Also, these zones are exempted from import customs duties within the CIS, as well as in relationships with Georgia, Serbia and Vietnam.

Preferences are also provided under the Generalized System of Preferences for developing and least developed countries (GSP).

It provides the exemption from customs duties while trading with least developed countries in accordance with the approved list under the current system of preferences adopted in the EAEU. And also – customs duties reduced by 25% when trading with developing countries in accordance with the approved list under the current system of preferences.

In addition, lower rates of customs duties within the WTO are provided. For example, when importing for the Republic of Kazakhstan according to the list of goods approved within the EAEU in connection with Kazakhstan’s obligations to the WTO.

– What should the land contain to become an Industrial Zone? And what legal form should an enterprise have in order to become an industrial zone?

– It is obvious that the IZ territory is equipped with infrastructure facilities based on its intended purpose, including facilities necessary to implement certain types of production and business projects. This IZ component is determined by the feasibility study, the concept, the IZ and its infrastructure draft development plan, which are submitted for legislative approval along with the proposal to create an IZ. As in SEZ.

The management company of an industrial zone shall be established in the organizational-legal form of a limited liability partnership or a joint-stock company.

Thank you!