1.1 What are the main laws that regulate project finance market in Kazakhstan?

The main laws of Kazakhstan that govern project finance are the Civil Code, securitisation law, securities law. Recently Kazakhstan recently enacted law on public-private partnership which aims to involve private sector in implementation of sophisticated projects such as road, rail, airport, energy projects. The legislation allows creation of a special purpose company and establishes new financing tools of long-term projects in which the basic source of maintenance and returning will be future receivables from the project company. Despite those progressive changes, the facility agreements for the most financing projects are still generally governed by English law.


2.1 Is it possible to give asset security by means of a general security agreement or is an agreement required in relation to each type of asset? Briefly, what is the procedure?

The Civil Code of the Republic of Kazakhstan dated 27 December 1994 (the "Civil Code"), is the main law governing creation and application of different types of security interest. The Civil Code provides for the following types of security interests: penalty; pledge; retention of the debtor's property; suretyship; guarantee; deposit; and guarantee deposit. Normally, in order to establish security over asset, a separate written agreement is required. The general form of an asset security is a pledge. An agreement governing creation of an asset security interest must contain a subject of the collateral, its value, nature, scope and maturity period of the obligation secured by such collateral. Agreement must also clearly identify a party which retains the collateral. The value of the collateral shall be indicated in national currency.

2.2 Can security to be taken over real property (land), plant, machinery and equipment (e.g. pipeline, whether underground or overground)? Briefly, what is the procedure?

A pledge can be established over any property including assets and other property rights (rights of claims), except for goods prohibited for circulation (e.g. certain types of land, medals and orders) and claims intrinsically related to the personality of the debtor (such as compensation of damages to life and health etc.). A pledge can also be established over property which will be received in the future. Under Kazakhstan legislation, pledges are divided into two major types: (1) mortgages; and (2) charges. A mortgage is a type of pledge when the collateral remains in the possession of the pledgor or a third party. A charge is a type of pledge when the collateral is transferred to the possession of the pledge-holder. A pledge agreement must be in writing. Any pledge over immovable property is subject to state registration.

2.3 Can security be taken over receivables where the chargor is free to collect in the receivables in the absence of a default and the debtors are not notified of the security? Briefly, what is the procedure?

A security interest over receivables is permitted under Kazakhstan law. A charge over a bank account on which rent income is generated would be a valid and legally binding security instrument under Kazakhstan law. The subject matter of such pledge will be the depositor's rights to the bank account. To create a pledge over receivables, a bank account pledge agreement must be entered into by the borrower (as a chargor), a pledge holder (as a chargee) and a servicing bank. The chargor will be permitted to operate its account(s) or otherwise collect in the receivables in the absence of a default. The terms and conditions of maintaining and operating the accounts charged in favour of the chargee must be agreed and set out in detail in the underlying agreement. Should the transaction structure contemplate several bank accounts to be opened by the borrower with a servicing bank (e.g. revenue receipts account, debt service account and debt service reserve account etc.), we would recommend that a bank account agreement be entered into between the pledge holder, a servicing bank and the borrower that would outline, inter alia, the obligations of a servicing bank in relation to maintaining several bank accounts and operating the proceeds that are paid in.

2.4 Can security be taken over cash deposited in bank accounts? Briefly, what is the procedure?

Kazakhstan law distinguishes between pledges over an account (i.e. a pledge covering any amounts in the account) and pledges over money (i.e. a pledge covering specific amount of funds that must be maintained in a bank account). In either case the procedure for enforcement is unclear. Despite the language of the law, it is logical that the funds may go directly to the secured party on default, without it having to go through an auction procedure.

As there is legislative gap in regulation of the enforcement of a money pledge, in addition to the pledge (or instead of the pledge), parties enter into an assignment agreement whereby if the event of default occurs, the lender receives the right to manage the account (take money from the account). Such agreement shall be entered into by the lender, borrower and the bank, which operates the borrower's account, in order for the bank to be obligated to fulfil the lender's instructions with regard to the bank account. There are certain risks related to the money pledged in a bank account. Under law, if an entity has debts on taxes or customs payments, tax and customs authorities may suspend transfer of funds from such bank accounts. Moreover, tax and customs authorities may withdraw money from such entity's bank accounts without such entity's consent, prior to any other creditors (except for cases of liquidation and bankruptcy when debts are repaid in accordance with an established priority, respectively). The Tax Code also provides that if in addition to the tax claim, there are other requests from creditors to the same debtor, and funds in such debtor's bank account(s) are insufficient to satisfy all claims, then the funds from such account(s) must be withdrawn in accordance with the priority provided by the Civil Code. Money in the bank account may also be arrested on the basis of decisions of law enforcement bodies and court resolutions and decisions.There is neither registration, nor notarisation requirement, however, in order for the registered pledge agreement to take priority in the enforcement of obligations to all subsequent registered pledgees, it is recommended to register such pledge agreement.

2.5 Can security be taken over shares in companies incorporated in Kazakstan? Are the shares in certificated form? Briefly, what is the procedure?

A pledge over shares in joint-stock companies is possible. Kazakhstan law requires that a pledge over shares be registered with the Unified Registrar that maintains the share register or a nominee holder if shares are held by a nominee holder. Such pledge is only valid upon its registration.

It appears that Article 36 of Subsurface Law may also apply in case of foreclosure of a pledge of shares in the joint-stock company which is either a party to a subsurface contract or a holding company of the party to a subsurface contract. There is no procedure of complying with the pre-emptive right established by the legislation and it is not clear how the pre-emptive right would be applied in cases of enforcement of security over shares.

Certain corporate approvals may be required in order to approve the pledge.

A pledge over participating interests may also be taken and perfected through its registration with the justice authorities.

2.6 What are the notarisation, registration, stamp duty and other fees (whether related to property value or otherwise) in relation to security over different types of assets (in particular, shares, real estate, receivables and chattels)?

A pledge of property which is subject to state registration (e.g. immovable property, vehicles, subsurface rights) becomes effective as of the moment of its state registration. A pledge of shares in joint-stock companies is subject to registration with the Unified Registrar and is only valid upon such registration. A pledge of other movable property is subject to mandatory registration only if the further pledge of such movable property is prohibited by the pledge agreement. Registration of the pledge of such movable property establishes a priority for satisfaction of claims of the creditors against this property if it is pledged to more than one creditor.

Generally, both movable and immovable property pledges are registered with the Ministry of Justice. Pledges for certain property subject to mandatory registration may be registered elsewhere, for example, a pledge over shares is registered with the Unified Registrar that maintains the share register, and a pledge over vehicles is registered with the road police.

The notarisation fee for pledge agreements of real estate, claim rights and mortgage certificates, is 200 per cent of monthly calculation indexes (approximately $21), for other pledge agreements, it is 700 per cent of monthly calculation indexes (approximately $76). Registration fee depends on the quantity of the property pledged and amounts up to 25 monthly calculation indexes (approximately $160).

2.7 Do the filing, notification or registration requirements in relation to security over different types of assets involve a significant amount of time or expense?

Registration of a mortgage, or any other type of pledge with the authorised state agency, can take up to 3 working days to complete. Electronic registration via web-portals takes by 1 working day.

2.8 Are any regulatory or similar consents required with respect to the creation of security over real property (land), plant, machinery and equipment (e.g. pipeline, whether underground or overground) etc.?

In general, no governmental or regulatory consents are required for granting a mortgage or pledge except for mortgage over state owned immoveable property or state strategic items. If the latter is the case, a resolution of the Government of Kazakhstan would be required to authorise the creation of such security.

The Civil Code and Subsurface Law provides the legal basis for the pledge of strategic objects and subsurface rights, respectively. In particular, they provide that pledges over strategic objects and subsurface rights are subject to prior approval of the Government and the competent body, respectively. Pledges over subsurface rights must also be registered with the competent body to be effective. A condition for the pledge over subsurface rights is that all funds covered by the pledge must be used only for the purposes stipulated in the subsurface contract with the State.


3.1 Regardless of whether Kazakhstan recognises the concept of a "trust", will it recognise the role of a security trustee or agent and allow the security trustee or agent (rather than each lender acting separately) to enforce the security and to apply the proceeds from the security to the claims of all the lenders?

Only project lenders in their capacity as pledgees are permitted to act as holders of security under Kazakhstan law. Agents or trustees can be engaged for the purpose of facilitating transactions with purely technical functions.

3.2 If a security trust is not recognised in Kazakhstan, is an alternative mechanism available (such as a parallel debt or joint and several creditor status) to achieve the effect referred to above which would allow one party (either the security trustee or the facility agent) to enforce claims on behalf of all the lenders so that individual lenders do not need to enforce their security separately?

A parallel debt or joint and several creditors' status are not concepts recognised in Kazakhstan project finance transactions. Under security arrangements among the parties, title to assets, which are being pledged to a lender, remain with the debtor. Enforcement of claims is performed with or without recourse to legal action in court, based on the security arrangements of the parties in a project finance transaction.


4.1 Are there any significant restrictions which may impact the timing and value of enforcement, such as (a) a requirement for a public auction or the availability of court blocking procedures to other creditors/the company (or its trustee in bankruptcy/liquidator), or (b) (in respect of regulated assets) regulatory consents?

According to the general rule, pledges are enforced through a court procedure. However, in the pledge agreement the parties can agree upon an extra-judicial procedure for enforcement. In this case, the collateral should be sold through a tender (auction) organised by an attorney (trustee) in the procedure described below. Note that a secured party may participate in the auction. If less than two buyers participated in the tender (action) or the tender winner failed to pay the purchase price within the established period, the tender (action) can be announced as not having taken place. In this case, the creditor has the right: (a) to transfer the pledged asset to its own ownership at a value determined by the court or an independent appraiser; or (b) to demand that a new auction be held. An extra-judicial sale is not allowed with respect to immovable property in the following cases:

  1. when the consent of any other entity or body is required and such consent is not obtained;
  2. when the pledged immovable property is of considerable historical, artistic or other cultural value to the society;
  3. when the pledged immovable property is in common ownership and some of its owners do not provide a written consent for the extra-judicial sale of the pledge;
  4. when a pledgor (individual) on housing loan refuses, in writing, the extra-judicial sale of assets and such refusal is registered by the respective body and provided within twenty five calendar days from the date of delivery or sending of such refusal; and
  5. the subject of the mortgage is the house and/or land plot with the house, which are the security under the microcredit agreement entered into by an individual and an microcredit company.

In the above-mentioned situations, claims upon the asset may be imposed only following a court's decision.

In the pledge agreement, the parties should determine the attorney (trustee) for holding the tender (action). If no such appointment is made under the pledge agreement, then the attorney (trustee) should be appointed by the pledgeholder. The Civil Code and the Law on Mortgage of Immovable Property set forth extra-judicial procedures for pledge assets and mortgage, respectively. In particular, under the Law on Mortgage of Immovable Property, upon default by the debtor, the attorney (trustee) prepares a notice of default, registers the notice with the authority where the pledge agreement was registered and delivers it to the debtor. The debtor should have at least thirty days from the date of delivery (sending) of the default notice to pay its debt. If no payment has been made within the period mentioned above, the attorney should prepare a tender (auction) notice, register it with the authority where the pledge agreement was registered, deliver it to the pledgor and publish it in a local newspaper or other mass media. The tender (auction) can be held at least ten days after the first tender (auction) notice is published.

Auctions must be held in populated areas as close as possible to the location of the asset. Auctions must be scheduled on any weekday from 9:00 to 18:00 hours. The pledgor has the right within three months to challenge the results of the auction through the courts if there were violations of the procedure for holding auctions.

4.2 Do restrictions apply to foreign investors or creditors in the event of foreclosure on the project and related companies?

No specific restrictions apply to foreign investors or creditors.


5.1 How does a bankruptcy proceeding in respect of the project company affect the ability of a project lender to enforce its rights as a secured party over the security?

Under the Rehabilitation and Bankruptcy Law. The allocated assets are not to be included into the bankruptcy estate at a downfall of a special purpose vehicle. Those assets are distributed among the creditors in proportion to their demands.

Under the legislation allocated assets are:

  • rights to demand assigned by a special finance company in project finance transactions;
  • money on custodian bank accounts received by the claim rights assigned to a special finance company;
  • finance instruments acquired by a special finance company as a result of investment of the money;
  • money received as a result of financial instruments sale; and
  • property and property rights arising from creation of additional security.

The distributions of the assets of the project company which are not an allocated assets are regulated on standard bankruptcy rulings.

5.2 Are there any preference periods, clawback rights or other preferential creditors' rights (e.g., tax debts, employees' claims) with respect to the security?

Generally, every preceding pledgeholder has priority over any subsequent pledgeholder, provided that the registered pledge has priority over those which have not been registered. Upon liquidation of a legal entity, the following types of claims will be satisfied before the claims of secured creditors:

  1. claims of citizens for harm caused to their life and health; and
  2. labour remuneration and compensation, arrears in social deductions, payment of deducted alimony and accrued pension deductions, and author's awards, except for a number of specific cases.

Unless otherwise provided by a pledge agreement, the pledge secures the claim for the entire amount of such claim as of the moment of actual repayment, i.e. including interest, penalties, and damages etc. The pledge can be established in respect of a future claim. If the amount received by the creditor from the sale of the pledged property is insufficient to recover the debt, the remaining claims of the creditor shall be satisfied as claims of an unsecured creditor.

5.3 Are there any entities that are excluded from bankruptcy proceedings and, if so, what is the applicable legislation?

State-owned enterprises and institutions can be excluded from bankruptcy proceedings. This is due to the fact that they have insufficient assets to make payments to creditors, as the State bears subsidiary liability for those assets.

5.4 Are there any processes other than court proceedings that are available to a creditor to seize the assets of the project company in an enforcement?

An international arbitration has become an alternative to the state courts in Kazakhstan. Kazakhstan has formed the legal basis for recognition and enforcement of international arbitration.


6.1 Are there any restrictions, controls, fees and/or taxes on foreign ownership of a project company?

A legal entity registered in an off-shore zone or which has affiliated entities registered in off-shore zones, cannot directly or indirectly own/use/dispose charter capital of a project company.

Please refer to question 7.6 for certain aspects of tax payments.

6.2 Are there any bilateral investment treaties (or other international treaties) that would provide protection from such restrictions?

Kazakhstan signed an agreement on mutual protection of investments with 52 countries around the world (USA, UK, Germany, France, Russia, Netherlands, etc.), and multilateral agreement called Energy Charter Treaty signed in Lisbon in 1994 in the framework of the EurAsEC. The main purpose of this agreement is to promote investments in the energy sector, to create conditions to ensure freedom of access to the field of energy, to energy markets and freedom of transit of energy resources. This agreement is the only multilateral international agreement, creating a common legal system for the safe transportation of energy materials and products.

In agreements on mutual protection and promotion of investments, compensation is paid to the investor in case of:

  • nationalisation or expropriation, or equivalent, on the implications of the adoption of measures;
  • compensation for damages suffered as a result of war, civil disturbance or other similar circumstances; and
  • free transfer abroad investor income and other payments in connection with investments, etc.

6.3 What laws exist regarding the nationalisation or expropriation of project companies and assets? Are any forms of investment specially protected?

The main law that set forth general principles on nationalisation or expropriation is the Law on State Property. This law states that nationalisation is an exceptional case of alienation of the property and is carried out only after the exhaustion of all other possible forms of alienation of property under the Civil Code. Moreover, in case of nationalization of any property it is required to enact a special law on nationalization. The Entrepreneurship Code provides that requisition of property may be held only if the investor paid the market value of the property and compensated of damage in full.


7.1 What are the relevant government agencies or departments with authority over projects in the typical project sectors?

Overall coordination of strategic project sectors, such as oil and gas, mineral extraction and power generation is performed by the government. Any project in a strategic sector has to be approved at the government level. Priority investment projects are granted specific tax and customs preferences based on investment contracts with the Ministry of Investment and Development of the Republic of Kazakhstan.

Government agencies (ministries, committees, departments, agencies) in Kazakhstan are assigned the function of performing regular monitoring and facilitation of projects. They are also the issuing authorities for licences and permits. Monitoring compliance with environmental standards, issuance of special water use and air emission permits, mandatory environmental impact assessments and enforcement of environmental requirements, all fall within the remit of the Ministry of Energy of the Republic of Kazakhstan.

Antitrust clearance and general compliance with anti-monopoly legislation are dealt with by the Ministry of National Economy of the Republic of Kazakhstan.

The National Bank of Kazakhstan performs the regulatory and licensing function for the banking and financial sector in Kazakhstan. It acts as the registering authority for cross-border lending transactions, and issues approvals to resident companies for opening off-shore accounts.

7.2 Must any of the financing or project documents be registered or filed with any government authority or otherwise comply with legal formalities to be valid or enforceable?

All financing or project documents must be translated into Russian/Kazakh language. It is not strictly required that this translation be notarised, except where such documents are filed with relevant authorities. The National Bank of Kazakhstan requires notarised translation of the relevant facility agreement for its registration. A facility agreement must be registered by the National Bank. Any draw-downs under the facility agreement may be made upon its registration with the National Bank.

7.3 Does ownership of land, natural resources or a pipeline, or undertaking the business of ownership or operation of such assets, require a licence (and if so, can such a licence be held by a foreign entity)?

Ownership of land, natural resources or a pipeline, or undertaking the business of ownership or operation of such assets, does not require a licence. Ownership of assets alone would not typically trigger a license requirement under Kazakhstan law. There are however, some restrictions for ownership of land. For example, land plots, except for land intended for the maintenance of commercial agricultural production and forestry, may be in the private ownership of foreign citizens, stateless persons and foreign legal entities (non-governmental). To be noted that a moratorium on temporary use of agricultural lands by foreigners and legal entities where foreign shareholding is more than 50% was set forth through the end of 2016. Subsoil use rights are also granted to the subsoil user on the basis of a contract with the authorised governmental body.

7.4 Are there any royalties, restrictions, fees and/or taxes payable on the extraction or export of natural resources?

The Tax Code of Kazakhstan provides for the following taxes and fees payable to the production and export of natural resources:

  • export rent tax (cruel oil, coal);
  • signature bonus;
  • the commercial discovery bonus;
  • the payment to compensate for historic costs;
  • the tax on production of useful minerals;
  • excess profits tax;
  • excise duties trade fuels and lubricants; and
  • different levies for the use of environment.

7.5 Are there any restrictions, controls, fees and/or taxes on foreign currency exchange?

When buying or selling foreign currency in cash, in an amount exceeding the equivalent of one million tenge in the journal register of exchange office will be recorded customer's name, initials, and data of the document proving his identity.

7.6 Are there any restrictions, controls, fees and/or taxes on the remittance and repatriation of investment returns or loan payments to parties in other jurisdictions?

There are no restrictions preventing a foreign shareholder from receiving and repatriating dividends. Return of capital is also possible provided that a valid legal basis exists. The legal basis includes either: (i) exit by a foreign shareholder from a resident company via sale of its stake to another party; or (ii) withdrawal of a foreign

shareholder by selling its stake to the resident company (redemption of shares by the issuer of these shares); this option is limited to open joint-stock companies to certain cases only; no limitations apply in respect of limited liability companies where any shareholder may exit at any time; or (iii) as a result of liquidation of the resident Kazakh company. Under (i) scenario, the rule applies if the stake at question amounts to 50% of the resident company's charter capital. A prior anti-trust clearance would be required if the aggregate balance amount assets of target and buyer's group the exceeds the amount of 10,000,000 MCIs (approximately USD 64,000,000), or one of the persons involved in the transaction is the subject of the market, which occupies a dominant or monopolistic position on the relevant market.

In respect of control and regulation applicable to the remittance of capital, we further note that in case (ii), the ability of a shareholder to exit a Kazakh joint-stock company and ask this company to redeem its shares is limited to several cases only. These cases include, inter alia, a situation when a shareholder refuses to vote for a certain item on the agenda at the shareholders' meeting, but a corporate resolution on such agenda item is still adopted. Such shareholder may claim that his right has been violated by this resolution and may ask the company to redeem his shares within the limited period of time. With the lapse of this period, the shareholder would be deprived of the right to claim redemption of his shares by the company. No such limitations are applicable to limited liability companies.

There are no restrictions that would prevent a resident company from making payments of principal, interest or premiums on loans or on bonds to parties in other jurisdictions (all collectively referred to herein as "payments"). The payments with respect to loans will be transferred by a Kazakh authorised bank (where the resident company holds a foreign currency account) to the non-resident bank, provided that a loan is registered with the National Bank of Kazakhstan. There are no restrictions in Kazakh laws for the transfer outside Kazakhstan to a non-resident bank of hard currency proceeds directly from the resident company's foreign currency account, so that to discharge its obligations for interest and principal payments under the loan agreement. However, any transfers to an account located in an off-shore jurisdiction, triggers the special financial screening procedure mentioned above. There are no restrictions under Kazakh law as to the payment of interest at the expense of borrowed money.

From a tax perspective interest or premiums on loans, as well as any other fees and commissions, penalties and / or default interests, payable in connection with a loan or bonds (issued by Kazakh joint-stock companies) shall be considered an income and be subject to a withholding tax at the rate of 15% payable at payment source, i.e. by the resident company by virtue of deduction unless otherwise provided for in a bilateral double tax treaty entered into with the country of the non-resident bank.

From a tax perspective, dividends shall also be subject to the Kazakhstan withholding tax of 15%.

7.7 Can project companies establish and maintain onshore foreign currency accounts and/or offshore accounts in other jurisdictions?

Project companies are entitled to open and maintain onshore and / or foreign currency accounts. Project companies must notify the National Bank of Kazakhstan on the opening of bank (including savings) accounts in foreign banks not later than thirty calendar days from the date of the contract with a foreign bank.

7.8 Is there any restriction (under corporate law, exchange control, other law or binding governmental practice or binding contract) on the payment of dividends from a project company to its parent company where the parent is incorporated in Kazakhstan or abroad?

Please refer to question 7.6 for certain aspects of dividend payments. With respect to dividends, there is no maximum or minimum threshold established by Kazakh law for repatriation of dividends. Typically, dividends are paid quarterly, semi-annually or annually. Any distribution of dividends on a monthly basis is not permitted, except as otherwise provided by shareholders in the charter of a Kazakh borrower. Payment of dividends, however, is subject to certain restrictions. Dividends cannot be distributed unless the charter capital is fully paid by shareholders. No dividends are payable in the event of an insolvency proceeding in respect of a Kazakh borrower (or if it is expected that it would face insolvency as a result of dividend distribution), or if the net assets of a Kazakh borrower become less than its charter capital (and reserve fund).

Dividends are not distributed and allowed for repatriation until all taxes due and payable by the borrower are paid in full. Any payment of dividends by the resident company to a foreign shareholder, are subject to a special financial monitoring procedure by the tax authorities. Taxation of dividends shall be made at two levels, corporate and individual. At the corporate level, the profit of the resident company shall be subject to income tax and all other applicable taxes. When all taxes at corporate level are paid by the resident company, the net profit shall constitute the dividends of a foreign participant (shareholder). Such dividends shall be subject to withholding tax in Kazakhstan payable at payment source (i.e. subject to withholding obligations of the resident company) at 15 per cent unless otherwise provided for in a bilateral double tax treaty.

7.9 Are there any material environmental, health and safety laws or regulations that would impact upon a project financing and which governmental authorities administer those laws or regulations?

Kazakh companies are subject to the following key environmental, health and safety laws and regulations:

The Law on Civil Protection dated 11 April 2014; the Labour Code dated 23 November 2015; the Law On Subsoil and Subsoil Use dated 24 June 2010; the Environmental Code dated 9 January 2007; and 60 other regulations On Labour Protection and Safety.

The following are the public authorities of the Republic of Kazakhstan responsible for developing and amending the Investment Programme of the Republic of Kazakhstan:

  • Ministry of Health and Social Development – regulatory authority in respect of health and sanitary standards;
  • Ministry of Energy – coordinates management in the areas of mining, oil and gas, petrochemical industry, transportation of hydrocarbons; carries out state policy formation in the prevention and elimination of emergency situations of natural and man-made and on industrial safety matters; and
  • Ministry of Environmental Protection - regulatory authority of environmental and natural resource.

7.10 Is there any specific legal/statutory framework for procurement by project companies?

Public procurement is subject to a specific regulatory framework in Kazakhstan. Procurement by project companies where procurement involves financing arranged by private funds or through lending institutions from abroad. In public procurement, domestic suppliers of works, services and local businesses are subject to state support. Procurement by project companies is subject to general commercial rules and procurement practices.


8.1 Are there any restrictions, controls, fees and/or taxes on insurance policies over project assets provided or guaranteed by foreign insurance companies?

Only Kazakhstan-licensed insurance companies are allowed to insure risks in Kazakhstan. However, reinsurance often takes place when there are foreign investors participating in project finance.

8.2 Are insurance policies over project assets payable to foreign (secured) creditors?

The foreign (secured) creditors can be appointed as payees (beneficiaries) under insurance policies over project assets. Such payment to a foreign creditor is subject to taxation in Kazakhstan.


9.1 Are there any restrictions on foreign workers, technicians, engineers or executives being employed by a project company?

To hire foreign employees, a local employer should follow the Rules on Attracting Foreign Manpower and Establishing Working Quotas (the "Rules"). Work permits issued by the correspondent department under the Ministry of Health and Social Development based on the application with required package of documents. Work permits are generally issued for a maximum period of three year and may be renewed. The rules are not applied to foreign employees working as chief executives of branches or resident offices of foreign companies, chief executives of organisations that entered into investment contracts for the amount over USD 50 million, and chief executives of the Kazakh legal entities that are carrying out investing activities in priority sectors by concluding contracts with the authorised body on investments. Any foreign employee residing in Kazakhstan must be registered with the immigration police. Failure to ensure compliance may result in deportation of the employee and sanctions against the employer.


10.1 Are there any restrictions, controls, fees and/or taxes on importing project equipment or equipment used by construction contractors?

Kazakh law provides specific safety standards for use of equipment. To use construction equipment in Kazakhstan, one must obtain shipping documents, certificate of compliance and authorisation to use the equipment. In the event that construction work will be using explosives, one may need special authorisation from the authorised body.

10.2 If so, what import duties are payable and are exceptions available?

Importing equipment, spare parts, components and raw materials to Kazakhstan, may be done using one of the twelve available customs regimes. However, only the "free circulation" customs regime allows the use of equipment and goods in Kazakhstan with no restrictions.

Depending on the scope of the project company state may be granted full or partial exemption from customs duties.


11.1 Are force majeure exclusions available and enforceable?

Force Majeure exclusions are available and enforceable under Kazakh laws.


12.1 Are there any rules prohibiting corrupt business practices and bribery (particularly any rules targeting the projects sector)? What are the applicable civil or criminal penalties?

The Criminal Code of Kazakhstan envisages sanctions for bribery of up to 15 years imprisonment and confiscation of the property. The UK Bribery Act and Foreign Corrupt Practices Act may directly affect companies in Kazakhstan.


13.1 What law typically governs project agreements?

According to the Civil Code, an agreement shall be regulated in accordance with the law of the country agreed by the parties, unless it is otherwise stipulated in legislative acts of Kazakhstan.

With regard to methods and procedures for agreement's execution and also measures applied in case of improper agreement's execution, except the applicable law of the country where agreement's execution shall take place should be considered.

Typically, project agreements are governed by the law of Kazakhstan. In certain cases, foreign law may be applied. If the foreign law is the choice of governing law, the mandatory provisions under Kazakh law in respect of methods and procedure involving performance of the agreement, will still apply. Hence for a project agreement to be enforceable by a Kazakh court, it must be valid under Kazakh law, despite the fact that the governing law is a foreign law. If a court judgment (ruling) is obtained outside Kazakhstan, it will still need to be enforced in Kazakhstan. To do so, recognition of the judgment in Kazakhstan would be required. However, Kazakhstan is not party to treaties on the reciprocal enforcement of judgments with most jurisdictions normally used to international financing documents (such as USA and UK) and thus foreign judgments will not be enforced automatically in Kazakhstan. To this end, a re-hearing of the foreign judgment in a Kazakh court will be necessary to enforce the decision obtained in a foreign court.

13.2 What law typically governs financing agreements?

English law is typically a choice of foreign law in cross border transactions. Under Kazakh law, this choice of foreign law for financing agreements is acceptable (except for security transactions involving Kazakh based real estate

and immovable property). However, the mandatory rules of currency control, bankruptcy rules etc. remain applicable.

13.3 What matters are typically governed by domestic law?

Security documents are typically governed by the laws of Kazakhstan.


14.1 Is a party's submission to a foreign jurisdiction and waiver of immunity legally binding and enforceable?

In accordance with the Civil Code (Article 1112) parties may mutually agree on the applicable law unless the current legislation of Kazakhstan provides otherwise.

The choice of foreign law as a governing law is a valid choice of law which is recognised and enforceable in Kazakhstan. The Republic of Kazakhstan is not party to any multilateral or bilateral treaties with any western jurisdiction or the United States for the mutual enforcement of court judgments. Consequently, should a judgment be obtained from a court in any western jurisdiction or the United States, it is highly unlikely to be given direct effect in Kazakhstan courts. The state (represented by the government) takes part in relationships regulated by civil legislation on an equal basis with other participants and is liable for its undertakings with its own property. Therefore if the government enters into commercial activity, it loses special treatment or sovereign immunity. The government, as a public person, waives its sovereign immunity.


15.1 Are contractual provisions requiring submission of disputes to international arbitration and arbitral awards recognised by local courts?

Since Kazakhstan is a party to the 1958 New York Convention on Recognition and Enforcement of Arbitral Awards ("NY Convention"), foreign arbitration awards are generally recognised and enforceable in Kazakhstan, subject to the qualifications provided in the NY Convention. The Law of Kazakhstan on International Commercial Arbitration also provides for the enforcement of foreign arbitral awards. Accordingly, a foreign arbitral award will be enforceable by a Kazakhstan court.

15.2 Is Kazakhstan a contracting state to the New York Convention or other prominent dispute resolution conventions?

Kazakhstan is party to NY Convention and Kishinev Convention on Legal Assistance and Legal Relations in Civil, Family and Criminal Matters, dated 7 October 2002 applicable to CIS countries.

15.3 Are any types of disputes not arbitrable under local law?

Arbitration courts may not consider disputes connected to interests of non-adults and persons recognised as incapable under the legislation. Generally, disputes relating to administrative, family and employment relations are not arbitrable under Kazakhstan law.

15.4 Are any types of disputes subject to mandatory domestic arbitration proceedings?

Parties may mutually agree on a choice of an arbitration court in any country, if a dispute is arbitrable.


16.1 Has there been any call for political risk protections such as direct agreements with central government or political risk guarantees?

To the best of our knowledge, there have been no calls for political risk protection in our practice.

17. TAX

17.1 Are there any requirements to deduct or withhold tax from (a) interest payable on loans made to domestic or foreign lenders or (b) the proceeds of a claim under a guarantee or the proceeds of enforcing security?

The withholding tax at the rate of 15% from an interest payable on loans made foreign lenders is deducted at source of payment. The withholding tax is applicable unless otherwise specified in a bilateral double tax treaty with the foreign lenders' country of residence. The proceeds of a claim under a guarantee or the proceeds of enforcing security shall apply to the extent they involve any amounts of interest.

17.2 What tax incentives or other incentives are provided preferentially to foreign investors or creditors? What taxes apply to foreign investments, loans, mortgages or other security documents, either for the purposes of effectiveness or registration?

Under Kazakhstan law, investors, when entering into a contract with the competent authority provide the following investment preferences:

  • investment tax preferences;
  • exemption from customs duties;
  • state natural grants.

Please also refer to question 7.6 for certain aspects of tax payments.


18.1 Are there any other material considerations which should be taken into account by either equity investors or lenders when participating in project financings in Kazakhstan?

Project company is entitled with the right:

  • to contract a loan agreement secured by the allocated assets in order to implement a project finance deal; and
  • to issue bonds secured by dedicated assets, etc.
  • It should be noted that there are certain restrictions on the activities of project company:
  • Act as a founder (participant) and / or to acquire shares (stakes) in other legal entities, as well as to establish branches and representative offices;
  • pay dividends to shareholders or to distribute the net income of the partnership between parties before the execution of obligations under a project debt; and
  • carry out the assignment of claims without the creditors' approval, etc.

Formation of allocated assets is a result of the assignment of performer's claims in the underlying contract performer in project financing, and as a result of assignment of claims by the originator of securitisation for the benefit of project company as a result of other agreements on the establishment of additional security in transactions of project finance and securitisation. Allocated assets are separate from project companies' funds and any other assets belonging to any other person before the performance of obligations under the project debt and bonds are issued by the project company. Allocated assets are used especially for the protection of creditors' rights, and foreclosure of the selected assets is not allowed.

The collateral in this case will be a cash flow generated by the project itself, not the company's balance sheet. That is why the lender who will give money to project company will pay attention, not to the company's balance sheet, but rather on the prospects and risks of the project on the contracts of construction and operation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.