January 20, 2021

Foreign direct investment in the agricultural industry of Kazakhstan: market overview and government support measures

  1. Legislation of the Republic of Kazakhstan in the field of foreign investment in the agricultural industry
  2. Measures of state support for investments: impact on foreign investment

2.1. Investment projects: state preferences

2.2. Agro-industrial complex: state support

  1. Actual investment projects for foreign investors in the field of the agro-industrial complex

The President of the Republic of in his Address to the people of Kazakhstan, highlighted the critical importance of improving the investment climate in the agricultural sector.

Due to the fact that the current state program for the development of the agro-industrial complex (hereinafter referred to as the AIC) is completed next year, the President instructed the Government, together with business, to start developing a qualitatively new National Project for the development of the agro-industrial complex for a five-year period.

As the President noted, the norms of international taxation require special attention. They should maximally stimulate the inflow of foreign investment and reinvestment of profits in Kazakhstan.

Also, the Address noted the need for effective use of the potential of the “Astana” International Financial Center, since this platform should become a key tool for attracting direct and portfolio investments.

1.       Legislation of the Republic of Kazakhstan in the field of foreign investment in the agricultural industry

Direct investment by foreign persons / companies in the agricultural industry of Kazakhstan is regulated by the following regulatory legal acts:

Code of the Republic of Kazakhstan No 409 dated July 1, 1999 “Civil Code of the Republic of Kazakhstan (Special part)”;

Code of the Republic of Kazakhstan dated October 31, 2015 No. 377-V ZRK “Civil procedural code of the Republic of Kazakhstan”;

The Code of the Republic of Kazakhstan dated October 29, 2015 No. 375-V ZRK “Entrepreneur Code of the Republic of Kazakhstan”;

The Law of the Republic of Kazakhstan dated April 3, 2019 No. 242-V “On special economic and industrial zones”;

The Law of the Republic of Kazakhstan dated 8 July 2005 No. 66 “On State regulation of development of agricultural complex and rural territories”;

Decree of the President of the Republic of Kazakhstan of June 30 1998 No. 3985 “On the Establishment of the Foreign Investors’ Council chaired by the President of the Republic of Kazakhstan”;

Order No. 4071 of the President of the Republic of Kazakhstan dated September 16, 1998 “On the Personal Composition of the Council of Foreign Investors under the President of the Republic of Kazakhstan”;

Resolution No. 296 of the Government of the Republic of Kazakhstan dated April 25, 2015 “On setting quotas for engagement of foreign labor in the priority projects and approving the requirements for issue of permits to engage foreign labor in implementation of the priority projects”;

Resolution No. 624 of the Government of the Republic of Kazakhstan dated October 6, 2017 “On some issues of special economic zones”;

Resolution of the Government of the Republic of Kazakhstan No. 772 dated November 24, 2017 “On some issues concerning special economic zones”;

Resolution No. 498 of the Government of the Republic of Kazakhstan dated August 22, 2017 “On approval of the Programme for attracting investments “National Investment Strategy” and making amendments to the Resolution No. 1136 of the Government of the Republic of Kazakhstan dated December 30, 2015 On Approval of the List of Government Programmes and Repeal of Certain Decisions of the Government of the Republic of Kazakhstan”;

Resolution of the Government of the Republic of Kazakhstan No.13 dated January 14, 2016 “On some issues concerning implementation of the investment’ state support”;

Resolution of the Government of the Republic of Kazakhstan No. 802 dated December 15, 2016 “On approval of the Rules for establishing quotas for engagement of foreign labor force in the Republic of Kazakhstan and its distribution among regions of the Republic of Kazakhstan, identifying persons whose work does not require permission from local executive bodies to attract foreign labor, and recognizing as declared to be no longer in force of the Government of the Republic of Kazakhstan”;

Order No. 585 of the Government of the Republic of Kazakhstan dated August 13, 2019 “On approval of the Rules on organization of “one-stop shop” for investors, and also coordination order in the attraction of investment”;

Resolution of the Government of the Republic of Kazakhstan No.1069 dated December 26, 2015 “On approval of the Regulation on the activities of investment ombudsman”;

Order No. 75 of the Minister for Investments and Development of the Republic of Kazakhstan of February 7, 2017 registered in the Ministry of Justice of the Republic of Kazakhstan on February 15, 2017 under No. 14806 “On Approval of the Standard Special Investment Contract”;

Order of the Acting Minister of Investment and Development of the Republic of Kazakhstan dated February 8, 2017 No. 85 “On Approval of the Rules and Conditions for conclusion and termination of a special investment contract”;

Order No. 1265 of the Minister for the Investments and Development of the Republic of Kazakhstan dated December 29, 2015 “On Approval of the Rules for Issue of a Petition for Investor Visa Receipt by nonresidents of the Republic of Kazakhstan carrying out the investment activities in the territory of the Republic of Kazakhstan”;

Joint order of the Acting Minister of Foreign Affairs of the Republic of Kazakhstan No. 11-1-2/555 dated November 24, 2016 and the Minister of Internal Affairs of the Republic of Kazakhstan No. 1100 dated November 28, 2016 “On approval of Rules for execution of invitations, coordination of invitations to entrance of the noncitizens to the Republic of Kazakhstan, issue, cancellation, recovery of the Republic of Kazakhstan visas, as well as extension and reduction of their validity term”;

1.1.   The Investment Committee under the Ministry of Foreign Affairs of the Republic of Kazakhstan

According to the Resolution of the Government of the Republic of Kazakhstan dated October 28, 2004 No. 1118 “Issues of the Ministry of Foreign Affairs of the Republic of Kazakhstan”, the authorized state body in charge of the implementation of state policy on attracting investments is the Ministry of Foreign Affairs, in particular – the Investment Committee under the Ministry of Foreign Affairs of the Republic of Kazakhstan.

The mission of the Ministry of Foreign Affairs of the Republic of Kazakhstan is to ensure measures for the implementation and monitoring of investment projects.

One of the tasks of the authorized body is to coordinate the international activities of other central state bodies of the Republic of Kazakhstan in order to ensure the implementation of a single foreign policy, foreign economic course and investment policy of the Republic of Kazakhstan in relations with foreign states and international organizations.

Thus, the functions of the Ministry of Foreign Affairs of the Republic of Kazakhstan concerning the issue of foreign investment include:

– assistance in improving the investment climate and the formation of a positive image of the Republic of Kazakhstan in international markets;

– assistance to state bodies and organizations of the Republic of Kazakhstan authorized to attract foreign investment and technologies in organizing relevant events abroad;

– determination of the procedure for issuing an application for an investor visa for persons who are non-residents of the Republic of Kazakhstan and carrying out investment activities in the territory of the Republic of Kazakhstan;

– approval of the procedure for acceptance, registration and application form for the provision of investment preferences as part of the implementation of a special investment project;

– coordination and monitoring of activities to support investors on the principle of “one window” for investors, carried out by a national company in the field of attracting investments and its regional representatives, and representative offices, regional organizations in the field of attracting investments;

– implementation of state support for investments;

– making a decision on the provision of investment preferences in accordance with the requirements established by Article 293 of the Entrepreneurial Code of the Republic of Kazakhstan, and sending a written response to the applicant.

1.2.            The Council of Foreign Investors under the President of the Republic of Kazakhstan

Foreign investors represented by international organizations and foreign companies that have made direct investments in the economy of the Republic of Kazakhstan in the agricultural industry in an amount equivalent to at least 125 million US dollars are entitled to become members of the Foreign Investors Council (hereinafter referred to as the Council).

The Council is an advisory and advisory body under the President of the Republic of Kazakhstan.

According to paragraph 5 of the Decree of the President of the Republic of Kazakhstan dated June 30, 1998 No. 3985 “On the formation of the Council of Foreign Investors under the President of the Republic of Kazakhstan”, the main tasks of the Council are to develop recommendations and proposals on the following issues:

– determining the main directions of the investment policy of the Republic of Kazakhstan;

– improving the investment climate in the Republic of Kazakhstan;

– improving the regulatory legal framework of the Republic of Kazakhstan on investments;

– assistance to foreign companies to diversify the economy, industrialize the industrial sector, develop small and medium-sized businesses in the Republic of Kazakhstan;

– integration of the economy of the Republic of Kazakhstan into world economic processes;

– strategies for attracting foreign investment into the economy of the Republic of Kazakhstan;

– implementation of large investment programs and projects of the Republic of Kazakhstan of international importance.

The criteria taken into account for admission to the membership of the Council are:

– participation in the activities of the working groups of the Council as an observer;

– experience and business reputation of an international organization or foreign company;

– the significance of the activities of an international organization or a foreign company for the development of the economy and social sphere of the Republic of Kazakhstan;

– participation in solving social and environmental problems of the Republic of Kazakhstan, sponsorship and charitable activities on the territory of the Republic of Kazakhstan;

– readiness for strategic expansion of investment activities in the Republic of Kazakhstan;

– participation in work to improve the investment image of the Republic of Kazakhstan abroad;

– recommendations of industrial and business associations, embassies of states accredited in the Republic of Kazakhstan;

– activities of an international organization or a foreign company in priority sectors of industrial and innovative development of the Republic of Kazakhstan.

2.       Measures of state support for investments: impact on foreign investment

The Entrepreneurial Code of the Republic of Kazakhstan contains provisions governing state support for investment activities.

The main goals of the government’s implementation of investment support measures are:

а) creating a favorable investment climate for economic development;

b) stimulating investment in the creation of new, expansion and renovation of existing production facilities using modern technologies;

c) advanced training of Kazakhstani personnel;

d) environmental protection.

A measure of state support for investments is the provision of investment preferences.

Thus, state support includes:

However, investment preferences are applicable only to resident legal entities registered in the Republic of Kazakhstan intending to implement investment projects in priority activities, according to the list of priority activities established by the Government of the Republic of Kazakhstan. From this it follows that a potential foreign investor intending to receive investment preferences from the state must establish a legal entity in Kazakhstan and implement investment projects that are part of the priority activities[1].

Investment preferences are targeted benefits provided in accordance with the legislation of the Republic of Kazakhstan to:

– legal entities of the Republic of Kazakhstan (including a legal entity with foreign participation) implementing an investment project;

– leasing companies importing technological equipment as part of an investment project on the basis of a financial lease agreement for a legal entity of the Republic of Kazakhstan implementing an investment project.

2.1.   Investment projects: state preferences

An investment project is a set of measures providing for investments in the creation of new, expansion and (or) renovation of existing industries, including those created, expanded and (or) updated during the implementation of a public-private partnership project, including a concession project.

The following types of investment preferences are provided for an investment project:

  • exemption from customs duties and value added tax on imports;
  • government grants – the maximum size of a state in-kind grant is no more than thirty percent of the volume of investments in fixed assets of a legal entity of the Republic of Kazakhstan (land plots, buildings, structures, machinery and equipment, computers, measuring and regulating devices and devices, vehicles ( except for cars), production and household equipment).

An investment priority project is an investment project:

а) on the creation of new industries, providing for the implementation by a legal entity of investments in the construction of new production facilities (factory, plant, workshop), in the amount of at least two million times the monthly calculation index established by the law on the republican budget and effective on the date of filing an application for the provision of investment preferences;

  1. b) for the expansion and (or) renovation of existing industries, providing for the implementation by a legal entity of investments in the amount of at least five million times the monthly calculation indicator established by the law on the republican budget and effective as of the date of filing an application for the provision of investment preferences in changing fixed assets, including updating ( renovation, reconstruction, modernization) of existing production facilities that manufacture products.

An investment priority project for the creation of new production facilities or the expansion and (or) renovation of existing production facilities is carried out by a legal entity for certain priority activities, the list of which is approved by the Government of the Republic of Kazakhstan.

The following types of investment preferences are provided for an investment priority project:

         – corporate income tax;

         – land tax;

         – property tax

  • investment subsidy;
  • exemption from taxation;
  • government grants.

A special investment project is an investment project implemented and (or) being implemented by a legal entity of the Republic of Kazakhstan registered as a participant in a special economic zone or an owner of a free warehouse in accordance with the customs legislation of the Republic of Kazakhstan, or a project implemented by a legal entity of the Republic of Kazakhstan that has concluded an agreement on industrial assembly of motor vehicles.

For a special investment project in the form of investment preferences, exemption from taxation is provided:

  • import customs duties;
  • taxes in accordance with the tax legislation of the Republic of Kazakhstan. 

2.2.   Agro-industrial complex: state support

State support for entrepreneurship in the field of the AIC is carried out by:

– introduction of preferential taxation for agribusiness entities;

– providing of subsidies such as:

– providing of preferential loans for spring field and harvesting works.

The implementation of the state policy to stimulate the industrial development of the agro-industrial complex is carried out by the “KazAgro” National management holding” JSC organization.

3.       Actual investment projects for foreign investors in the field of the agro-industrial complex

For convenience in orientation to foreign investors who intend to invest in the agro-industrial complex of Kazakhstan, we offer a list of existing investment projects:

– production of starch from potatoes;

– complex for breeding and incubation of fish, production of fish and related products;

– construction of a complex for breeding and incubation of commercial sturgeon and beluga;

– organization of a full cycle of pork meat production;

– complex for the production of rainbow trout;

– organization of an integrated farm for breeding small ruminants (sheep);

– organization of a complex farm for breeding cattle;

– a complex farm for breeding small ruminants in the Aktobe region;

– construction of a plant for the production of non-alcoholic products, concentrates and purees;

– construction of a greenhouse in Pavlodar region;

– construction of a greenhouse complex in the North Kazakhstan region;

– construction of an automatic fish farm for the production of black sturgeon caviar;

– expansion of the greenhouse to 40 hectares in the Almaty region;

– construction of a plant for the production of biological products according to the GMP standard;

– business plan for the organization of a selection and hybrid center in the Almaty region;

– business plan for the expansion of intensive apple orchards in the Almaty region;

– construction of irrigation infrastructure;

– construction of a plant for processing soybean crops;

– business plan for the reconstruction of a pig-breeding complex in the Almaty region;

– creation of a vertically integrated cattle breeding complex;

– construction of an oil extraction plant in the East Kazakhstan region;

– expansion of poultry meat production;

– production of tomato paste;

– production of linseed oil;

– modernization of the starch plant for the production of citric acid;

– expansion of the greenhouse complex;

– construction of a trout farm;

– expansion of turkey meat production;

– construction of a complex for the production of baby food;

– expansion of the poultry farm for the production of ducks;

– construction of a greenhouse complex;

– production of sunflower oil;

– expansion of cattle meat production;

– expansion and automation of the sugar refinery.

 

[1] https://invest.gov.kz/invest-guide/support/investment-activity/investment-preferences/