28.02.2014

Possible Consequences of the Adoption of the Draft Law of the Republic of Kazakhstan “On Permits and Notifications” For Doing Business in Kazakhstan

In keeping with GRATA’s practice of informing clients regarding important legal developments that might influence their business, we draw your attention to the following potential changes in the Kazakhstani permit system during the period of December2013 - February 2014.

In line with the President of the Republic of Kazakhstan’s order to adopt new principles for Kazakhstani legislation on Permits and as part of the initiative for further reforming the permit system for 2012-2015, the Ministry of Regional Development of the Republic of Kazakhstan together with the Group of Experts representing the business community, drew up the Draft Law on Permits and Notifications (“Draft Law”) 

The last meeting of the Interdepartmental Commission on Improving the Permit system (“Commission") led by the Deputy Prime Minister of Bakytzhan Sagintayev was held on 26 November, 2013 at the Government of the Republic of Kazakhstan, where the results of a large-scale inventory of the licensing system were discussed (http://ru.government.kz/). 

Overall, the Commission has considered 925 permit documents, of which (http://kt.kz/):

  • 51 – were cancelled;
  • 6 – were transferred to the notification procedure;
  • 116 - were excluded as permits which do not satisfy the features established by the Draft law “On Permits and Notifications"   

According to the First Deputy Prime Minister of Regional Development Bakytzhan Sagintayev, «in the annex to the draft law 758 documents are approved, including 719 permits and 39 notifications. Once the Draft Law is adopted, any new permit will be included only by adopting relevant amendments to the law».

Currently the Draft Law is still in the process of being examined in the Parliament of the Republic of Kazakhstan.

As a result of the Commission’s work, the following key points of the Draft Law should be noted:

1)  The Draft Law is divided into three main parts:

  1. Provisions of the Law of the Republic of Kazakhstan "On Licensing" dated 11 January, 2007 № 214-III with additional improvements hereto;
  2. Provisions on notifications provided by the Law of the Republic of Kazakhstan "On administrative procedures" dated 27 November 2000 № 107;
  3. Provisions on Permit Procedures that are not licensed.

2) The annexes to the Draft Law provide a complete list of licenses, permits and notifications. Under this principle, state authorities and other bodies may not insist that a permit be obtained if such permit is not included in the list approved by the Draft law.

3) All permits are divided into categories, depending on the level of danger of the object for which they are required:

  1. The first category - licenses are imposed on types (subtypes) of activities or actions (operations) associated with high levels of risk;
  2. The second category - all permits which are not licenses, are imposed on types (subtypes) of activities or actions (operations) associated with a medium level of risk;
  3. The third category - the notice in relation to types of activities or actions (operations) associated with a low level of danger but require the awareness of the relevant authorized body.

4) All permits are divided into six classes:

  1. Class 1 - "permits issued for activities";
  2. Class 2 - "permits issued to individuals for professional activity";
  3. Class 3 - "permits issued for activities with limited resources or using quotas";
  4. Class 4 - "permits issued for objects";
  5. Class 5 - "single permit";
  6. Class 6 - "permits issued for a product."

5) In addition to the existing types of licenses (single, general, exceptional), licenses are divided into:

  1. Licenses of the first level
  2. Licenses of the second level 

Moreover, the Draft law establishes a new type of license - an "operating license" for engaging in separate operations in the sphere of banking and to engage in insurance activities for individual classes of insurance.

6) Under the provisions of the Draft Law, it can be assumed that it is planned to establish an authorized body in the sphere of permits and notifications, which will develop and implement the state policy and will coordinate activities of other government bodies in the sphere of permits and notifications. Moreover, the Draft Law defines the scope of the rights and duties of such body. However, at present it is unclear which state body will carry out the functions of this authority.

Moreover, as is evident from the Draft Law, it is planned to create public bodies which will accept notifications. Thus, individuals and legal entities will be able to address to the particular authorized body for clarifications and submission of notifications, which greatly facilitates obtaining permits.

7) The Draft Law contains "permit requirements" which, equally with qualification requirements, are the minimum indicators required for obtaining the relevant permit or license. In this regard, we believe that once the Draft Law is adopted the Government of the Republic of Kazakhstan will issue a number of regulations confirming such permit requirements for obtaining relevant permit documents.

8) Moreover, similar to the license fee established by the Tax Code of the Republic of Kazakhstan, the Draft Law indicates the fees for issuing the permit document. In this case, we suppose that the fees will be imposed not only for issuing the license but for permit documents, which implies that relevant amendments will be made to the Tax Code of the Republic of Kazakhstan.

9) Under the provisions of the Draft Law, new state services for issuing, extending, reissuing, renewing and carrying out other activities relating to permits, as established by Kazakh law relating to permits, provided by Kazakhstani law. In this regard, we assume that under certain grounds established by Kazakhstani law not only must the license be reissued, but the permit documents as well.

The Draft Law extended the grounds for re-registering a license. For instance, the licensees must re-register the license if there is a reorganization of the legal entity, which includes the dividing of the legal entity. Moreover, the Draft Law defines precisely the list of documents, which makes the licensing procedure significantly more clear. Under the Draft Law, the time period for considering the application for reissuing the license is decreased from 10 working days to 3 working days.

10) The Draft Law states that those who have already applied for obtaining permits are entitled to carry out the activity in the absence of such permit until the latter is issued or they have received a motivated refusal. We believe that this provision could cause negative consequences for the health of individuals or legal entities, their property and the environment as result of the activities carried out without the permit required by Kazakhstani law. We believe that this provision should be deleted in order to prevent possible abuse by applicants.

11) The Draft Law includes a number of provisions defining the procedure for obtaining the permit or license by foreign entities. As whole, we assume that the Draft Law is drawn up on the basis of the practice of obtaining the licenses by foreign entities, and several problems arising out from such provisions would be sorted out.

For instance, foreign legal entities can submit the documents and make a payment for the fee though their branches and/or representative offices duly registered in Republic of Kazakhstan, by using the bank details of such branches and/or representative offices and their business identity numbers. Eventually, foreign legal entities are entitled to confirm their compliance with qualification requirements by submitting the documents of its branches or representative offices. Such provision would solve the problem when foreign legal entities face obstacles in choosing the legal form for doing business in Kazakhstan (branch, representative office or its subsidiary entity). Eventually, if the Draft Law is adopted in its current form, foreign legal entities will choose the legal form of doing business in Kazakhstan at their own discretion without any risks that the license cannot be obtained owing to the legal form the entity chooses.

Moreover, the Draft Law states that if there are no precise documents which must be submitted for obtaining the license, foreign legal entities are entitled to submit the documents which contain the same information. However, the following question arises: how will foreign legal entities prove that the documents submitted contain the 'same information’ and that no other documents are required? We assume that in the near future practice will reveal the answer.

Furthermore, under the Draft Law, foreign legal entities are entitled to submit the documents for obtaining a license at the place where its branches (representative offices) are registered or where the licensor is, if it is not otherwise provided by Kazakhstani law. This provision will make the procedure for obtaining a license much easier for foreign entities.

Therefore, we assume that aforementioned provisions of the Draft Law will make the investment climate in Kazakhstan more attractive for foreign investors. 

12) The Draft Law establishes the responsibility of licensees who have obtained general and exclusive licenses, to, on a quarterly basis, before the 15th day of the month following the report quarter, to submit a report regarding their adherence to the license in the form of an electronic document. This obligation will be considered a special condition of licensing in the sphere of import and export of goods

13) Meanwhile, the licensees that have obtained single licenses, within 15 calendar days after the expiry date of the license, must submit to the licensor the information regarding their adherence to their license in the form of an electronic document.

The Draft Law establishes that such report must be provided only for licensing in the sphere of export-import of goods. However, it is still unclear, whether such provisions will be imposed on those who have already obtained the licenses for export or import of goods, and, consequently, have imported or exported the goods. Therefore, once such provisions are adopted the export control of goods would be more strict.

14) The Draft Law envisages licensing, permit procedures and notifications being held in electronic form, except for the cases when such permit and/or attachments cannot be provided in electronic form.

Moreover, the Draft Law provides a state electronic register of permits and notification on the basis of the current web-site of electronic Government (elicense.kz) that significantly makes any documents easy to find. However, the date or time period for such system is still unknown.

15) The Draft Law is very strict in terms of the liability of state bodies for refusing to issue the permit document. So, under Article 54 of the Draft Law, the person of the permit authorized body is liable for damages incurred due to a non-motivated refusal to issue the permit document or due to a breach of rights of the licensee or someone possessing a permit of the 2nd category.

16) Miscellaneous provisions of the Draft Law state that it is not obligatory to obtain permits and notifications which are not indicated in attachment 1-3 of the Draft Law, except for the permit in the sphere of technical regulation and registration of legal entities, branches and representative offices, and that activity carrying out without such permit or notification does not entail liability for individuals or legal entities.

17) In line connection with the adoption of the Draft Law, related to the Law 'On Amendments and Additions to Several Legislative Acts of the Republic of Kazakhstan on the Permit System", which, we believe, will change the regulations, relating to the provisions of the Draft Law.

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Therefore, once the Draft Law “On Permits and Notifications” is adopted, the institution of permit systems in Kazakhstan will be significantly changed and will include licenses, permits and notifications.

Moreover, the complete list of permit documents stated in the Draft Law would facilitate the seeking of required permits for doing business in Kazakhstan.

Meanwhile, please note that the permit system indicated in the Draft Law imposes discipline on authorized bodies to a certain degree and tightens the licensing system in certain areas.

The Draft Law as well as the draft Law 'On Amendments and Additions to Several Legislative Acts of the Republic of Kazakhstan on the Permit System" do not stipulate amendments and additions to the qualification requirements for carrying out activities which must be licensed under Kazakhstani law. However, we assume that this issue will also be resolved by the Government of the Republic of Kazakhstan within its competence.

In whole, the Draft Law is aimed at improving the business environment in Kazakhstan, for both Kazakh and foreign entities. However, to assess the real impact of the Draft Law would only be possible after its adoption, on the basis of the analysis of its practical application. 

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This information is provided for your convenience and does not constitute legal advice. It is prepared for the general information of our clients and other interested persons. This information should not be acted upon in any specific situation without appropriate legal advice and it may include links to websites other than the GRATA website

If you have any questions, please, do not hesitate to contact the following person:

Saule Nitaliyeva

Associate

GRATA Law Firm

snitaliyeva@gratanet.com