Viktoriya Tyan, Deloitte Kazakhstan's Senior Legal Consultant, provides a brief overview of the facts you need to know when approaching the Kazakhstan market
According to 2013 UN research (International Migration 2013), over 3% of the world’s population currently lives and works in a foreign country, and with increasing economic globalization, this figure is set to increase. This makes labor migration an objective reality, and an integral part of international economic relations. According to Deloitte’s “Human Resources 2020″ international research, more than 40% of leaders of the largest international corporations consider the competition for highly qualified specialists on the international market and in developing countries to be their main priority.
For Kazakhstan, this issue took on a whole different meaning in 2010 with the Customs Union Legal Status of Migrant Workers’ Treaty in November 2010, allowing Belarusian and Russian nationals to reside in Kazakhstan without restrictions. Furthermore, with the entry of the Eurasian Economic Union Treaty (the “EEU Treaty”) into force from January 1st 2015, nationals of the four member countries have the right to work in the other member countries without restrictions, and without permits from the local authorized bodies.
In addition to Customs Union country members, the treaty also extends to Armenia, which is an EEU member, and will soon extend to Kyrgyzstan once its accession is complete, resulting in a significant expansion to the area since 2010, when the treaty was signed.
BY THE BOOK
The EEU Treaty also expands the definition of labor activity for member country nationals to include (1) activities based on an employment agreement or (2) work or services performed according to a civil agreement. This means that member country nationals have a unique opportunity to not only work for a Kazakhstani employer under an employment agreement, but also to work and provide services independently based on a civil agreement, known as a service agreement.
As Kazakhstan law defines individuals generating income using their property and in their own name, at their own risk and with material liability as individual entrepreneurs, the following legal standing is important. If foreign nationals travel to Kazakhstan with the primary objective of generating profit under a civil agreement and against their own property, and if they are not directly employed by a Kazakhstan employer, then the activities of EEU member nationals are treated as individual enterprise.
At the same time, the Private Entrepreneurship Law recognizes individual entrepreneurs as Kazakhstan nationals performing individual entrepreneurial activities without creating a legal entity. Thus, foreign nationals are excluded from the list of entities entitled to operate as individual entrepreneurs in Kazakhstan.
However, both the Constitution and Private Entrepreneurship Law ensure that international treaties ratified by Kazakhstan prevail over domestic law. So, the Treaty On the Legal Status of Nationals of One State residing Permanently in another State, between Kazakhstan, Belarus, Kyrgyzstan and Russia, which entered into force in 2007, stipulates that a permanent resident enjoys the same rights and freedoms, and bears the same obligations as nationals of the country of permanent residence with exemptions established by the Treaty and parties’ Constitutions.
Accordingly, this treaty guarantees that country nationals are entitled to register as individual entrepreneurs despite the opposite being stated in the Private Entrepreneurship Law. Importantly, Russia has not ratified the Legal Status Treaty and consequently, only Belarus and Kyrgyzstan nationals permanently residing in Kazakhstan (i.e. those who possess a Kazakh residency permit) are entitled to register there as individual entrepreneurs, excluding Russian nationals. This is confirmed in a written explanation from the Tax Committee.
As for the EEU Treaty, it does not precisely regulate the possibility of the residents of the member-states to register as the private entrepreneurs while performing services within the indirect employment structure (under the services agreement). Hence, such a gap is expected to be addressed in the near future, once the practical functioning of the Union is under way.
So when are individuals required to register as an individual entrepreneur? From the Private Entrepreneurship Law, it is clear that they are obliged to do so if :
•the individuals in question hire people on a permanent basis
•the individuals’ total annual income from entrepreneurial activity exceeds 12 times the minimum salary (approximately $1,400)
•the individuals sell agricultural products at markets
An individual not hiring people on a permanent basis is entitled to not register as an individual entrepreneur even if they receive:
• income taxable at the source of payment
• property income
• other income
Based on a literal interpretation of the law, there is no obligation to register as an individual entrepreneur if:
• an individual has no salaried employees
•an individual receives the above income in Kazakhstan (irrespective of the level of aggregate annual income)
Thus, EEU Treaty nationals may avoid the requirement to register as an individual entrepreneur in Kazakhstan if they observe the conditions established by the Law above. For example, a counterparty of a foreign employee receiving civil services who withholds and remits all taxes for the foreign employee.
In conclusion, structuring relations with foreign staff has always been a key aspect in business. The flow of foreign workers due to enter into the workforce of the EEU requires careful consideration from Kazakhstan’s companies, employers, clients, and also the foreign nationals themselves. Statutory compliance in this case is instrumental in ensuring legal residence in Kazakhstan.
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