We would like to inform you that Kazakhstan’s accession into the WTO triggered an initiative of the National Bank of Kazakhstan to draft a new Law on Currency Regulation and Currency Control (the “Draft Law”). Among the other updates, the Draft Law would deprive the branches and rep. offices of foreign legal entities operating in Kazakhstan of their currency non-resident status. In other words, this change will automatically prohibit branches and rep. offices from trading with Kazakhstani companies in foreign currencies.
This initiative of the National Bank is vastly criticized by the representatives of foreign business in Kazakhstan. Thus, it is expected that the Draft Law would have negative consequences for Kazakhstani’s investment attractiveness and economy for the following reasons:
- Reputation damage, as the Draft Law would be a step back from the liberal policy adopted by Kazakhstan. This would be an alert signal of new restrictions being introduced. In fact, the change would be a sign that new foreign business is not welcomed in Kazakhstan.
- Economic damage, as currently effective contracts will have to be either converted to Kazakhstani currency or terminated. Another option would be to conclude the agreements directly with the head offices, leaving the branches out of the equation. Finally, many companies will opt for transferring their operations currently held via Branches and Representative offices outside Kazakhstan (i.e. to trade via, for instance, Russia).
In addition to the above, the companies currently considering entering the Kazakhstani market will likely postpone their plans.
The Draft Law is now being reviewed by various institutions, and has not yet been passed through Parliament. The latest update by the Foreign Investor’s Council says that the Draft Law could enter into force as soon as in 2019. Our company actively opposes the Draft Law’s introduction. Should you have any questions, or require our assistance in analyzing the possible consequences of the Draft Law on your business in Kazakhstan, please contact us.