The new Law of the Republic of Kazakhstan "On Currency Regulation and Currency Control" (the New Law) enters into force (with the exception of certain provisions) on July 1, 2019. To implement certain provisions of the New Law, the National Bank of the Republic of Kazakhstan (the NBK) has developed several new resolutions on currency regulation and currency control. These resolutions have not yet been adopted by the NBK and, accordingly, have not entered into force.
Below we outline certain provisions of the New Law and the draft NBK Resolution on the approval of new rules for monitoring currency transactions in Kazakhstan.
From the date when the New Law comes into force, the existing currency regulation regimes will be cancelled. In lieu of such regimes, the New Law provides for the expansion of monitoring of currency transactions.
As part of the expanded monitoring, the NBK will carry out record registration of currency contracts related to capital movement transactions. The concept of "capital movement transaction" includes the following:
1) financial loans;
2) equity participation;
3) transactions with securities, participatory interests and derivatives;
4) acquisition of ownership title to real estate;
5) acquisition of exclusive rights to intellectual property;
6) transfer of money / property in performance of the obligations of a joint venture participant, as well as their transfer in trust management, trust;
7) transfer of money / financial instruments to professional securities market participants;
8) gratuitous transfer of money / currency values.
In addition, as part of the expanded monitoring, the NBK will carry out record registration of the accounts opened by residents in foreign banks.
Export / Import
The New Law does not significantly change the existing regime for export and import transactions.
Branches (representative offices) of foreign organisations
From July 1, 2019, branches (representative offices) of foreign non-financial organizations will be considered as residents of Kazakhstan. From 16 December 16, 2020, branches of foreign financial organizations which have the right to carry out banking and (or) insurance activities in Kazakhstan will also be considered as residents.
The New Law establishes certain exceptions to the above rule. In particular, the following branches (representative offices) will not be considered as residents:
1) Branches (representative offices) of foreign legal entities
carrying out the activities which do not lead to creation of a
permanent establishment of a non-resident in accordance with the
Tax Code; and
2) Branches (representative offices) of foreign non-financial organizations whose non-resident status is established by the terms of the agreements concluded on behalf of Kazakhstan with foreign organisations which entered into force before 1 July 2019 (the corresponding list is established by an act of the Kazakhstan Government).
The resident status would require (in most cases) a branch (a representative office) of a foreign organization to settle payments with other Kazakhstan residents in the national currency.
However, the requirements on record registration of currency contracts and bank accounts will not apply to branches (representative offices) of foreign organizations.
Application of the New Law in respect of previously concluded currency contracts
Pursuant to Article 383.2 of the Kazakhstan Civil Code, if the law establishes for the parties to a contract the binding rules different from the ones which were in effect at the time when they entered into the contract, the terms of the concluded contract shall remain in force, except when the law stipulates that it applies to the relations arising from previously concluded contracts.
The New Law does not specify transitional provisions pursuant to which it would apply to the relations that existed before the New Law entered into force. Consequently, the requirements of the New Law should not apply to the currency transactions made before July 1, 2019.
However, there remains an open question regarding the application of the requirements set out in the New Law to the currency contracts concluded before July 1, 2019 and amended by the parties after such date.
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