Opening Representative and Branch Offices
of Foreign Companies In Kazakhstan
As you know, most of the national companies in a certain period of their development set themselves the task to bring out their goods, works and services to foreign markets, which may be done, including through the expansion of their actual geographical presence outside the country of incorporation of the company, or the location of the head office. This process is natural and predictable, with the exception of companies that have a narrow niche focus of their activities in strict relation to a particular jurisdiction or geographical area.
Of course, in the face of constant development and improvement of global information technology and telecommunications, and worldwide network, the territorial boundaries in the traditional sense are being erased, becoming conditional in most cases. However legal and actual presence of subdivisions of the company outside the territory of its establishment takes in our time actual significance, being an integral part of financial, tax and strategic planning.
Moreover, in a broad sense, for most business entities (parent companies) it is not that important to carry out (implement) their commercial activities in one or another jurisdiction, but important to maintain control over their business in a particular country, ensure uniform standards of quality, warranty and information support to their customers and counterparties, and the ability to participate promptly in business processes.
The most important instruments in the implementation of the above tasks are to open representative and branch offices of foreign companies outside the country of their primary institution (registration).
Kazakhstan law clearly defines the procedure for opening and activities of representative and branch offices of foreign business entities in the territory of the Republic of Kazakhstan («foreign companies»).
The representative offices and branches are separate subdivisions of a foreign company in Kazakhstan and do not have a legal entity status.
The difference between representative offices and branches is that representative offices can protect and represent interests of the foreign company as well as carry out transactions and other legal acts on behalf of that foreign company in the territory of Kazakhstan, whereas branch offices are entitled to carry out all or part of the foreign company’s functions in the territory of Kazakhstan, including the functions of a representative office. In other words, the legislation does not allow the representative office to carry out business or any commercial activities on their own in the territory of Kazakhstan, in contrast to the activities of branches, to which carrying out of the same is legally provided..
Nevertheless, it is important to note that despite the abovementioned difference, for taxation purposes, under tax law of the Republic of Kazakhstan, representative and branch offices of a foreign company have a permanent establishment status and are considered as taxpayers.
In most cases, the main tasks of representative and branch offices are:
- directly enter and work in the Kazakhstan market;
- expansion of the foreign parent company’s clientele base;
- assistance in finding new partners for joint projects and their consultations;
- not only execution of certain instructions of the foreign company but also organization of technical as well as overall support for negotiations, meetings, other events and conclusion of contracts; and
- processing of offers from potential investors and transfer of information on a foreign company, development of advertising campaigns, study of the environment, synthesis of information and proposals for creating a joint business, etc.
Representative and branch offices carry out their activities based on Regulations approved by their parent company, and their chiefs (head, director) are appointed by the parent company and act under a power of attorney issued to their name. It is necessary to note that a head of a representative office and a branch office can be a foreigner as well as a citizen of the Republic of Kazakhstan. In case of appointing a foreign citizen as a head of a representative or branch office, it is not required to obtain a permit for attraction of foreign labor force (i.e. «work permit») in Kazakhstan, which is, in many cases, the determining factor in deciding how to start doing business in Kazakhstan by opening a representative office or a branch, especially for small businesses.
Pursuant to the Law of the Republic of Kazakhstan «On State Registration of Legal Entities and Record Registration of Branch and Representative Offices» (dated April 17, 1995, No. 2198), a representative office and a branch office is meant to be opened by its registration with the Ministry of Justice of the Republic of Kazakhstan and its territorial bodies («registering authority»). The procedure for registration is identical both for representative and branch offices.
For registration of a representative or branch office, the foreign company shall submit the following documents to the registering authority:
1. Application for registration according to the form approved by the Ministry of Justice of the Republic of Kazakhstan. Such an application must be signed by a person authorized by the foreign company that wishes to open a representative (or branch) office and stamped with the seal of that company (if available);
2. Regulation of Representative (or Branch) Office prepared in 3 copies in the Kazakh and Russian languages and approved by a foreign company. The following information shall be included in the Regulation:
· the name and the location (legal address) of the representative (or branch) office and its parent company;
· the period of activity of the representative (or branch) office;
· objective(s) and powers of the representative (or branch) office;
· the procedure for management of the representative (or branch) office and appointment of its officers;
· conditions for termination of representative (or branch) office’s activities and the procedure for transferring its property to its parent company.
3. Power of attorney issued by the foreign company to the name of the future head of the representative (or branch) office;
4. Decision (or extract from the Decision) of the foreign company regarding the opening of the representative (or branch) office;
5. Legalized (apostilled) extract from the trade register or another legalized (apostilled) document which confirms that the foreign company wishing to open its representative (or branch) office in the Republic of Kazakhstan is a legal entity under the laws of its country;
6. Copy of foundation documents (a charter and a foundation agreement) of the foreign company;
7. Document confirming tax registration in the country where the foreign company has been incorporated with indication of the number of tax registration (or its equivalent);
8. Receipt or a payment order confirming payment of the fee to the budget for registration of the representative (or branch) office. Depending on whether the foreign company that wishes to open its representative (or branch) office is an entity of small, mid-sized, or large business under the criteria set out in the legislation of the Republic of Kazakhstan, the amount of the fee may be:
· 2 MCI* (i.e. 4,242 tenge) – for foreign companies which are considered small business entities;
· 6.5 MCI (i.e. 13,786.5 tenge) – for foreign companies which are considered mid-sized and large business entities.
*MCI means the monthly calculative index that amounts to 2,121 tenge (around 6.30 US Dollars) as of April 12, 2016.
The abovementioned documents of the foreign company (except for the application for registration, the Regulation of Representative (or Branch) Office, and a receipt/payment order) are to be filed with the registering authority with their notarized translation into the Kazakh and Russian languages.
The procedure for registration of a representative (or branch) office includes examination by the registering authority of compliance of the documents submitted for registration with the legislative acts of the Republic of Kazakhstan.
If the submitted documents comply with the requirements of Kazakhstan laws, the registering authority carries out registration of the representative (or branch) office within 1 (one) business day and issues «The Statement of Record Registration of the Representative (or Branch) Office.» During the process of registration, the registering authority at the same time records the representative (or branch) office at relevant tax authorities of the Republic of Kazakhstan.
The Statement of Record Registration of the Representative (or Branch) Office contains information on the date of its issuance, the business identification number («BIN»), the date of registration, the name and the place where the representative (or branch) office is located, the name of the foreign company that opened the representative (or branch) office.
Upon registration of the representative (or branch) office, its head may order seals of the representative (or branch) office and open its bank account.
Jamol Ryskiyev, Partner
Ryskiyev and Partners Law Firm