Eco 11 LP2 Notes on Registration of Business Enterprise

Eco 11 LP2 Notes on Registration of Business Enterprise

Profitability is the ability of a company to use its resources to generate revenues in excess of its expenses. Company’s capability to generate profits from its operation.

Assets – any item with economic value that can be converted to cash. They are resources that can be used to create

income or deduce expenses and to store value.

Liability - anything for which a company is legally bound or obligated, as to make good any loss or damage that occurs in a transaction.

Income - the monetary payment received for goods or services, or from other sources, as rents or investments.

Profit – the monetary surplus left to a producer or employer after deducting total cost from the total revenue.

Losses – the monetary deficit of a producer or employer due to greater amount of cost than the total revenue.

Charter capital - the assets brought together to form a company. For example, a joint stock company takes its charter capital and divides it into a set number of shares.

Taxes - a compulsory contribution to state revenue, levied by the government on workers’ income and business profits, or added to the cost of some goods, services and transactions.

Simplified tax- regime – one of the changes in KZ tax legislation made for the benefit of the small and medium-sized Businesses.

Patent - the exclusive right granted by a government to an inventor to manufacture, use, or sell an invention for a certain number of years.

Flow of funds- order in which revenue generated by an organization is allocated or channeled through its various agencies, departments, or units.

Credit- an outstanding amount that is due to a creditor by a debtor (borrower). In accounting ledger, this is recorded on the right side of the balance sheet (negative) as it is a decrease in assets.

Sole proprietorship- a business structure in which an individual and his/her company are considered a single entity for tax and liability purposes.

LLP- is a newer form of business partnership where all of the owners have limited personal liability for the financial obligations of the business.

Joint-stock company - a legal entity that issues shares for the purpose of raising funds for the performance of its activities.

Registration of Enterprise in Kazakhstan’

A. Start-up considerations

The main routes to market are:

setting up a Joint Venture (JV) with local partner
exporting via a local agent or distributor
setting up a company

B. Establishing a company

All legal entities, branches and representative offices in Kazakhstan are subject to state registration. You can register using a standard set of documents from the Ministry of Justice.

A business enterprise in Kazakhstan can be operated as:

limited liability partnerships which are separate legal entities and subject to taxation.
Joint Stock Companies (JSC) where shareholders have limited liability and about USD $500, 000 in capital is needed.
a representative office which can only conduct activities such as marketing and advertising.
a branch which can carry out commercial activity, but is not a separate legal entity.

Representative offices and branches must also be registered with the relevant regional department of the Ministry of Justice.

A newly registered representative office or branch must comply with certain formalities, including:

registration for Value Added Tax (VAT)
obtaining a seal (official stamp of the entity)
opening a bank account

Kazakhstan - Business

In 2013, Kazakhstan ranked in 25th place in the world for ease of starting a business. It is a relatively straightforward process, taking on average 19 days and six procedures. However, there are still are few tricky steps to get your head around when you start out.

Initial things to consider

First things first, it’s important to have good knowledge of the country and city you plan to start your business in. It’s a good idea to undertake a lot of research before you arrive about the business sector you plan to operate in and put together a viable business plan that includes a study of the market conditions, competition and forecast results.

Financial support

It’s fairly difficult for new expats to get support from financial institutions in Kazakhstan, so you will probably need to find investment on your own or through your bank at home. A credible business plan will help attract support from local investors however, and increase your chances of getting the go ahead.

Property

When you’ve found a place for your business’ headquarters, you will need to register the property. To do this you will need to obtain a technical passport of the property and register the name at the Registration Service Committee, which takes over 30 days.

It’s recommended to rent or buy somewhere rather than build something from scratch, as obtaining a construction permit takes 189 days and 32 procedures. Getting electricity for a new building is also a long and complicated process, involving going through several boards and procedures and taking around 88 days on average.

Tax

All businesses operating in Kazakhstan are required to pay taxes seven times a year, which is a fairly lengthy process, taking an average of 188 hours to file. Businesses in Kazakhstan are taxed up to 30%, depending on how they operate.

Registering the business

In order to set up a business in Kazakhstan, you first need to establish a legal entity or obtain the status of ‘an individual entrepreneur’. All legal entities who primarily deal in profit making can be established as a state enterprise, a business partnership (including general partnerships and limited liability partnerships), a production cooperative or a joint stock company. Most private businesses in Kazakhstan are set up as joint stock companies or limited liability partnerships.

If the appointed CEO or General Director of the company is an expat, it is required that a work permit should be obtained for that citizen once the business has been established.

There are some differences between the state registration procedure for small and large businesses. The legislative body which establishes businesses has made the process simpler for smaller businesses and simplified the means for state registration.

Other things to consider

Once your business is registered, you will need to open an account with a Kazakh bank, as cash transactions between legal entities are limited in Kazakhstan in order to counteract money laundering.

It’s worth taking note that it’s difficult for businesses in Kazakhstan to function correctly without the help of professional legal support from specialized Kazakh legal firms, in terms of arranging contractual work, bookkeeping and personal operations.

It’s also quite expensive to trade across borders, costing double that of neighboring countries and four times the world average. It also takes substantially longer to export, and there are also many barriers in place for imported goods.

Initial things to consider

Financial support

Property

Tax

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B. LLP: Group 2

VAT

VAT is charged at 12% on most goods and services in Kazakhstan. It is also charged on imported goods.

VAT is chargeable on company turnover that takes place in Kazakhstan.

VAT is to be replaced by sales tax in 2017.

Corporate income tax

The Tax Code has a corporate income tax rate for tax residents of 20% on worldwide income.

An annual property tax of 1.5% of average annual balance sheet value of property owned is payable by legal corporate entities.

Corporate income tax and social tax at aggregate rate of 3% of income can be paid if the legal entity has:

income not exceeding about USD $166, 000 over a calendar quarter
average number of employees not exceeding 50

Income tax

Kazakhstan has a flat 10% personal income tax. It also has a 10% ‘social insurance’ payroll tax levied on employers.

Customs duties

The Customs Control Committee of the Ministry of Finance has responsibility for customs in Kazakhstan.

You can find more about import tariffs in the Market Access Database.

Business behaviour

The official language is Kazakh. However, if possible you should translate your most important materials into both Kazakh and Russian as the latter is used widely.