• +7 701 729 76 72
  • info@bondstonelaw.com

Branch (representative) office registration in Kazakhstan.

Branch (representative) office registration in Kazakhstan.

Branch office registration in Kazakhstan.

In the preceding section, we elucidated the challenges associated with registering legal entities in the organizational structure of a Limited Liability Partnership (LLP), with a preliminary discussion on the merits of establishing structural representative offices for foreign company headquarters in the form of Representative Offices and Branches during a gradual market entry process. Notably, we exemplified this with projects undertaken to facilitate the market entry of foreign pharmaceutical companies.

In this section, we will delve deeper into specific aspects concerning the registration of Representative Offices and Branches for both foreign and domestic companies. It is imperative to note that structural divisions lack legal entity status and thus lack legal capacity, rendering them incapable of independently possessing rights or assuming liabilities.

Distinguishing between a Representative Office and a Branch is crucial. In essence, a Representative Office primarily engages in “ancillary” activities, primarily centered around marketing endeavors, product promotion, and representing the interests of the parent company vis-à-vis governmental entities and private organizations. It is important to underscore that a Representative Office is prohibited from conducting any commercial activities.

A quintessential illustration of foreign presence lies in Kazakhstan’s substantial consumption of renowned brands from prominent FMCG companies, each often equipped with its own representative office in Central Asia. These representative offices oversee various matters such as logistics establishment, partner or distribution network development, and warehouse stock replenishment, albeit without direct involvement in these processes.

Given its nonprofit nature, a Representative Office is exempt from Corporate Income Tax (CIT) for a limited duration as stipulated by the Republic of Kazakhstan’s Tax Code, which incorporates the notion of a “permanent establishment” from international tax treaties. We briefly touched upon this concept in the preceding section.

On the other hand, a Branch, being a structural subdivision of a legal entity, possesses a more functional scope than a Representative Office. In addition to the powers vested in a Representative Office, a Branch holds the authority to undertake certain functions typically executed by the head office. Consequently, a Branch is regarded as a fully-fledged commercial entity acting on behalf of the parent company, thereby incurring specific tax obligations from the outset, given its status as a “permanent establishment.”

Throughout its developmental trajectory, a company endeavoring to advance in the market invariably contemplates cost optimization strategies. The ability of a Branch to repatriate net income after fulfilling requisite tax obligations sans accompanying “withholding taxes” facilitates the avoidance of undue tax burdens that may arise from analogous payments to beneficiaries of a legal entity.

A pivotal consideration during the business registration phase is the appointment of leadership for newly established branches, representative offices, and legal entities. Notably, before 2018, structural divisions were deemed preferable over subsidiaries due to the absence of a requirement for authorization to engage foreign labor in appointing branch managers and representative office heads. However, since 2018, this privilege has been extended to subsidiaries wherein foreign ownership exceeds 100%.

When electing a specific form of commercial or non-commercial presence within Kazakhstan, careful consideration should be given to tax optimization opportunities, prospective participation in government procurement endeavors, licensing prerequisites, and other pertinent matters. Our legal experts are equipped to meticulously assess and determine the most optimal organizational and legal framework tailored to your business objectives and aspirations.