Introduction

Entrepreneurial activity implies obtaining the maximum profit at the lowest cost, i.e. a positive final business result that has a value estimate and requires certain financial investments to obtain such a result.

Entrepreneurial activity of any kind is based on initial financial investments for the acquisition, including raw materials and supplies, machinery, technological equipment, components and spare parts for it, production facilities, attraction of labour resources.
These investments are made by attracting funds from various sources of financing, which, for example, include cash deposits or other contributions, including property, made by entrepreneurial actors[1], issuance and placement of various types of securities, as well as any other means of attracting financial resources. According to the Entrepreneurial Code of the Republic of Kazakhstan, they are considered as a subject to investment[2].

Investment Preferences (Incentives)

Investment activities in Kazakhstan are carried out not only by local legal entities, but also by legal entities with foreign participation[3]. A major role in investment attractiveness for these entities is played by preferences, which are understood as advantages of a targeted nature provided in accordance with the legislation of the Republic of Kazakhstan to legal entities of the Republic of Kazakhstan, including legal entities with foreign participation, implementing an investment project[4].
Depending on the type of investment project and the legal basis for its implementation (investment contract, agreement on investments, agreement on investment commitments), such preferences as exemption from customs duties and value added tax[5], state natural grants[6], tax preferences[7], stability guarantees in case of changes in legislation[8], etc. may be provided.

For the purposes of this article, we will focus on the procedural point related to the filing of the relevant application to obtain a preference in the form of exemption from customs duties, as this issue is not quite obvious, which is also complicated by regulation at the level of the Eurasian Economic Union (hereinafter, the “EAEU”)[9].
Let us imagine a situation where an investment project under an investment contract or an agreement on investments requires the importation of technological equipment, components and spare parts to the territory of the Republic of Kazakhstan, which is a member state of the EAEU.

Interaction of International and National Regulation

In accordance with the Code "On Customs Regulation in the Republic of Kazakhstan" (hereinafter, the CC RK), if an international treaty ratified by the Republic of Kazakhstan establishes rules other than those specified in this Code, then the rules of the international treaty shall be applied[10].

According to the EAEU Customs Code, the cases and conditions for granting privileges on payment of import customs duties (tariff privileges), as well as the procedure for their application, are determined in accordance with the Treaty on the Eurasian Economic Union (hereinafter, the “EAEU Treaty)”. In the determination of cases and conditions for granting privileges on payment of import customs duties (tariff incentives) in the form of reduction of the rate of import customs duty in accordance with Article 43 of the EAEU Treaty, the Commission has the right to determine other circumstances than those stipulated by the EAEU Customs Code, upon the occurrence of which the obligation to pay import customs duties ceases and/or the time limit for payment of import customs duties comes into effect[11].

Exemption From Customs Duty in Respect of Certain Goods

Article 43(1) of the EAEU Treaty stipulates that tariff incentives in the form of exemption from import customs duty or a reduction in the rate of import customs duty may be applied to goods which are imported into the customs territory of the Union. Accordingly, the granting of such benefits is carried out in accordance with Annex No. 6 to the EAEU Treaty[12].

According to aforementioned Annex, tariff incentives in the form of exemption from import customs duty are granted with regard to the following goods imported (imported) into the customs territory of the Union from third countries:

• goods as a contribution of a foreign shareholder to the charter capital (fund) within the terms established by the founding documents for the formation of this capital (fund);
• goods imported within the framework of international co-operation in the exploration and use of outer space, including spacecraft launch services, in accordance with the list approved by the Commission;
• marine fisheries products from vessels of Member States, as well as vessels leased (chartered) by legal entities and/or individuals of Member States;
• currencies of the Member States, currencies of third countries (except those used for numismatic purposes), and securities in accordance with the legislation of the Member States;
• goods imported as humanitarian aid and/or to eliminate the consequences of natural disasters, accidents or catastrophes;
• goods, except for excisable goods (except for cars specially designed for medical purposes), imported through third countries, international organisations, governments for charitable purposes and (or) recognised in accordance with the legislation of Member States as gratuitous aid (assistance), including technical aid (assistance)[13].

Extension of Customs Incentive to Technological Equipment, Components and Spare Parts

If we return to our hypothetical situation, we see that technological equipment, components and spare parts do not fall under this closed list of goods. However, it is crucial for the investor to obtain exemption from customs duties, as the imported technological equipment is key for the implementation of an investment project, which is profitable and has an extremely positive impact, for example, on the electricity market of Kazakhstan.

For these purposes, it is provided that tariff incentives in respect of goods imported into the customs territory of the Union from third countries may also be granted in other cases established by the EAEU Treaty, international treaties of the Union with a third party, and decisions of the Commission[14].

One of such decisions of the Commission establishes that in addition to the tariff incentives established by the EAEU Treaty, international treaties of the Union with a third party and decisions of the Commission, the following tariff incentives are granted[15]. Thus, inter alia, technological equipment, components and spare parts thereof, raw materials and materials imported for exclusive use on the territory of a Member State within the framework of implementation of an investment project corresponding to the priority activity (sector of economy) of a Member State in accordance with the legislation of that Member State shall be exempted from import customs duty[16].

The list of priority activities for the implementation of investment projects was approved by the Resolution of the Government of the Republic of Kazakhstan[17]. Let's assume that the type of activity in our hypothetical situation falls under the prioritised activity. However, an investor needs to understand how to start the process and follow the appropriate procedure to obtain a tariff incentive in the form of import duty exemption.

Absence of a Procedure for Granting Customs Incentive at the EAEU Level and the Need to Establish it at the National Level

At the moment, no such order/procedure has been prescribed at the EAEU level. In this regard, the Commission's Decision was adopted, according to which, until the Customs Union Commission establishes the procedure for the application of exemption from import customs duties in respect of categories of goods defined in subparagraph 7.1.11 of the Decision of the Customs Union Commission of 27 November 2009 № 130 "On a common customs tariff regulation of the Customs Union of the Republic of Belarus, the Republic of Kazakhstan and the Russian Federation", the tariff incentive shall be applied in accordance with the procedure in force in a Member State of the Customs Union[18].

This rule was considered and confirmed by the decision of the EurAsEC Court, in which the court concluded that the member states of the Customs Union have the authority to apply the tariff concession established by subparagraph 7.1.11 of paragraph 7 of Decision No. 130 in accordance with national legislation, since the relevant legal relations at the level of the Customs Union are not regulated by the Union[19].

Unfortunately, at the moment Kazakhstan has not adopted a procedure for granting tariff incentives in the form of exemption from import customs duty in respect of technological equipment, components and spare parts for it. Thus, an investor is faced with a situation of legal uncertainty, which does not allow to obtain a preference in the form of exemption from customs duties under a clear and transparent procedure.

Application of Analogy of Law to Determine the Procedure for Obtaining a Customs Preference

It can be assumed that it is possible to apply by analogy the Order of the Deputy Prime Minister - Minister of Trade and Integration of the Republic of Kazakhstan dated 28 June 2022 № 272-NЌ "On Approval of the Rules and Conditions for granting tariff concessions, as well as the list of goods in respect of which tariff concessions are granted".

However, according to the Law on Legal Acts, the possibility of applying analogy of law and analogy of law in relations regulated by specific branches of legislation is determined by the relevant legislative acts[20]. Unlike the Civil Code of the Republic of Kazakhstan[21], the CC RK does not stipulate for the possibility of applying analogy of law. Consequently, we deem it impossible to apply by analogy the aforesaid Order.

Experience of other EAEU Member States and the need to eliminate legal uncertainty in Kazakhstan's customs regulation

If we analyse the practice of other EAEU Member States, then, for example, the Russian Federation has adopted the relevant procedure and rules for granting tariff incentives in the form of exemption from import customs duty in respect of technological equipment, components and spare parts for it at the level of a by-law act[22].


Given the above, in order to improve the investment climate and attractiveness in the Republic of Kazakhstan, as well as for the purposes of eliminating the legal gap, it is recommended to develop and adopt a by-law, which before the establishment of the Customs Union Commission of the relevant order would establish a procedure for the application of exemption from import customs duties in respect of categories of goods defined in paragraph 7.1.11 of the Decision of the Customs Union Commission No. 130 of 27 November 2009, i.e. technological equipment, components and spare parts for it, raw materials and materials imported for exclusive use in the territory of a member state within the framework of the implementation of an investment project corresponding to the priority activity (sector of the economy) of the member state.