Kazakhstan's government has introduced major tax breaks and subsidies in a push to shore up investments and further diversify the country's economy away from the extractive sector. The initiative comes in the form of a wide reform to Kazakhstan's existing investment framework and the whole package will come into effect from January 1, 2015.

“The government realised the country needs more foreign investment and introduced this new legislation aimed to create a more favourable investment regime,” said Aset Shyngyssov, general director for Kazakhstan at law firm Morgan Lewis. “With its limited population and still relatively small economy [its 2013 GDP was $224.4bn], Kazakhstan has limited resources for local investments.”


The reform exempts investors developing priority projects worth at least $20m from the payment of corporate income tax and land tax for 10 years, and property tax for eight years. It also introduces a state subsidy that covers up to 30% of the development costs. Besides, stability provisions offer guarantees against future possible increases to rates of taxes, duties or charges (other than VAT and excise duties). Authorities have yet to issue specific details about the reach of 'priority projects'. It is widely expected that they will belong to the manufacturing and service sectors and will fit the government's industrialisation strategy.

FDI into Kazakhstan, central Asia's largest economy and FDI recipient, fell to $9.7bn in 2013 from $13.8bn a year earlier, according to figures from the United Nations Conference on Trade and Development's 2014 World Investment Report. Inflows were hampered by weak investments in financial services and the investment cycle at the flagship $50bn Kashagan oil field project, which came to fruition in September 2013 – operations suffered from technical failures the following October and have not resumed since.

This downward trend in FDI has gone hand in hand with a deteriorating business climate, with international observers investors put off by the government's legal capriciousness. “Concerns remain about the government's tendency to challenge contractual rights, to legislate preferences for domestic companies, and to create mechanisms for government intervention in foreign companies' operations, particularly in procurement decisions,” the US Bureau of Economic and Business Affairs wrote in a 2013 report.

The same stability guarantees introduced with the reform must be considered with “caution”, warns Morgan Lewis in a report, as “Kazakhstan’s recent history shows that the granted stability guarantees may not be fully observed in practice”.

Yet Kazakhstan's government, led by president Nursultan Nazarbayev, has pledged commitment to improve the business climate and lure back foreign investors. An investment  ombudsman was established to better protect the right of foreign investors, while visa requirements for executives coming from major commercial partners such as the US, the Netherlands, the UK, France, Germany, Italy, Japan and South Korea have been lifted and developers of priority projects will be allowed to hire foreign workers, bypassing the current bureaucracy and quota restrictions. With the country's economy gradually reducing its dependence on the extractive sector and major events such as Astana's Expo 2017  on the horizon, there are high hopes throughout the country that Kazakhstan's FDI fortunes are about to be reversed.