Argentina presents investment and trade opportunities, particularly in agriculture, energy, health, infrastructure, information technology, and mining. However, economic uncertainty, interventionist policies, high inflation, and persistent economic stagnation have prevented the country from maximizing its potential. Argentina fell into recession in 2018, the same year then-President Mauricio Macri signed a three-year $57 billion Stand-By Arrangement (SBA) with the International Monetary Fund (IMF). Efforts to rationalize spending contributed to Macri’s defeat by the Peronist ticket of Alberto Fernandez and former president Cristina Fernandez de Kirchner (CFK) in 2019. The new administration took office on December 10, 2019 and reversed fiscal austerity measures, suspended the IMF program, and declared public debt levels unsustainable. The COVID-19 pandemic deepened the country´s multi-year economic recession. This led the government to intensify price, capital, and foreign trade controls, rolling back some of the market driven polices of the previous administration. After recording its ninth sovereign default in May 2020, the government of Argentina restructured international law bonds for $65 billion and domestic law bonds for $42 billion. The debt restructuring provides financial relief of $37.7 billion during the period 2020-2030, lowering average interest payments from 7 percent to 3 percent. In August 2020, the government formally notified the International Monetary Fund (IMF) of its intent to renegotiate $45 billion due to the Fund from the 2018 Stand-by Arrangement. In 2020, the Argentine peso (official rate) depreciated 29 percent, inflation reached 36 percent, the poverty rate reached 42 percent, and the economy contracted 10 percent.
The Fernandez administration’s economic agenda during 2020 focused on restructuring the country’s sovereign debt and addressing the impact of the COVID-19 pandemic. The government increased taxes on foreign trade, further tightened capital controls, and initiated or renewed price control programs. The administration also expanded fiscal expenditures, which were primarily directed at mitigating the economic impact of the COVID-19 pandemic. Citing a need to preserveArgentina’s diminishing foreign exchange reserves and raise government revenues for social programs, the Fernandez administration passed a sweeping “economic emergency” law in December 2019, that included a 35 percent advance income tax plus a 30 percent tax on purchases of foreign currency and all individual expenses incurred abroad, whether in person or online.
After the first COVID-19 case was confirmed in Argentina on March 3, 2020, the country imposed a strict nationwide quarantine on March 20, which became one of the longest in the world. The confinement measures were relaxed starting in the second semester of 2020, although multiple restrictions remained in place. Hotel and lodging, travel and tourism, and entertainment activities were deeply affected and were still not fully operational as of March 2021. According to estimates from the Argentine Small and Medium-Sized Confederation´s (CAME), 90,700 retail stores and 41,200 businesses permanently closed in Argentina during 2020, accounting for more than 185,300 jobs losses. As a result of the confinement measures, economic activity dropped 10 percent during 2020 compared to 2019, reaching levels similar to the 2002 economic crisis.
The Argentine government issued a series of economic relief measures, primarily focusing on the informal workers that account for 40 percent of the labor force as well as small and medium size enterprises (SMEs). The government prohibited employers from terminating employment until April 2021 and mandated a double severance payment until December 31, 2021. The government also prohibited the suspension of utility services (water, natural gas, electricity, mobile and land line services, and internet and cable TV) for failure to pay. The government’s ninth sovereign default and self-declared insolvency has limited its access to international credit, obligating it to finance pandemic-related stimulus measures and COVID-19 vaccine purchases via money printing, which may hamper its efforts to restrain inflation and maintain a stable exchange rate in the near term. The government is expected to further expand fiscal expenditures ahead of mid-term elections in October 2021.
Both domestic and foreign companies frequently point to a high and unpredictable tax burden and rigid labor laws, which make responding to changing macroeconomic conditions more difficult, as obstacles to further investment in Argentina. In July 2020, the government passed a teleworking law which imposed restrictive regulations on remote work. The law discourages companies from granting workplace flexibility and lowering labor costs via telework. In 2019, Argentina ranked 36 out of 41 countries evaluated in the Competitiveness Ranking of the World Economic Forum (WEF), which measures how productively a country uses its available resources.
As a MERCOSUR member, Argentina signed a free trade and investment agreement with the European Union (EU) in June 2019. Argentina has not ratified the agreement yet. In May 2020, Argentina proposed slowing the pace and adjusting the negotiating parameters of MERCOSUR’s ongoing trade liberalization talks with South Korea, Canada, and other partners to help protect vulnerable populations and account for the impact of the COVID-19 pandemic. Argentina previously ratified the WTO Trade Facilitation Agreement on January 22, 2018. Argentina and the United States continue to expand bilateral commercial and economic cooperation, specifically through the Trade and Investment Framework Agreement (TIFA), the Commercial Dialogue, and under the Growth in the Americas initiative, in order to improve and facilitate public-private ties and communication on trade, investment, energy, and infrastructure issues, including market access and intellectual property rights. More than 300 U.S. companies operate in Argentina, and the United States continues to be the top investor in Argentina with more than USD $10.7 billion (stock) of foreign direct investment as of 2019.
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The Government of Argentina has identified its top economic priorities for 2021 as resolving its debt situation with the IMF, controlling inflation, responding to the COVID-19 pandemic by providing financial aid to the most vulnerable sectors of society. When the Fernandez administration took office in late 2019, the Ministry of Foreign Affairs, International Trade, and Worship became the lead governmental entity for investment promotion. The Fernandez administration does not have a formal business roundtable or other dialogue established with international investors, although it does engage with domestic and international companies.
Market regulations such as capital controls, trade restrictions, and price controls enhance economic distortion that hinders the investment climate in the country.
Foreign and domestic investors generally compete under the same conditions in Argentina. The amount of foreign investment is restricted in specific sectors such as aviation and media. Foreign ownership of rural productive lands, bodies of water, and areas along borders is also restricted.
Argentina has a National Investment and Trade Promotion Agency that provides information and consultation services to investors and traders on economic and financial conditions, investment opportunities, and Argentine laws and regulations. The agency also provides matchmaking services and organizes roadshows and trade delegations. Upon the change of administration, the government placed the Agency under the direction of the Ministry of Foreign Affairs (MFA) to improve coordination between the Agency and Argentina´s foreign policy. The Under Secretary for Trade and Investment Promotion of the MFA works as a liaison between the Agency and provincial governments and regional organizations. The new administration also created the National Directorate for Investment Promotion under the Under Secretary for Trade and Investment Promotion, making the Directorate responsible for promoting Argentina as an investment destination. The Directorate´s mission also includes determining priority sectors and projects and helping Argentine companies expand internationally and/or attract international investment.
The agency’s web portal provides information on available services (https://www.inversionycomercio.org.ar/). The 23 provinces and the City of Buenos Aires also have their own provincial investment and trade promotion offices.
Limits on Foreign Control and Right to Private Ownership and Establishment
Foreign and domestic commercial entities in Argentina are regulated by the Commercial Partnerships Law (Law 19,550), the Argentina Civil and Commercial Code, and rules issued by the regulatory agencies. Foreign private entities can establish and own business enterprises and engage in all forms of remunerative activity in nearly all sectors.
Full foreign equity ownership of Argentine businesses is not restricted, for the most part, with exception in the air transportation and media industries. The share of foreign capital in companies that provide commercial passenger transportation within the Argentine territory is limited to 49 percent per the Aeronautic Code Law 17,285. The company must be incorporated according to Argentine law and domiciled in Buenos Aires. In the media sector, Law 25,750 establishes a limit on foreign ownership in television, radio, newspapers, journals, magazines, and publishing companies to 30 percent.
Law 26,737 (Regime for Protection of National Domain over Ownership, Possession or Tenure of Rural Land) establishes that a foreigner cannot own land that allows for the extension of existing bodies of water or that are located near a Border Security Zone. In February 2012, the government issued Decree 274/2012 further restricting foreign ownership to a maximum of 30 percent of national land and 15 percent of productive land. Foreign individuals or foreign company ownership is limited to 1,000 hectares (2,470 acres) in the most productive farming areas. In June 2016, the Government of Argentina issued Decree 820 easing the requirements for foreign land ownership by changing the percentage that defines foreign ownership of a person or company, raising it from25 percent to 51 percent of the social capital of a legal entity. Waivers are not available.
Argentina does not maintain an investment screening mechanism for inbound foreign investment. U.S. investors are not at a disadvantage to other foreign investors or singled out for discriminatory treatment.
Other Investment Policy Reviews
Argentina was last subject to an investment policy review by the OECD in 1997 and a trade policy review by the WTO in 2013. The United Nations Conference on Trade and Development (UNCTAD) has not done an investment policy review of Argentina.
In 2019, stemming from the country’s deteriorating financial and economic situation, the Argentine government re-imposed capital controls on business and consumers, limiting their access to foreign exchange. Strict capital controls and increases in taxes on exports and imports the Argentine government instituted at the end of 2019 have generated uncertainty in the business climate.
With the stated aim of keeping inflation under control and avoiding production shortages during the COVID-19 pandemic, the government increased market interventions in 2020, creating further market distortions that may deter investment. Argentina currently has two consumer goods price control programs, “Precios Cuidados,” a voluntary program established in 2014, and “Precios Máximos,”an emergency program established in March 2020. The Argentine Congress also passed the Shelves Law (No. 27,545), which regulates the supply, display, and distribution of products on supermarket shelves and virtual stores. Key articles of the Law are still pending implementing regulations. Private companies expressed concern over the final regulatory framework of the Law, which could affect their production, distribution, and marketing business model.
In August 2020, the government issued an edict freezing prices for telecommunication services (mobile and land), cable and satellite TV, and internet services until December 2020, later extending the measure into 2021. In Argentina’s high inflation environment, companies sought a 20 to 25 percent increase, however, the regulator allowed the telecom sector a five percent rate increase as of January 2021. The health sector was also subject to limits on price increases. In February 2021, the Secretary of Trade took administrative action against major consumer firms and food producers for purportedly causing supermarket shortages by withholding production and limiting distribution. Companies are currently contesting this decision. In March 2021, the Secretary of Domestic Trade issued Resolution 237/2021 establishing a national registry to monitor the production levels, distribution, and sales of private companies. If companies fail to comply, they could be subject to fines or closure. Tighter import controls imposed by the Fernandez administration have affected the business plans of private companies that need imported inputs for production. The private sector noted increased discretion on the part of trade authorities responsible for approving import licenses.
The Ministry of Production eased bureaucratic hurdles for foreign trade through the creation of a Single Window for Foreign Trade (“VUCE” for its Spanish acronym) in 2016. The VUCE centralizes the administration of all required paperwork for the import, export, and transit of goods (e.g., certificates, permits, licenses, and other authorizations and documents). The Argentine government has not fully implemented the VUCE for use across the country. Argentina subjects imports to automatic or non-automatic licenses that are managed through the Comprehensive Import Monitoring System (SIMI, or Sistema Integral de Monitoreo de Importaciones), established in December 2015 by the National Tax Agency (AFIP by its Spanish acronym) through Resolutions 5/2015 and 3823/2015. The SIMI system requires importers to submit detailed information electronically about goods to be imported into Argentina. Once the information is submitted, the relevant Argentine government agencies can review the application through the VUCE and make any observations or request additional information. The list of products subject to non-automatic licensing has been modified several times since the beginning of the SIMI system. Due to the Covid-19 pandemic, the government reclassified goods needed to combat the health emergency previously subject to non-automatic import licenses to automatic import licenses. Approximately 1,500 tariff lines are currently subject to non-automatic licenses.
The Argentine Congress approved an Entrepreneurs’ Law in March 2017, which allows for the creation of a simplified joint-stock company (SAS, or Sociedad por Acciones Simplificada) online within 24 hours of registration. However, in March 2020, the Fernandez administration annulled the 24-hour registration system. Industry groups said this hindered the entrepreneurship ecosystem by revoking one of the pillars of the Entrepreneurs´ Law.
Foreign investors seeking to set up business operations in Argentina follow the same procedures as domestic entities without prior approval and under the same conditions as local investors. To open a local branch of a foreign company in Argentina, the parent company must be legally registered in Argentina. Argentine law requires at least two equity holders, with the minority equity holder maintaining at least a five percent interest. In addition to the procedures required of a domestic company, a foreign company establishing itself in Argentina must legalize the parent company’s documents, register the incoming foreign capital with the Argentine Central Bank, and obtain a trading license.
A company must register its name with the Office of Corporations (IGJ, or Inspección General de Justicia). The IGJ website describes the registration process and some portions can be completed online (https://www.argentina.gob.ar/justicia/igj/guia-de-tramites). Once the IGJ registers the company, the company must request that the College of Public Notaries submit the company’s accounting books to be certified with the IGJ. The company’s legal representative must obtain a tax identification number from AFIP, register for social security, and obtain blank receipts from another agency. Companies can register with AFIP online at www.afip.gob.ar or by submitting the sworn affidavit form No. 885 to AFIP.
The enterprise must also provide workers’ compensation insurance for its employees through the Workers’ Compensation Agency (ART, or Aseguradora de Riesgos del Trabajo). The company must register and certify its accounting of wages and salaries with the Secretariat of Labor, within the Ministry of Labor, Employment, and Social Security.
In April 2016, the Small Business Administration of the United States and the Ministry of Production of Argentina signed a Memorandum of Understanding (MOU) to set up small and medium sized business development centers (SBDCs) in Argentina. Under the MOU, in June 2017, Argentina set up a SBDC in the province of Neuquén to provide small businesses with tools to improve their productivity and increase their growth.
The National Directorate for Investment Promotion under the Under Secretary for Trade and Investment Promotion at the MFA assists Argentine companies in expanding their business overseas, in coordination with the National Investment and Trade Promotion Agency. Argentina does not have any restrictions regarding domestic entities investing overseas, nor does it incentivize outward investment.
3. Legal Regime
Transparency of the Regulatory System
The Secretary of Strategic Affairs under the Cabinet is in charge of transparency policies and the digitalization of bureaucratic processes as of December 2019.
Argentine government authorities and a number of quasi-independent regulatory entities can issue regulations and norms within their mandates. There are no informal regulatory processes managed by non-governmental organizations or private sector associations. Rulemaking has traditionally been a top-down process in Argentina, unlike in the United States where industry organizations often lead in the development of standards and technical regulations. The Constitution establishes a procedure that allows for citizens to draft or propose legislation, which is subject to Congressional and Executive approval before being passed into law.
Ministries, regulatory agencies, and Congress are not obligated to provide a list of anticipated regulatory changes or proposals, share draft regulations with the public, or establish a timeline for public comment. They are also not required to conduct impact assessments of the proposed legislation and regulations.
All final texts of laws, regulations, resolutions, dispositions, and administrative decisions must be published in the Official Gazette (https://www.boletinoficial.gob.ar ), as well as in the newspapers and the websites of the Ministries and agencies. These texts can also be accessed through the official website Infoleg (http://www.infoleg.gob.ar/ ), overseen by the Ministry of Justice and Human Rights. Interested stakeholders can pursue judicial review of regulatory decisions.
In September 2016, Argentina enacted a Right to Access Public Information Law (27,275) that mandates all three governmental branches (legislative, judicial, and executive), political parties, universities, and unions that receive public funding are to provide non-classified information at the request of any citizen. The law also created the Agency for the Right to Access Public Information to oversee compliance.
During 2017, the government introduced new procurement standards including electronic procurement, formalization of procedures for costing-out projects, and transparent processes to renegotiate debts to suppliers. The government also introduced OECD recommendations on corporate governance for state-owned enterprises to promote transparency and accountability during the procurement process. The regulation may be viewed at: http://servicios.infoleg.gob.ar/infolegInternet/verNorma.do?id=306769 .
In April 2018, Argentina passed the Business Criminal Responsibility Law (27,041) through Decree 277. The decree establishes an Anti-Corruption Office in charge of outlining and monitoring the transparency policies with which companies must comply to be eligible for public procurement.
Under the bilateral Commercial Dialogue, Argentina and the United States discuss good regulatory practices, conducting regulatory impact analyses, and improving the incorporation of public consultations in the regulatory process. Similarly, under the bilateral Digital Economy Working Group, Argentina and the United States shared best practices on promoting competition, spectrum management policy, and broadband investment and wireless infrastructure development.
The Argentine government has sought to increase public consultation in the rulemaking process; however, public consultation is non-binding and has been done in an ad-hoc fashion. In 2017, the Government of Argentina issued a series of legal instruments that seek to promote the use of tools to improve the quality of the regulatory framework. Amongst them, Decree 891/2017 for Good Practices in Simplification establishes a series of tools to improve the rulemaking process. The decree introduces tools on ex-ante and ex-post evaluation of regulation, stakeholder engagement, and administrative simplification, amongst others. Nevertheless, no formal oversight mechanism has been established to supervise the use of these tools across the line of ministries and government agencies, which make implementation difficult and severely limit the potential to adopt a whole-of-government approach to regulatory policy, according to a 2019 OECD publication on Regulatory Policy in Argentina.
Some ministries and agencies developed their own processes for public consultation by publishing drafts on their websites, directly distributing the draft to interested stakeholders for feedback, or holding public hearings.
The Argentine government also made an effort to improve citizens’ understanding of the budget, through the citizen’s budget “Presupuesto Ciudadano” website: https://www.economia.gob.ar/onp/presupuesto_ciudadano/seccion6.php . The initiative aligns with the Global Initiative for Fiscal Transparency (GIFT) and UN Resolution 67/218 on promoting transparency, participation, and accountability in fiscal policy.
Argentina requires public companies to adhere to International Financial Reporting Standards (IFRS). Argentina is a member of UNCTAD’s international network of transparent investment procedures.
International Regulatory Considerations
Argentina is a founding member of MERCOSUR and has been a member of the Latin American Integration Association (ALADI for Asociación Latinoamericana de Integración) since 1980. Once any of the decision-making bodies within MERCOSUR agrees on applying a certain regulation, each of the member countries has to incorporate it into its legislation according to its own legislative procedures. Once a regulation is incorporated in a MERCOSUR member’s legislation, the country has to notify MERCOSUR headquarters.
Argentina has been a member of the WTO since 1995, and it ratified the Trade Facilitation Agreement in January 2018. Argentina notifies technical regulations, but not proposed drafts, to the WTO Committee on Technical Barriers to Trade. Argentina submitted itself to an OECD regulatory policy review in March 2018, which was released in March 2019. The Fernandez administration has not actively pursued OECD accession. Argentina participates in all 23 OECD committees.
Additionally, the Argentine Institute for Standards and Certifications (IRAM) is a member of international and regional standards bodies including the International Standardization Organization (ISO), the International Electrotechnical Commission (IEC), the Pan-American Commission on Technical Standards (COPAM), the MERCOSUR Association of Standardization (AMN), the International Certification Network (i-Qnet), the System of Conformity Assessment for Electrotechnical Equipment and Components (IECEE), and the Global Good Agricultural Practice network (GLOBALG.A.P.).
Legal System and Judicial Independence
Argentina follows a Civil Law system. In 2014, the Argentine government passed a new Civil and Commercial Code that has been in effect since August 2015. The Civil and Commercial Code provides regulations for civil and commercial liability, including ownership of real and intangible property claims. The current judicial process is lengthy and suffers from significant backlogs. In the Argentine legal system, appeals may be brought from many rulings of the lower court, including evidentiary decisions, not just final orders, which significantly slows all aspects of the system. The Justice Ministry reported in December 2018 that the expanded use of oral processes had reduced the duration of 68 percent of all civil matters to less than two years.
According to the Argentine constitution, the judiciary is a separate and equal branch of government. In practice, there are continuous instances of political interference in the judicial process. Companies have complained that courts lack transparency and reliability, and that the Argentine government has used the judicial system to pressure the private sector. Media revelations of judicial impropriety and corruption feed public perception and undermine confidence in the judiciary.
Many foreign investors prefer to rely on private or international arbitration when those options are available. Claims regarding labor practices are processed through a labor court, regulated by Law 18,345 and its subsequent amendments and implementing regulations by Decree 106/98. Contracts often include clauses designating specific judicial or arbitral recourse for dispute settlement.
Laws and Regulations on Foreign Direct Investment
According to the Foreign Direct Investment Law 21,382 and Decree 1853/93, foreign investors may invest in Argentina without prior governmental approval, under the same conditions as investors domiciled within the country. Foreign investors are free to enter into mergers, acquisitions, greenfield investments, or joint ventures. Foreign firms may also participate in publicly-financed research and development programs on a national treatment basis. Incoming foreign currency must be identified by the participating bank to the Central Bank of Argentina (www.bcra.gob.ar).
The National Commission for the Defense of Competition and the Secretariat of Domestic Trade, both within the Ministry of Productive Development, have enforcement authority of the Competition Law (Law 25,156). The law aims to promote a culture of competition in all sectors of the national economy. In May 2018, the Argentine Congress approved a new Defense of Competition Law (Law 27,442), which would have, among other things, established an independent competition agency and tribunal. The new law incorporates anti-competitive conduct regulations and a leniency program to facilitate cartel investigation. The full text of the law can be viewed at: http://servicios.infoleg.gob.ar/infolegInternet/verNorma.do?id=310241 . The Government of Argentina, however, has thus far not taken steps to establish the independent agency or tribunal. In February 2021, a bill introducing amendments to the Defense of Competition Law was passed by the Senate and is currently under study in the Lower House. The main changes are related to the removal of the “Clemency Program,” which encourages public reports of collusive and cartel activities, and the elimination of public hearings to appoint members of the Competition Office. The private sector has expressed concern over this bill, stating these changes are contrary to transparency standards embodied in the Law.
In September 2014, Argentina amended the 1974 National Supply Law to expand the ability of the government to regulate private enterprises by setting minimum and maximum prices and profit margins for goods and services at any stage of economic activity. Private companies may be subject to fines and temporary closure if the government determines they are not complying with the law. Although the law is still in effect, the U.S. Government has not received any reports of it being applied since December 2015. However, the Fernandez administration has expressed its potential use in response to the COVID-19 pandemic.
In March 2020, the Government of Argentina enacted the Supermarket Shelves Law (Law 27,545) that states that any single manufacturer and its associated brands cannot occupy more than 30 percent of a retailer’s shelf space devoted to any one product category. The law’s proponents claim it will allow more space for domestic SME-produced products, encourage competition, and reduce shortages. U.S. companies have expressed concern over the pending regulations, seeking clarification about issues such as whether display space percentages would be considered per brand or per production company, as it could potentially affect a company’s production, distribution, and marketing business model.
Expropriation and Compensation
Section 17 of the Argentine Constitution affirms the right of private property and states that any expropriation must be authorized by law and compensation must be provided. The United States-Argentina BIT states that investments shall not be expropriated or nationalized except for public purposes upon prompt payment of the fair market value in compensation.
Argentina has a history of expropriations under previous administrations. The most recent expropriation occurred in March 2015 when the Argentine Congress approved the nationalization of the train and railway system. A number of companies that were privatized during the 1990s under the Menem administration were renationalized under the Kirchner administrations. Additionally, in October 2008, Argentina nationalized its private pension funds, which amounted to approximately one-third of total GDP, and transferred the funds to the government social security agency.
In May 2012, the Fernandez de Kirchner administration nationalized oil and gas company Repsol-YPF. Most of the litigation between the Government of Argentina and Repsol was settled in 2016. An American hedge fund still holds a claim against YPF and is in litigation in U.S. courts.
ICSID Convention and New York Convention
Argentina is signatory to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitration Awards, which the country ratified in 1989. Argentina is also a party to the International Center for Settlement of Investment Disputes (ICSID) Convention since 1994.
There is neither specific domestic legislation providing for enforcement under the 1958 New York Convention nor legislation for the enforcement of awards under the ICSID Convention. Companies that seek recourse through Argentine courts may not simultaneously pursue recourse through international arbitration.
Investor-State Dispute Settlement
The Argentine government officially accepts the principle of international arbitration. The United States-Argentina BIT includes a chapter on Investor-State Dispute Settlement for U.S. investors.
In the past ten years, Argentina has been brought before the ICSID in 54 cases involving U.S. or other foreign investors. Argentina currently has three pending arbitration cases filed against it by U.S. investors. For more information on the cases brought by U.S. claimants against Argentina, go to: https://icsid.worldbank.org/en/Pages/cases/AdvancedSearch.aspx #.
Local courts cannot enforce arbitral awards issued against the government based on the public policy clause. There is no history of extrajudicial action against foreign investors.
Argentina is a member of the United Nations Commission on International Trade Law (UNCITRAL) and the World Bank’s Multilateral Investment Guarantee Agency (MIGA).
Argentina is also a party to several bilateral and multilateral treaties and conventions for the enforcement and recognition of foreign judgments, which provide requirements for the enforcement of foreign judgments in Argentina, including:
Treaty of International Procedural Law, approved in the South-American Congress of Private International Law held in Montevideo in 1898, ratified by Argentina by law No. 3,192.
Treaty of International Procedural Law, approved in the South-American Congress of Private International Law held in Montevideo in 1939-1940, ratified by Dec. Ley 7771/56 (1956).
Panama Convention of 1975, CIDIP I: Inter-American Convention on International Commercial Arbitration, adopted within the Private International Law Conferences – Organization of American States, ratified by law No. 24,322 (1995).
Montevideo Convention of 1979, CIDIP II: Inter-American Convention on Extraterritorial Validity of Foreign Judgments and Arbitral Awards, adopted within the Private International Law Conferences – Organization of American States, ratified by law No. 22,921 (1983).
International Commercial Arbitration and Foreign Courts
Argentina does not have a specific law governing arbitration, but it has adopted a mediation law (Law 24.573/1995), which makes mediation mandatory prior to litigation. Some arbitration provisions are scattered throughout the Civil Code, the National Code of Civil and Commercial Procedure, the Commercial Code, and three other laws. The following methods of concluding an arbitration agreement are non-binding under Argentine law: electronic communication, fax, oral agreement, and conduct on the part of one party. Generally, all commercial matters are subject to arbitration. There are no legal restrictions on the identity and professional qualifications of arbitrators. Parties must be represented in arbitration proceedings in Argentina by attorneys who are licensed to practice locally. The grounds for annulment of arbitration awards are limited to substantial procedural violations, an ultra petita award (award outside the scope of the arbitration agreement), an award rendered after the agreed-upon time limit, and a public order violation that is not yet settled by jurisprudence when related to the merits of the award. On average, it takes around 21 weeks to enforce an arbitration award rendered in Argentina, from filing an application to a writ of execution attaching assets (assuming there is no appeal). It takes roughly 18 weeks to enforce a foreign award. The requirements for the enforcement of foreign judgments are set out in section 517 of the National Procedural Code.
No information is available as to whether the domestic courts frequently rule in cases in favor of state-owned enterprises (SOE) when SOEs are party to a dispute.
Under the law, debtors are generally able to begin insolvency proceedings when they are no longer able to pay their debts as they mature. Debtors may file for both liquidation and reorganization. Creditors may file for insolvency of the debtor for liquidation only. The insolvency framework does not require approval by the creditors for the selection or appointment of the insolvency representative or for the sale of substantial assets of the debtor. The insolvency framework does not provide rights to the creditor to request information from the insolvency representative, but the creditor has the right to object to decisions by the debtor to accept or reject creditors’ claims. Bankruptcy is not criminalized; however, convictions for fraudulent bankruptcy can carry two to six years of prison time.
Financial institutions regulated by the Central Bank of Argentina (BCRA) publish monthly outstanding credit balances of their debtors; the BCRA National Center of Debtors (Central de Deudores) compiles and publishes this information. The database is available for use of financial institutions that comply with legal requirements concerning protection of personal data. The credit monitoring system only includes negative information, and the information remains on file through the person’s life. At least one local NGO that makes microcredit loans is working to make the payment history of these loans publicly accessible for the purpose of demonstrating credit history, including positive information, for those without access to bank accounts and who are outside of the Central Bank’s system. Equifax, which operates under the local name “Veraz” (or “truthfully”), also provides credit information to financial institutions and other clients, such as telecommunications service providers and other retailers that operate monthly billing or credit/layaway programs.
The World Bank’s 2020 Doing Business Report ranked Argentina 111 out of 190 countries for the effectiveness of its insolvency law, remaining unchanged compared to 2019 ranking. The report notes that it takes an average of 2.4 years and 16.5 percent of the estate to resolve bankruptcy in Argentina.
4. Industrial Policies
Government incentives do not make any distinction between foreign and domestic investors.
The Argentine government offers a number of investment promotion programs at the federal, provincial, and municipal levels to attract investment to specific economic sectors such as capital assets and infrastructure, innovation and technological development, and energy, with no discrimination between national or foreign-owned enterprises. Some of the investment promotion programs require investments within a specific region or locality, industry, or economic activity. Some programs offer refunds on Value-Added Tax (VAT) or other tax incentives for local production of capital goods. The Investment and International Trade Promotion Agency provides cost-free assessment and information to investors to facilitate operations in the country. Argentina’s investment promotion programs and regimes can be found at: https://www.inversionycomercio.org.ar/es/inversores, https://www.investargentina.org.ar/, and https://www.argentina.gob.ar/produccion.
The National Fund for the Development of Micro, Small, and Medium Enterprises provides low- cost credit to small and medium-sized enterprises for investment projects, labor, capital, and energy efficiency improvement with no distinction between national or foreign-owned enterprises. More information can be found at: https://www.argentina.gob.ar/produccion/financiamiento
The Ministry of Productive Development supports employment training programs that are frequently free to the participants and do not differentiate based on nationality.
Foreign Trade Zones/Free Ports/Trade Facilitation
Argentina has two types of tax-exempt trading areas: Free Trade Zones (FTZ), which are located throughout the country, and the more comprehensive Special Customs Area (SCA), which covers all of Tierra del Fuego Province and is scheduled to expire at the end of 2023.
Argentine law defines an FTZ as a territory outside the “general customs area” (GCA, i.e., the rest of Argentina) where neither the inflows nor outflows of exported final merchandise are subject to tariffs, non-tariff barriers, or other taxes on goods. Goods produced within a FTZ generally cannot be shipped to the GCA unless they are capital goods not produced in the rest of the country. The labor, sanitary, ecological, safety, criminal, and financial regulations within FTZs are the same as those that prevail in the GCA. Foreign firms receive national treatment in FTZs.
Merchandise shipped from the GCA to a FTZ may receive export incentive benefits, if applicable, only after the goods are exported from the FTZ to a third country destination. Merchandise shipped from the GCA to a FTZ and later exported to another country is not exempt from export taxes. Any value added in an FTZ or re-export from an FTZ is exempt from export taxes. For more information on FTZ in Argentina see: http://www.afip.gob.ar/zonasFrancas/.
Products manufactured in the SCA may enter the GCA free from taxes or tariffs. In addition, the government may enact special regulations that exempt products shipped through the SCA (but not manufactured therein) from all forms of taxation except excise taxes. The SCA program provides benefits for established companies that meet specific production and employment objectives.
Performance and Data Localization Requirements
The Argentine national government does not have local employment mandates nor does it apply such schemes to senior management or boards of directors. However, certain provincial governments do require employers to hire a certain percentage of their workforce from provincial residents. There are no excessively onerous visa, residence, work permit, or similar requirements inhibiting mobility of foreign investors and their employees. Under Argentine law, conditions to invest are equal for national and foreign investors. As of March 2018, citizens of MERCOSUR countries can obtain legal residence within five months and at little cost, which grants permission to work. Argentina suspended its method for expediting this process in early 2018.
Argentina has local content requirements for specific sectors. Requirements are applicable to domestic and foreign investors equally. Argentine law establishes a national preference for local industry for most government procurement if the domestic supplier’s tender is no more than five to seven percent higher than the foreign tender. The amount by which the domestic bid may exceed a foreign bid depends on the size of the domestic company making the bid. In May 2018, Argentina issued Law 27,437, giving additional priority to Argentine small and medium-sized enterprises and, separately, requiring that foreign companies that win a tender must subcontract domestic companies to cover 20 percent of the value of the work. The preference applies to procurement by all government agencies, public utilities, and concessionaires. There is similar legislation at the sub-national (provincial) level.
In November 2016, the government passed a public-private partnership (PPP) law (27,328) that regulates public-private contracts. The law lowered regulatory barriers to foreign investment in public infrastructure projects with the aim of attracting more foreign direct investment. Several projects under the PPP initiative have been canceled or put on hold due to an ongoing investigation on corruption in public works projects during the last administration. The PPP law contains a “Buy Argentina” clause that mandates at least 33 percent local content for every public project.
Argentina is not a signatory to the WTO Agreement on Government Procurement (GPA), but it became an observer to the GPA in February 1997.
In July 2016, the Ministry of Production and Labor and the Ministry of Energy and Mining issued Joint Resolutions 123 and 313, which allow companies to obtain tax benefits on purchases of solar or wind energy equipment for use in investment projects that incorporate at least 60 percent local content in their electromechanical installations. In cases where local supply is insufficient to reach the 60 percent threshold, the threshold can be reduced to 30 percent. The resolutions also provide tax exemptions for imports of capital and intermediate goods that are not locally produced for use in the investment projects.
In 2016, Argentina passed law 27,263, implemented by Resolution 599-E/2016, which provides tax credits to automotive manufacturers for the purchase of locally-produced automotive parts and accessories incorporated into specific types of vehicles. The tax credits range from 4 percent to 15 percent of the value of the purchased parts. The list of vehicle types included in the regime can be found here: http://servicios.infoleg.gob.ar/infolegInternet/anexos/260000-264999/263955/norma.htm. In 2018, Argentina issued Resolution 28/2018, simplifying the procedure for obtaining the tax credits. The resolution also establishes that if the national content drops below the minimum required by the resolution because of relative price changes due to exchange rate fluctuations, automotive manufacturers will not be considered non-compliant with the regime. However, the resolution sets forth that tax benefits will be suspended for the quarter when the drop was registered.
The Media Law, enacted in 2009 and amended in 2015, requires companies to produce advertising and publicity materials locally or to include 60 percent local content. The Media Law also establishes a 70 percent local production content requirement for companies with radio licenses. Additionally, the Media Law requires that 50 percent of the news and 30 percent of the music that is broadcast on the radio be of Argentine origin. In the case of private television operators, at least 60 percent of broadcast content must be of Argentine origin. Of that 60 percent, 30 percent must be local news and 10 to 30 percent must be local independent content.
Argentina establishes percentages of local content in the production process for manufacturers of mobile and cellular radio communication equipment operating in Tierra del Fuego province. Resolution 66/2018 maintains the local content requirement for products such as technical manuals, packaging, and labeling. The percentage of local content required ranges from 10 percent to 100 percent depending on the process or item. In cases where local supply is insufficient to meet local content requirements, companies may apply for an exemption that is subject to review every six months. A detailed description of local content percentage requirements can be found at: http://servicios.infoleg.gob.ar/infolegInternet/verNorma.do;jsessionid=0CA1B74C2D7EC353E66F1CC6CFD8B41D?id=255494.
There are no requirements for foreign IT providers to turn over source code and/or provide access to encryption, nor does the government prevent companies from freely transmitting customer or other business-related data outside the country’s territory.
Argentina does not have forced localization of content in technology or requirements of data storage in country.
There is no discrimination between domestic and foreign investors in investment incentives. There are no performance requirements. A complete guide of incentives for investors in Argentina can be found at: https://www.inversionycomercio.org.ar/es/inversores.
5. Protection of Property Rights
Secured interests in property, including mortgages, are recognized in Argentina. Such interests can be easily and effectively registered. They also can be readily bought and sold. Argentina manages a national registry of real estate ownership (Registro de la Propiedad Inmueble) at http://www.dnrpi.jus.gov.ar/. No data is available on the percent of all land that does not have clear title. There are no specific regulations regarding land lease and acquisition of residential and commercial real estate by foreign investors. Law 26,737 (Regime for Protection of National Domain over Ownership, Possession or Tenure of Rural Land) establishes the restrictions of foreign ownership on rural and productive lands, including water bodies. Foreign ownership is also restricted on land located near borders.
Legal claims may be brought to evict persons unlawfully occupying real property, even if the property is unoccupied by the lawful owner. However, these legal proceedings can be quite lengthy, and until the legal proceedings are complete, evicting squatters is problematic. The title and actual conditions of real property interests under consideration should be carefully reviewed before acquisition.
Argentine Law 26.160 prevents the eviction and confiscation of land traditionally occupied by indigenous communities in Argentina or encumbered with an indigenous land claim. Indigenous land claims can be found in the land registry. Enforcement is carried out by the National Institute of Indigenous Affairs, under the Ministry of Justice and Human Rights.
Intellectual Property Rights
The Government of Argentina adheres to some treaties and international agreements on intellectual property (IP) and belongs to the World Intellectual Property Organization and the World Trade Organization. The Argentine Congress ratified the Uruguay Round agreements, including the provisions on intellectual property, in Law 24425 in 1995.
The U.S. Trade Representative (USTR) 2021 Special 301 Report listed Argentina on the Priority Watch List. Trading partners on the Priority Watch List present the most significant concerns regarding inadequate or ineffective IP protection or enforcement or actions that otherwise limit market access for persons relying on IP protection. For a complete version of the 2020 Report, see: https://ustr.gov/sites/default/files/2020_Special_301_Report.pdf.
Argentina continues to present long-standing and well-known challenges to intellectual property (IP)-intensive industries, including those from the United States. A key deficiency in the legal framework for patents is the unduly broad limitations on patent eligible subject matter. Pursuant to a highly problematic 2012 Joint Resolution establishing guidelines for the examination of patents, Argentina rejects patent applications for categories of pharmaceutical inventions that are eligible for patentability in other jurisdictions, including in the United States. Additionally, to be patentable, Argentina requires that processes for the manufacture of active compounds disclosed in a specification be reproducible and applicable on an industrial scale. Stakeholders assert that Resolution 283/2015, introduced in September 2015, also limits the ability to patent biotechnological innovations based on living matter and natural substances. These measures have interfered with the ability of companies investing in Argentina to protect their IP and may be inconsistent with international norms.
Another ongoing challenge to the innovative agricultural chemical and pharmaceutical sectors is inadequate protection against the unfair commercial use, as well as unauthorized disclosure, of undisclosed test or other data generated to obtain marketing approval for products in those sectors. Finally, Argentina struggles with a substantial backlog of patent applications resulting in long delays for innovators seeking patent protection in the market. Government-wide hiring restrictions that remain in place, going back to a hiring freeze in 2018, have resulted in a limited number of patent examiners. Argentina did not extend the Patent Prosecution Highway signed between the National Institute of Industrial Property’s (INPI) and the U.S. Patent and Trademark Office, which expired in March 2020.
Enforcement of IP rights in Argentina continues to be a challenge, and stakeholders report widespread unfair competition from sellers of counterfeit and pirated goods and services. La Salada in Buenos Aires remains the largest counterfeit market in Latin America and is cited in USTR’s 2020 Review of Notorious Markets for Piracy and Counterfeiting. Argentine police generally do not take ex officio actions, prosecutions can stall and languish in excessive formalities, and, when a criminal case does reach final judgment, criminal infringers rarely receive deterrent sentences. Hard goods counterfeiting and optical disc piracy are widespread, and online piracy continues to grow due to nearly nonexistent criminal enforcement against such piracy. As a result, IP enforcement online in Argentina consists mainly of right holders trying to convince Argentine internet service providers to agree to take down specific infringing works, as well as attempting to seek injunctions in civil cases, both of which can be time-consuming and ineffective. Right holders also cite widespread use of unlicensed software by Argentine private enterprises and the government.
Argentina made limited progress in IP protection and enforcement in a year marked by a severe economic recession aggravated by the consequences of the confinement measures taken to mitigate the COVID-19 pandemic. The pressing economic situation led to an increase of counterfeit products sales in informal markets once the confinement measures were relaxed in the second semester of 2020. Online sales of counterfeit products, especially apparel and footwear spiked amidst the pandemic. The Argentine Confederation of Small and Medium-Sized Enterprises noted an increase of national production of counterfeit sportswear. Flight and border crossing restrictions applied during the COVID-19 health emergency prevented purchases of counterfeit products from China, Paraguay and Bolivia.
INPI began accepting electronic filing of patent, trademark, and industrial designs applications in 2018. During 2020, the agency successfully transitioned to an all-electronic filing system. Argentina continued to improve procedures for trademarks, with INPI reducing the time for a trademark opposition from an average of 3.5 years to one year. On trademarks, the law provides for a fast-track option that reduces the time to register a trademark to four months.
Argentina formally created the Federal Committee to Fight Against Contraband, Falsification of Trademarks, and Designations, formalizing the work on trademark counterfeiting under the National Anti-Piracy Initiative launched in 2017. In November 2020, Argentina and the United States held a virtual bilateral meeting under the Innovation and Creativity Forum for Economic Development, part of the U.S.-Argentina Trade and Investment Framework Agreement, to continue discussions and collaboration on IP topics of mutual interest. The United States intends to monitor all the outstanding issues for progress and urges Argentina to continue its efforts to create a more attractive environment for investment and innovation.
The Argentine Constitution sets as a general principle that foreign investors have the same status and the same rights as local investors. Foreign investors have free access to domestic and international financing.
Argentina’s economic recession began in 2018 and deepened further in 2019 after the presidential primary election. To slow the outflow of dollars from its reserves, in September 2019 the Argentine Central Bank introduced tight capital controls prohibiting transfers and payments that are likely in conflict with IMF Article VIII and tightened them thereafter. The Argentine government also implemented price controls and trade restrictions. In December 2019, the Fernandez administration passed an economic emergency law that created new taxes, increased export duties, and delegated broad powers to the Executive Branch, with the objectives of increasing social spending for the most vulnerable populations and negotiating revised terms for Argentina’s sovereign debt. These measures deteriorated the investment climate for local and foreign investors.
In April 2020, the government issued a decree postponing debt payments (both interest and principal) of dollar-denominated debt issued under local law until December 31, 2020. In May 2020, Argentina recorded its ninth sovereign default.
The government of Argentina restructured international law bonds for $65 billion and domestic law bonds for $42 billion in September 2020 bringing financial relief of $37.7 billion over the period 2020-2030. In August 2020, the government of Argentina formally notified the International Monetary Fund (IMF) of its intent to renegotiate $45 billion due to the Fund from the 2018 Stand-By Arrangement starting in 2021.
The Argentine Securities and Exchange Commission (CNV or Comisión Nacional de Valores) is the federal agency that regulates securities markets offerings. Securities and accounting standards are transparent and consistent with international norms. Foreign investors have access to a variety of options on the local market to obtain credit. Nevertheless, the domestic credit market is small – credit is 16 percent of GDP, according to the World Bank. To mitigate the recessionary impact of the COVID-19 crisis, the government introduced low-cost lending credit lines (carrying negative real interest rates), and the Central Bank reduced banks’ minimum reserve requirements to encourage banks to expand credit, particularly to SMEs. The Buenos Aires Stock Exchange is the organization responsible for the operation of Argentina’s primary stock exchange, located in Buenos Aires city. The most important index of the Buenos Aires Stock Exchange is the MERVAL (Mercado de Valores).
U.S. banks, securities firms, and investment funds are well-represented in Argentina and are dynamic players in local capital markets. In 2003, the government began requiring foreign banks to disclose to the public the nature and extent to which their foreign parent banks guarantee their branches or subsidiaries in Argentina.
Money and Banking System
Argentina has a relatively sound banking sector based on diversified revenues, well-contained operating costs, and a high liquidity level. Argentina’s banking sector has been resilient in the face of a multi-year economic contraction. Supported by government measures during the COVID-19 pandemic, credit to the private sector in local currency (for both corporations and individuals) increased 10 percent in real terms in 2020. Non-performing private sector loans constitute less than four percent of banks’ portfolios. However, the performance of the financial system has largely been driven by a series of temporary counter-cyclical measures, namely subsidized government-backed loans for small businesses. The banking sector is well positioned due to macro and micro-prudential policies introduced since 2002 that have helped to reduce asset-liability mismatches. The sector is highly liquid and its exposure to the public sector is modest, while its provisions for bad debts are adequate.
Private banks have total assets of approximately ARS 6.1 billion (USD $65 billion). Total financial system assets are approximately ARS 9.9 billion (USD $105 billion). The Central Bank of Argentina acts as the country’s financial agent and is the main regulatory body for the banking system.
Foreign banks and branches can establish operations in Argentina. They are subject to the same regulation as local banks. Argentina’s Central Bank has many correspondent banking relationships, none of which are known to have been lost in the past three years.
In November 2020, the Central Bank launched a new payment system, “Transfers 3.0,” seeking to reduce the use of cash. This system will boost digital payments and further financial inclusion in Argentina, expanding the reach of instant transfers to build an open and universal digital payment ecosystem.
The Central Bank has enacted a resolution recognizing cryptocurrencies and requiring that they comply with local banking and tax laws. No implementing regulations have been adopted. Block chain developers report that several companies in the financial services sector are exploring or considering using block chain-based programs externally and are using some such programs internally.
Foreign Exchange and Remittances
Beginning in September 2019 and throughout 2020, the Argentine government and Central Bank issued a series of decrees and norms regulating and restricting access to foreign exchange markets.
As of October 2019, the Central Bank (Notice A6815) limits cash withdrawals made abroad with local debit cards to foreign currency bank accounts owned by the client in Argentina. Pursuant to Notice A6823, cash advances made abroad from local credit cards are limited to a maximum of USD $50 per transaction.
As of September 2020, and pursuant to Notice A7106, Argentine individuals can purchase no more than USD $200 per month on a rolling monthly basis. However, purchases abroad with credit and debit cards will be deducted from the USD $200 per month quota. While no limit on credit/debit card purchases is imposed, if the monthly expenses surpass the USD $200 limit, the deduction will be carried over to subsequent months until the amount acquired is completed. Also, the regulation prohibits individual recipients of government assistance programs and high-ranking federal government officials from purchasing foreign exchange. Purchases above the USD $200 limit require Central Bank approval. Pursuant to Public Emergency Law 27,541, issued December 23, 2019, all dollar purchases and individual expenses incurred abroad, in person or online, including international online purchases from Argentina, paid with credit or debit cards will be subject to a 30 percent tax. Pursuant to AFIP Resolution 4815 a 35 percent withholding tax in advance of the payment of income and/or wealth tax is also applied.
Non-Argentine residents are required to obtain prior Central Bank approval to purchase more than USD $100 per month, except for certain bilateral or international organizations, institutions and agencies, diplomatic representation, and foreign tribunals.
Companies and individuals need to obtain prior clearance from the Central Bank before transferring funds abroad. In the case of individuals, if transfers are made from their own foreign currency accounts in Argentina to their own accounts abroad, they do not need to obtain Central Bank approval.
Per Notice A6869 issued by the Central Bank in January 2020, companies will be able to repatriate dividends without Central Bank authorization equivalent to a maximum of 30 percent of new foreign direct investment made by the company in the country. To promote foreign direct investment the Central Bank announced in October 2020 (Notice A7123) that it will allow free access to the official foreign exchange market to repatriate investments as long as the capital contribution was transferred and sold in Argentine Pesos through the foreign exchange market as of October 2, 2020 and the repatriation takes place at least two years after the transfer and settlement of those funds.
Exporters of goods are required to transfer the proceeds from exports to Argentina and settle in pesos in the foreign currency market. Exporters must settle according to the following terms: exporters with affiliates (irrespective of the type of good exported) and exporters of certain goods (including cereals, seeds, minerals, and precious metals, among others) must convert their foreign currency proceeds to pesos within 15 days (or 30 days for some products) after the issuance of the permit for shipment; other exporters have 180 days to settle in pesos. Despite these deadlines, exporters must transfer the funds to Argentina and settle in pesos within five business days from the actual collection of funds. Argentine residents are required to transfer to Argentina and settle in pesos the proceeds from services exports rendered to non-Argentine residents that are paid in foreign currency either in Argentina or abroad, within five business days from collection of funds.
Payment of imports of goods and services from third parties and affiliates require Central Bank approval if the company needs to purchase foreign currency. Since May 2020, the Central Bank requires importers to submit an affidavit stating that the total amount of payments associated with the import of goods made during the year (including the payment that is being requested). The total amount of payments for importation of goods should also include the payments for amortizations of lines of credit and/or commercial guarantees.
In September 2020, the Central Bank limited companies’ ability to purchase foreign currency to cancel any external financial debt (including other intercompany debt) and dollar denominated local securities offerings. Companies were granted access to foreign currency for up to 40 percent of the principal amount coming due from October 15, 2020 to December 31, 2020. For the remaining 60 percent of the debt, companies had to file a refinancing plan with the Central Bank. In February 2021, the Central Bank extended the regulation to include debt maturing up to December 31, 2021. Indebtedness with international organizations or their associated agencies or guaranteed by them and indebtedness granted by official credit agencies or guaranteed by them are exempted from this restriction.
The Central Bank (Notice A7001) prohibited access to the foreign exchange market to pay for external indebtedness, imports of goods and services, and saving purposes for individuals and companies that have made sales of securities with settlement in foreign currency or transfers of these to foreign depositary entities within the last 90 days. They also should not make any of these transactions for the following 90 days.
Pre-cancellation of debt coming due abroad in more than three business days requires Central Bank approval to purchase dollars.
Per Resolution 36,162 of October 2011, locally registered insurance companies are mandated to maintain all investments and cash equivalents in the country. The Central Bank limits banks’ dollar-denominated asset holdings to 5 percent of their net worth.
In January 2020, the Central Bank presented its monetary policy framework showing that monetary and financial policies will be subject to the government’s objective of addressing current social and economic challenges. In particular, the Central Bank acknowledged that it would continue to provide direct financial support to the government (in foreign and domestic currency) as external credit markets remain closed. The Central Bank determined that a managed exchange rate is a valid instrument to avoid sharp fluctuations in relative prices, international competitiveness, and income distribution. The Central Bank also noted the exchange rate policy should also facilitate the preemptive accumulation of international reserves.
In response to the economic crisis in Argentina, the government introduced capital controls in September 2019 and tightened them in 2020. Under these restrictions, companies in Argentina (including local affiliates of foreign parent companies) must obtain prior approval from the Central Bank to access the foreign exchange market to purchase foreign currency and to transfer funds abroad for the payment of dividends and profits. In January 2020, the Central Bank amended the regime for the payment of dividends abroad to non-residents. The new regime allows companies to access the foreign exchange market to transfer profits and dividends abroad without prior authorization of the Central Bank, provided the following conditions are met:
Profits and dividends are be declared in closed and audited financial statements.
The dividends in foreign currency should not exceed the dividends determined by the shareholders’ meeting in local currency.
The total amount of dividends to be transferred cannot exceed 30 percent of the amount of new capital contributions made by non-residents into local companies since January 2020.
The resident entity must be in compliance with filing the Central Bank Survey of External Assets and Liabilities.
Sovereign Wealth Funds
The Argentine government does not maintain a Sovereign Wealth Fund.
7. State-Owned Enterprises
The Argentine government has state-owned enterprises (SOEs) or significant stakes in mixed-capital companies in the following sectors: civil commercial aviation, water and sanitation, oil and gas, electricity generation, transport, paper production, satellite, banking, railway, shipyard, and aircraft ground handling services.
Through the government’s social security agency (ANSES), the Argentine government owns stakes ranging from one to 31 percent in 46 publicly listed companies. U.S. investors also own shares in some of these companies. As part of the ANSES takeover of Argentina’s private pension system in 2008, the government agreed to commit itself to being a passive investor in the companies and limit the exercise of its voting rights to 5 percent, regardless of the equity stake the social security agency owned. A list of such enterprises can be found at: http://fgs.anses.gob.ar/participacion.
State-owned enterprises purchase and supply goods and services from the private sector and foreign firms. Private enterprises may compete with SOEs under the same terms and conditions with respect to market share, products/services, and incentives. Private enterprises also have access to financing terms and conditions similar to SOEs. SOEs are subject to the same tax burden and tax rebate policies as their private sector competitors. SOEs are not currently subject to firm budget constraints under the law and have been subsidized by the central government in the past. Between 2016 and 2019, the Government of Argentina reduced subsidies in the energy, water, and transportation sectors. However, in 2019 the Government postponed its subsidy reduction program and redesigned it several times, citing pressing macroeconomic issues. During 2020 subsidies increased to maintain a tariff freeze on public services given the COVID-19 pandemic. The 2021 budget targets a reduction in subsidies in an effort to contain spending. Argentina does not have regulations that differentiate treatment of SOEs and private enterprises. Argentina has observer status under the WTO Agreement on Government Procurement and, as such, SOEs are subject to the conditions of Argentina’s observance.
Argentina does not have a specified ownership policy, guideline or governance code for how the government exercises ownership of SOEs. The country generally adheres to the OECD Guidelines on Corporate Governance of SOEs. The practices for SOEs are mainly in compliance with the policies and practices for transparency and accountability in the OECD Guidelines. In 2018, the OECD released a report evaluating the corporate governance framework for the Argentine SOE sector relative to the OECD Guidelines, which can be viewed here: http://www.oecd.org/countries/argentina/oecd-review-corporate-governance-soe-argentina.htm.
Argentina does not have a centralized ownership entity that exercises ownership rights for each of the SOEs. The general rule in Argentina is that requirements that apply to all listed companies also apply to publicly-listed SOEs.
The current administration has not developed a privatization program.
8. Responsible Business Conduct
There is an increasing awareness of corporate social responsibility (CSR) and responsible business conduct (RBC) among both producers and consumers in Argentina. RBC and CSR practices are welcomed by beneficiary communities throughout Argentina. There are many institutes that promote RBC and CSR in Argentina, the most prominent being the Argentine Institute for Business Social Responsibility (http://www.iarse.org/ ), which has been working in the country for more than 18 years and includes among its members many of the most important companies in Argentina.
Argentina is a member of the United Nation’s Global Compact. Established in April 2004, the Global Compact Network Argentina is a business-led network with a multi-stakeholder governing body elected for two-year terms by active participants. The network is supported by the United Nations Development Program (UNDP) Argentina in close collaboration with other UN Agencies. The Global Compact Network Argentina is the most important RBC/CSR initiative in the country with a presence in more than 20 provinces. More information on the initiative can be found at: http://pactoglobal.org.ar .
Foreign and local enterprises tend to follow generally accepted CSR/RBC principles. Argentina subscribed to the Declaration on the OECD Guidelines for Multinational Enterprises in April 1997.
Many provinces, such as Mendoza and Neuquén, have or are in the process of enacting a provincial CSR/RBC law. There have been many previously unsuccessful attempts to pass a CSR/RBC law. Distrust over the State’s role in private companies had been the main concern for legislators opposed to these bills.
Argentina’s legal system incorporates several measures to address public sector corruption. The foundational law is the 1999 Public Ethics Law (Law 25,188), the full text of which can be found at: http://servicios.infoleg.gob.ar/infolegInternet/verNorma.do?id=60847. A March 2019 report by the OECD’s Directorate for Public Governance underscored, however, that the law is heterogeneously implemented across branches of the government and that the legislative branch has not designated an application authority, approved an implementing regulation, or specified sanctions. It also noted that Argentina has a regulation on lobbying, but that it only applies to the executive branch, and only requires officials to disclose meetings with lobbyists. With regards to political parties, the report noted anonymous campaign donations are banned, but 90 percent of all donations in Argentina are made in cash, making it impossible to identify donors. Furthermore, the existing regulations have insufficient controls and sanctions, and leave gaps with provincial regulations that could be exploited.
Within the executive branch, the government institutions tasked with combatting corruption include the Anti-Corruption Office (ACO), the National Auditor General, and the General Comptroller’s Office. Public officials are subject to financial disclosure laws, and the Ministry of Justice’s ACO is responsible for analyzing and investigating federal executive branch officials based on their financial disclosure forms—which require the disclosure of assets directly owned by immediate family members. The ACO is also responsible for investigating corruption within the federal executive branch or in matters involving federal funds, except for funds transferred to the provinces. While the ACO does not have authority to independently prosecute cases, it can refer cases to other agencies or serve as the plaintiff and request that a judge initiate a case.
Argentina enacted a new Corporate Criminal Liability Law in November 2017 following the advice of the OECD to comply with its Anti-Bribery Convention. The full text of Law 27,401 can be found at: http://servicios.infoleg.gob.ar/infolegInternet/anexos/295000-299999/296846/norma.htm . The new law entered into force in early 2018. It extends anti-bribery criminal sanctions to corporations, whereas previously they only applied to individuals; expands the definition of prohibited conduct, including illegal enrichment of public officials; and allows Argentina to hold Argentines responsible for foreign bribery. Sanctions include fines and blacklisting from public contracts. Argentina also enacted an express prohibition on the tax deductibility of bribes.
Official corruption remains a serious challenge in Argentina. In its March 2017 report, the OECD expressed concern about Argentina’s enforcement of foreign bribery laws, inefficiencies in the judicial system, politicization and perceived lack of independence at the Attorney General’s Office, and lack of training and awareness for judges and prosecutors. According to the World Bank’s worldwide governance indicators, corruption remains an area of concern in Argentina. In the latest Transparency International Corruption Perceptions Index (CPI), Argentina ranked 78 out of 180 countries in 2020, dropping 12 places compared to 2019. Allegations of corruption in provincial as well as federal courts remained frequent. Few Argentine companies have implemented anti-foreign bribery measures beyond limited codes of ethics.
In September 2016, Congress passed a law on public access to information. The law explicitly applies to all three branches of the federal government, the public justice offices, and entities such as businesses, political parties, universities, and trade associations that receive public funding. It requires these institutions to respond to citizen requests for public information within 15 days, with an additional 15-day extension available for “exceptional” circumstances. Sanctions apply for noncompliance. As mandated by the law, the executive branch created the Agency for Access to Public Information in 2017, an autonomous office that oversees access to information. In early 2016, the Argentine government reaffirmed its commitment to the Open Government Partnership (OGP), became a founding member of the Global Anti-Corruption Coalition, and reengaged the OECD Working Group on Bribery.
Argentina is a party to the Organization of American States’ Inter-American Convention against Corruption. It ratified in 2001 the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (Anti-Bribery Convention). Argentina also signed and ratified the UN Convention against Corruption (UNCAC) and participates in UNCAC’s Conference of State Parties. Argentina also participates in the Mechanism for Follow-up on the Implementation of the Inter-American Convention against Corruption (MESICIC).
Since Argentina became a party to the OECD Anti-Bribery Convention, allegations of Argentine individuals or companies bribing foreign officials have surfaced. A March 2017 report by the OECD Working Group on Bribery indicated there were 13 known foreign bribery allegations involving Argentine companies and individuals as of that date. According to the report, Argentine authorities investigated and closed some of the allegations and declined to investigate others. The authorities determined some allegations did not involve foreign bribery but rather other offenses. Several such allegations remained under investigation.
Demonstrations are common in metropolitan Buenos Aires and in other major cities and rural areas. Nevertheless, political violence is not widely considered a hindrance to the investment climate in Argentina.
Protesters regularly block streets, highways, and major intersections, causing traffic jams and delaying travel. While demonstrations are usually non-violent, individuals sometimes seek confrontation with the police and vandalize private property. Groups occasionally protest in front of the U.S. Embassy or U.S.-affiliated businesses. In February 2016, the Ministry of Security approved a National Anti-Street Pickets Protocol that provides guidelines to prevent the blockage of major streets and public facilities during demonstrations. However, this protocol did not often apply to venues within the City of Buenos Aires (CABA), which fall under the city’s jurisdiction. The CABA government often did not enforce security protocols against illegal demonstrations.
In December 2017, while Congress had called an extraordinary session to address the retirement system reforms, several demonstrations against the bill turned violent, causing structural damage to public and private property, injuries to 162 people (including 88 policemen), and arrests of 60 people. The demonstrations ultimately dissipated, and the government passed the bill.
Union disputes and politicized worker movements are common in CABA and the Provinces. In 2019 and early 2020, foreign-owned diamond mining companies in Neuquén were targeted by work stoppages and insider attacks in failed attempts to intimidate and force employers to increase salaries and benefits. These protesters were seemingly allowed to act without fear of response from local police forces, even after direct requests for assistance had been made. The companies believe the unions and protesters feel emboldened by the government’s stance towards Western companies and were forced to shut down operations for weeks in December 2019 and January 2020, in fear of the safety of their personnel at the local headquarters.
11. Labor Policies and Practices
Argentine workers are among the most highly-educated and skilled in Latin America. Foreign investors often cite Argentina’s skilled workforce as a key factor in their decision to invest in Argentina. Argentina has relatively high social security, health, and other labor taxes, however, high labor costs are among foreign investors’ most often cited operational challenges. The unemployment rate reached 11 percent in 2020, according to official statistics. The government estimated unemployment for workers below 29 years old as more than double the national rate. Exacerbated by the COVID-19 pandemic, analysts estimate informality stands between 20 to 40 percent.
During 2020, the Argentine government implemented measures to alleviate the impact of the COVID-19 pandemic on the economy and employment. The government introduced measures to stimulate the economy and employment through public works and price limits; to protect workers in the workplace by promoting telework and offering leave for workers; and to support jobs and worker income by prohibiting employers from terminating employment. The government also facilitated social dialogue between the private sector and unions. The government has postponed implementation of Argentina’s ambitious Teleworking Contracts Regime, Law 27555, passed by Congress on July 30, 2020 and ratified by President Fernandez on August 14, 2020. This law provides the legal framework for teleworking in employment settings that allow it. However, it is so restrictive that many businesses have said that it deters telework.
Labor laws are comparatively protective of workers in Argentina, and investors cite labor-related litigation as an important factor increasing labor costs in Argentina. For example, one of the first measures passed by President Fernandez after he took office was Decree 34/2019 which established that employees dismissed without cause have the right to double the legal severance payment, the measure was extended until December 31, 2021 through Decree 39/2021. There are no special laws or exemptions from regular labor laws in the Foreign Trade Zones. Organized labor plays an important role in labor-management relations and in Argentine politics. Under Argentine law, the Ministry of Labor recognizes one union per sector per geographic unit (e.g., nationwide, a single province, or a major city) with the right to negotiate a collective bargaining agreement for that sector and geographic area. Roughly 40 percent of Argentina’s formal workforce is unionized. The Ministry of Labor ratifies collective bargaining agreements. Collective bargaining agreements cover workers in a given sector and geographic area whether they are union members or not, so roughly 70 percent of the workforce was covered by an agreement. While negotiations between unions and industry are generally independent, the Ministry of Labor often serves as a mediator. Argentine law also offers recourse to mediation and arbitration of labor disputes.
During 2020, the Ministry of Labor registered 840 labor and collective bargaining agreements. These agreements covered approximately 5.1 million workers. As a result of the COVID-19 pandemic, a large number of the agreements focused on the inability of workers to come to their workplace due to social distancing measures and the inability of employers to terminate employment during the crisis.
Tensions between management and unions occur. Many managers of foreign companies say they have good relations with their unions. Others say the challenges posed by strong unions can hinder further investment by their international headquarters. Depending on how sectors are defined, some activities such as oil and gas production or aviation involve multiple unions, which can lead to inter-union power disputes that can impede the companies’ operations.
The Fernandez government does not intend to pursue a broad labor reform bill, preferring instead to allow firms and workers to negotiate any adjustments to labor conditions through the collective bargaining process. The Ministry of Labor has indicated interest in proposing a “gig economy” bill (ley de plataformas) that would extend basic labor rights to, e.g., delivery workers coordinated through information technology applications. Labor-related demonstrations in Argentina occurred periodically in 2019, due to the pandemic, most Argentines’ outside activities were limited throughout 2020 which also limited demonstrations. Reasons for strikes include job losses, high taxes, loss of purchasing power, and wage negotiations. Labor demonstrations may involve tens of thousands of protestors. Past demonstrations have essentially closed sections of a city for a few hours or impeded traffic.
The Ministry of Labor has hotlines and an online website to report labor abuses, including child labor, forced labor, and labor trafficking. The Superintendent of Labor Risk (Superintendencia de Riesgos del Trabajo) has oversight of health and safety standards. Unions also play a key role in monitoring labor conditions, reporting abuses and filing complaints with the authorities. Argentina has a Service of Mandatory Labor Conciliation (SECLO), which falls within the Ministry of Labor. Provincial governments and the city government of Buenos Aires are also responsible for labor law enforcement.
The minimum age for employment is 16. Children between the ages of 16 and 18 may work in a limited number of job categories and for limited hours if they have completed compulsory schooling, which normally ends at age 18. The law requires employers to provide adequate care for workers’ children during work hours to discourage child labor. The Department of Labor’s 2019 Worst Form of Child Labor for Argentina can be accessed here: https://www.dol.gov/agencies/ilab/resources/reports/child-labor/argentina
Argentine law prohibits discrimination on the grounds of sex, race, nationality, religion, political opinion, union affiliation, or age. The law also prohibits employers, either during recruitment or time of employment, from asking about a worker’s political, religious, labor, and cultural views or sexual orientation. These national anti-discrimination laws also apply to labor relations and other social relations.
Argentina has been a member of the International Labor Organization since 1919.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source*
USG or international statistical source
USG or International Source of Data: BEA; IMF; Eurostat; UNCTAD, Other
Host Country Gross Domestic Product (GDP) ($M USD)
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment
Outward Direct Investment
“0” reflects amounts rounded to +/- USD 500,000.
Table 4: Sources of Portfolio Investment
Portfolio Investment Assets
Top Five Partners (Millions, current US Dollars)
Total Debt Securities
14. Contact for More Information
U.S. Embassy Buenos Aires
Avenida Colombia 4300
Buenos Aires, Argentina
Since its independence in 1991, Kazakhstan has made significant progress toward creating a market economy and has attracted significant foreign investment given abundant mineral, petroleum, and natural gas resources. As of January 1, 2021, the stock of foreign direct investment in Kazakhstan totaled USD 166.4 billion, including USD 38 billion from the United States, according to official statistics from the Kazakhstani central bank.
While Kazakhstan’s vast hydrocarbon and mineral reserves remain the backbone of the economy, the government continues to make incremental progress toward diversification. Kazakhstan’s efforts to remove bureaucratic barriers have been moderately successful, and in 2020 Kazakhstan ranked 25 out of 190 in the World Bank’s annual Doing BusinessReport. The government maintains an active dialogue with foreign investors through the President’s Foreign Investors Council and the Prime Minister’s Council for Improvement of the Investment Climate. Kazakhstan joined the World Trade Organization (WTO) in 2015. In September 2020, President Tokayev announced a New Economic Course – a reform agenda that, if implemented, aims to improve the investment climate.
Despite institutional and legal reforms, concerns remain about corruption, bureaucracy, arbitrary law enforcement, and limited access to a skilled workforce in certain regions. The government’s tendency to increase its regulatory role in relations with investors, to favor an import-substitution policy, to challenge the use of foreign labor, and to intervene in companies’ operations, continues to concern foreign investors. Foreign firms cite the need for better rule-of-law, deeper investment in human capital, improved transport and logistics infrastructure, a more open and flexible trade policy, a more favorable work-permit regime, and a more customer-friendly tax administration.
In July 2018, the government of Kazakhstan officially opened the Astana International Financial Center (AIFC), an ambitious project modelled on the Dubai International Financial Center, which aims to offer foreign investors an alternative jurisdiction for operations, with tax holidays, flexible labor rules, a Common Law-based legal system, a separate court and arbitration center, and flexibility to carry out transactions in any currency. Since 2019 the government has pursued a policy of using the AIFC as a regional investment hub to attract foreign investment to Kazakhstan. The government has recommended foreign investors use the law of the AIFC as applicable law for contracts with Kazakhstan. . In January 2021 the AIFC on behalf of Kazakhstan joined the Central Asia Investment Partnership initiated by the U.S. International Development Finance Corporation (DFC).
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Toward FDI
Kazakhstan has attracted significant foreign investment since independence. As of January 1, 2021, the total stock of foreign direct investment (by the directional principle) in Kazakhstan totaled USD 166.4 billion, primarily in the oil and gas sector. International financial institutions consider Kazakhstan to be a relatively attractive destination for their operations, and international firms have established regional headquarters in Kazakhstan.
In 2017, Kazakhstan adhered to the OECD Declaration on International Investment and Multinational Enterprises, meaning it committed to certain investment standards, including the promotion of responsible business conduct..
In its Strategic Plan of Development to 2025, the government stated that bringing up the living standards of Kazakhstan’s citizens to the level of OECD countries is one of its strategic goals.
In addition to earlier approved program documents, the President adopted a National Development Plan to 2025 in February 2021. The Plan outlines objectives and parameters of a New Economic Course announced by President Tokayev in September 2020. The Course included seven priorities: a fair distribution of benefits and responsibilities, the leading role of private entrepreneurship, fair competition, productivity growth and the development of a more technologically advanced economy, human capital development, development of a green economy, and state accountability to the society. A favorable investment climate is a part of this course. To implement his program, the President established the Supreme Council for Reforms and the Agency for Strategic Planning and Reforms. The President chairs the Supreme Council for Reforms, while Sir Suma Chakrabarti, a former President of the European Bank for Reconstruction and Development will serve as Deputy Chairman.
In January 2021, the Prime Minister announced the government’s commitment to increase the share of annual FDI in GDP from 13.2 percent of GDP in 2018 to 19 percent of GDP in 2022.
The government of Kazakhstan has incrementally improved the business climate for foreign investors. Corruption, lack of rule of law and excessive bureaucracy, however, do remain serious obstacles to foreign investment.
Over the last few years, the government has undertaken a number of structural changes aimed at improving how the government attracts foreign investment. In April 2019, the Prime Minister created the Coordination Council for Attracting Foreign Investment. The Prime Minister acts as the Chair and Investment Ombudsman. In December 2018, the Investment Committee was transferred to the supervision of the Ministry of Foreign Affairs, which took charge of attracting and facilitating the activities of foreign investors. In January 2021, the Minister of Foreign Affairs received an additional title of Deputy Prime Minister due to the expanded portfolio of the Ministry. The Investment Committee at the Ministry of Foreign Affairs takes responsibility for investment climate policy issues and works with potential and current investors, while the Ministry of National Economy and the Ministry of Trade and Integration interact on investment climate matters with international organizations like the OECD, WTO, and the United Nations Conference on Trade and Development (UNCTAD). Each regional municipality designates a representative to work with investors. Specially designated front offices in Kazakhstan’s overseas embassies promote Kazakhstan as a destination for foreign investment. In addition, the Astana International Financial Center (AIFC, ) operates as a regional investment hub regarding tax, legal, and other benefits. In 2019, the government founded Kazakhstan’s Direct Investment Fund which became resident at the AIFC and aims to attract private investments for diversifying Kazakhstan’s economy. The state company KazakhInvest, located in this hub, offers investors a single window for government services.
In 2020-2021, the government attempted to improve the regulatory and institutional environment for investors. However, these changes have sometimes been associated with an over-structured system of preferences and an enhanced government role. For example, in January 2021 the Foreign Minister suggested for consideration establishment of an additional group, the Investment Command Staff (ICS) that would make decisions on granting special conditions and extending preferences for investors signing investment agreements. This Investment Command Staff is expected to consider project proposals after their verification by KazakhInvest and the Astana International Financial Center. The government maintains its dialogue with foreign investors through the Foreign Investors’ Council chaired by the President, as well as through the Council for Improving the Investment Climate chaired by the Prime Minister.
The COVID-19 pandemic and unprecedented low oil prices caused the government to amend the country’s mid-term economic development plans. In March 2020, the government approved a stimulus package of $13.7 billion, mostly oriented at maintaining the income of the population, supporting local businesses, and implementing an import-substitution policy.
Limits on Foreign Control and Right to Private Ownership and Establishment
By law, foreign and domestic private firms may establish and own certain business enterprises. While no sectors of the economy are completely closed to foreign investors, restrictions on foreign ownership exist, including a 20 percent ceiling on foreign ownership of media outlets, a 49 percent limit on domestic and international air transportation services, and a 49 percent limit on telecommunication services. Article 16 in the December 2017 Code on Subsoil and Subsoil Use (the Code) mandates that share of the national company KazAtomProm be no less than 50% in new uranium producing joint ventures.
As a result of its WTO accession, Kazakhstan formally removed the limits on foreign ownership for telecommunication companies, except for the country’s main telecommunications operator, KazakhTeleCom. Still, to acquire more than 49 percent of shares in a telecommunication company, foreign investors must obtain a government waiver. No constraints limit the participation of foreign capital in the banking and insurance sectors. Starting in December 2020, the restriction on opening branches of foreign banks and insurance companies was lifted in compliance with the country’s OECD commitments. However, the law limits the participation of offshore companies in banks and insurance companies and prohibits foreign ownership of pension funds and agricultural land. In addition, foreign citizens and companies are restricted from participating in private security businesses.
Foreign investors have complained about the irregular application of laws and regulations and interpret such behavior as efforts to extract bribes. The enforcement process, widely viewed as opaque and arbitrary, is not publicly transparent. Some investors report harassment by the tax authorities via unannounced audits, inspections, and other methods. The authorities have used criminal charges in civil litigation as pressure tactics.
Foreign Investment in the Energy & Mining Industries
Despite substantial investment in Kazakhstan’s energy sector, companies remain concerned about the risk of the government legislating or otherwise advocating for preferences for domestic companies and creating mechanisms for government intervention in foreign companies’ operations, particularly in procurement decisions. In 2020, developments ranged from a major reduction to a full annulment of work permits for some categories of foreign workforce (see Performance and Data Localization Requirements.) During a March 2021 virtual meeting with international oil companies, Kazakhstan’s President urged the government to ensure legal protection and stability of investments and investment preferences. He also tasked the recently established Front Office for Investors to address investor challenges and bring them to the attention of the Prime Minister’s Council. Moreover, Kazakhstan supported the request of oil companies to remove a discriminatory approach to fines imposed on them for gas flaring. Under the current legislation, oil companies pay gas flaring fines several times higher than those paid by other non-oil companies.
In April 2008, Kazakhstan introduced a customs duty on crude oil and gas condensate exports, this revenue goes to the government’s budget and does not reach the National Fund. The National Fund is financed by direct taxes paid by petroleum industry companies, other fees paid by the oil industry, revenues from privatization of mining and manufacturing assets, and from disposal of agricultural land. The customs duty on crude oil and gas condensate exports is an indirect tax that goes to the government’s budget. Companies that pay taxes on mineral and crude oil exports are exempt from that export duty. The government adopted a 2016 resolution that pegged the export customs duty to global oil prices – if the global oil price drops below $25 per barrel, the duty zeros.
The Code defines “strategic deposits and areas” and restricts the government’s preemptive right to acquire exploration and production contracts to these areas, which helps to reduce significantly the approvals required for non-strategic objects. The government approves and publishes the list of strategic deposits on its website. The latest approved list is dated June 28, 2018: https://www.primeminister.kz/ru/decisions/28062018-389.
The Code entitles the government to terminate a contract unilaterally “if actions of a subsoil user with a strategic deposit result in changes to Kazakhstan’s economic interests in a manner that threatens national security.” The Article does not define “economic interests.” The Code, if properly implemented, appears to streamline procedures to obtain exploration licenses and to convert exploration licenses into production licenses. The Code, however, appears to retain burdensome government oversight over mining companies’ operations.
Kazakhstan is committed under the Paris Climate Agreement to reduce GHG emissions 15 percent from the level of base year 1990 down to 328.3 million metric tons (mmt) by 2030. In the meantime, Kazakhstan increased emissions 27.8 percent to 401.9 mmt in the five years from 2013 to 2018. The energy sector accounted for 82.4 percent of GHG emissions, agriculture for 9 percent, and others for 5.6 percent. The successor of the Energy Ministry for environmental issues, Ministry of Ecology, Geology, and Natural Resources, started drafting the 2050 National Low Carbon Development Strategy in October 2019. The Concept is scheduled for submission to the government in June 2021.
In November 2020, the government adopted a National Plan for Allocation of Quotas for Greenhouse Gas (GHG) Emissions for 2021. The emissions cap (a total number of emissions allowed) is set for 159.9 million. The power sector received the highest number of allowances, or 91.4 million, for 90 power plants. The cap for the oil and gas sector is 22.2 million for 61 installations, while 24 mining installations get 7.3 million allowances, and 21 metallurgical facilities have 29.6 million. The combined caps for the chemical and processing sectors are 9.3 million. In February 2018, the Ministry of Energy announced the creation of an online GHG emissions reporting and monitoring system. The system is not operational, and it is likely to be launched after the Environmental Code comes into effect in July 2021. Some companies have expressed concern that Kazakhstan’s trading system will suffer from insufficient liquidity, particularly as power consumption and oil and commodity production levels increase.
The OECD review recommended Kazakhstan undertake corporate governance reforms at state-owned enterprises (SOEs), implement a more efficient tax system, further liberalize its trade policy, and introduce responsible business conduct principles and standards. The OECD Investment Committee is monitoring the country’s privatization program, that aims to decrease the SOE share in the economy to 15 percent of GDP by 2020.
In 2019, the OECD and the government launched a two-year project on improving the legal environment for business in Kazakhstan.
The 2020 World Bank’s Doing Business Index ranked Kazakhstan 25 out of 190 countries in the “Ease of Doing Business” category, and 22 out of 190 in the “Starting a Business” category. The report noted Kazakhstan made starting a business easier by registering companies for value added tax at the time of incorporation. The report noted Kazakhstan’s progress in the categories of dealing with construction permits, registering property, getting credit, and resolving insolvency. Online registration of any business is possible through the website https://egov.kz/cms/en.
In addition to a standard package of documents required for local businesses, non-residents must have Kazakhstan’s visa for a business immigrant and submit electronic copies of their IDs, as well as any certification of their companies from their country of origin. Documents should be translated and notarized. Foreign investors also have access to a “single window” service, which simplifies many business procedures. Investors may learn more about these services here: https://invest.gov.kz/invest-guide/business-starting/registration/.
According to the ‘Doing Business’ Index, it takes 4 procedures and 5 days to establish a foreign-owned limited liability company (LLC) in Kazakhstan. This is faster than the average for Eastern Europe and Central Asia and OECD high-income countries. A foreign-owned company registered in Kazakhstan is considered a domestic company for Kazakhstan currency regulation purposes. Under the law on Currency Regulation and Currency Control, residents may open bank accounts in foreign currency in Kazakhstani banks without any restrictions.
The COVID-19 pandemic triggered new measures for easing the doing business process. In 2021, the government introduced a special three-percent retail tax for 114 types of small and medium-sized businesses. Companies can switch to the new regime voluntarily. The government also introduced an investment tax credit allowing entrepreneurs to receive tax deferrals for up to three years. As a part of his new economic policy, President Tokayev stated that prosecution or tax audits against entrepreneurs should be possible only after a respective tax court ruling.
In 2020, the government approved new measures aimed to facilitate the business operations of investors and to help Kazakhstan attract up to $30 billion in additional FDI by 2025. For example, the government introduced a new notional an investment agreement (see details in Section 4) and removed a solicitation of local regional authorities for obtaining a visa for a business-immigrant.
In order to facilitate the work of foreign investors, the government has recommended to use the law of the Astana International Financial Center (AIFC) as applicable law for investment contracts with Kazakhstan and has planned some steps, including a harmonization of tax preferences of the AIFC, the International IT park Astana Hub, Astana Expo 2017 company and Nazarbayev University. Plans on the further liberalization of a visa and migration regime, and the development of international air communication with international financial centers were suspended due to the COVID-19 pandemic.
Utilizing the advantages of the Astana International Financial Center may bring positive results in attracting foreign investments. Nonetheless, there is still room for improvement in business facilitation in the rest of Kazakhstan’s territory. For example, foreign investors often complain about problems finalizing contracts, delays, and burdensome practices in licensing. The problems associated with the decriminalization of tax errors still await full resolution, despite an order to this effect issued by the General Prosecutor’s Office in January 2020. The controversial taxation of dividends of non-residents that came into force in January 2021, has additionally raised concerns of foreign investors.
The government neither incentivizes nor restricts outward investment.
2. Bilateral Investment Agreements and Taxation Treaties
The United States-Kazakhstan Bilateral Investment Treaty came into force in 1994, and the United States-Kazakhstan Treaty on the Avoidance of Double Taxation came into force in 1996.
Some foreign investors allege Kazakhstani tax authorities are reluctant to refer double taxation questions to the appropriate resolution bodies. Among other tax issues that cause concern with U.S. investors are the criminalization of tax errors, VAT refund issues, and a recently introduced taxation of dividends of non-residents.
Eurasian Economic Integration and WTO
Kazakhstan entered into a Customs Union with Russia and Belarus on July 1, 2010 and was a founding member of the Eurasian Economic Union (EAEU) created on May 29, 2014 with Armenia, Belarus, Kazakhstan, Kyrgyz Republic, and Russia. Kazakhstan joined the WTO in November 2015. The EAEU is governed by the Eurasian Economic Commission, a supra-national body headquartered in Moscow, and is expected to integrate further the economies of its member states, and to provide for the free movement of services, capital, and labor within their common territory.
Kazakhstan entered into a Customs Union with Russia and Belarus on July 1, 2010 and was a founding member of the Eurasian Economic Union (EAEU) created on May 29, 2014 with Armenia, Belarus, Kazakhstan, Kyrgyz Republic, and Russia. Kazakhstan joined the WTO in November 2015. The EAEU is governed by the Eurasian Economic Commission, a supra-national body headquartered in Moscow, and is expected to integrate further the economies of its member states, and to provide for the free movement of services, capital, and labor within their common territory.
Kazakhstan’s trade policy has been heavily influenced by EAEU regulations. While Kazakhstan asserts the EAEU agreements comply with WTO standards, since joining the Customs Union Kazakhstan doubled its average import tariff and introduced annual tariff-rate quotas (TRQs) on poultry, beef, and pork. Per its WTO commitments, Kazakhstan lowered 3,512 import tariff rates to an average of 6.1 percent as of December 2020. As a part of this commitment, Kazakhstan applies a lower-than-EAEU tariff rate on food products, automobiles, airplanes, railway wagons, lumber, alcoholic beverages, pharmaceuticals, freezers, and jewelry. After December 2020, Kazakhstan will have a three-year implementation period prior to starting tariff adjustment negotiations with its EAEU partners.
Furthermore, Kazakhstan is a signatory to the Free Trade Agreement with CIS countries, and as a member of the EAEU, is party to the Free Trade Agreements between the EAEU and Vietnam, between the EAEU and Serbia, and between the EAEU and Singapore. In addition, Kazakhstan is a part of the Interim Agreement on formation of a free trade zone between the EAEU with Iran. Kazakhstan is also party to the Eurasian Economic Union Mutual Investment Protection Agreement, which came into force in 2016.
3. Legal Regime
Transparency of the Regulatory System
Kazakhstani law sets out basic principles for fostering competition on a non-discriminatory basis.
Kazakhstan is a unitary state, and national legislation enacted by the Parliament and President are equally effective for all regions of the country. The government, ministries, and local executive administrations in the regions (“Akimats”) issue regulations and executive acts in compliance and pursuance of laws. Kazakhstan is a member of the EAEU, and decrees of the Eurasian Economic Commission have preemptive force over national legislation. Publicly listed companies indicate that they adhere to international financial reporting standards but accounting and valuation practices are not always consistent with international best practices.
The government consults on some draft legislation with experts and the business community; draft bills are available for public comment at www.egov.kz under Open Government section, however, the comment period is only ten days, and the process occurs without broad notifications. Some bills are excluded from public comment, and the legal and regulatory process, including with respect to foreign investment, remains opaque. All laws and decrees of the President and the government are available in Kazakh and Russian on the websites of the Ministry of Justice: http://adilet.zan.kz/rus and http://zan.gov.kz/en/.
Implementation and interpretation of commercial legislation is reported to sometimes create confusion among foreign and domestic businesses alike. In 2016, the Ministry of Health and Social Development introduced new rules on attracting foreign labor, some of which (including a Kazakh language requirement) created significant barriers for foreign investors. After active intervention by the international investment community through the Prime Minister’s Council for Improving the Investment Climate, the government canceled the most onerous requirements.
The non-transparent application of laws remains a major obstacle to expanded trade and investment. Foreign investors complain of inconsistent standards and corruption. Although the central government has enacted many progressive laws, local authorities may interpret rules in arbitrary ways with impunity.
Many foreign companies say they must defend investments from frequent decrees and legislative changes, most of which do not “grandfather in” existing investments. Penalties are often assessed for periods prior to the change in policy. One of the recent cases involves a U.S. company that has objected to the retroactive application of a new rule on an exemption on dividend taxes in Kazakhstan’s Tax Code. Other examples from the past include foreign companies reporting that local and national authorities arbitrarily imposed high environmental fines, saying the fines were assessed to generate revenue for local and national authorities rather than for environmental protection. Government officials have acknowledged the system of environmental fines required reform and developed the new Environmental Code (Eco Code), compliant with OECD standards, in 2018. The new Eco Code signed into law in January 2021 will come into effect on July 1, 2021. The Eco Code mandates local authorities to have 100 percent of environmental payments spent on environmental remediation. Oil companies have complained that the emission payment rates for pollutants when emitted from gas flaring are at least twenty times higher than when the same pollutants are emitted from other stationary sources. The Parliament is currently reviewing the amendments to the Administrative Code to make gas flaring fines for oil companies equivalent to those imposed on non-oil companies.
In 2015, President Nazarbayev announced five presidential reforms and the implementation of the “100 Steps” Modernization program. The program calls for the formation of a results-oriented public administration system, a new system of audit and performance evaluation for government agencies, and introduction of an open government system with better public access to information held by state bodies.
President Tokayev, who was elected in June 2019, stated his adherence to reforms, initiated by former President Nazarbayev, and called the government to reset approaches to reforms, including robust implementation. The New Economic Course, announced by President Tokayev in 2020, included the streamlining of the taxation system to stimulate inflow of foreign investment and the decriminalization of tax errors. In addition, Tokayev tasked the government to develop in 2021 a new bill guaranteeing the right of citizens to access information on the government’s activity. Public financial reporting, including debt obligations, and explicit liabilities, are published by the National Bank of Kazakhstan at https://nationalbank.kz/en/news/vneshniy-dolg and by the Ministry of Finance on their site: https://www.gov.kz/memleket/entities/minfin/press/article/details/17399?directionId=261&lang=ru.
However, contingent liabilities, such as exposures to state-owned enterprises, their crossholdings, and exposures to banks, are not fully captured there.
International Regulatory Considerations
Kazakhstan is part of the Eurasian Economic Union, and EAEU regulations and decisions supersede the national regulatory system. In its economic policy Kazakhstan has declared its adherence to the WTO and OECD standards. Kazakhstan became a member of the WTO in 2015. It notifies the WTO Committee on Technical Barriers to Trade about drafts of national technical regulations (although lapses have been noted). Kazakhstan ratified the WTO Trade Facilitation Agreement (TFA) in May 2016, notified its Category A requirements in March 2016, and requested a five-year transition period for its Category B and C requirements. Early in 2018, the government established an intra-agency Trade Facilitation Committee to implement its TFA commitments. The status of the TFA implementation by Kazakhstan can be found here: https://tfadatabase.org/members/kazakhstan.
Legal System and Judicial Independence
Kazakhstan’s Civil Code establishes general commercial and contract law principles. Under the constitution, the judicial system is independent of the executive branch, although the government interferes in judiciary matters. According to Freedom House’s Nations in Transit report for 2018, the executive branch effectively dominates the judicial branch. Allegedly, pervasive corruption of the courts and the influence of the ruling elites results in low public expectations and trust in the justice system. Judicial outcomes are perceived as subject to political influence and interference. Regulations or enforcement actions can be appealed and adjudicated in the national court system. Monetary judgments are assessed in the domestic currency.
Parties of commercial contracts, including foreign investors, can seek dispute settlement in Kazakhstan’s courts or international arbitration, and Kazakhstani courts nominally enforce arbitration clauses in contracts. However, in actual fact the Government has refused to honor at least one fully litigated international arbitral decision. Any court of original jurisdiction can consider disputes between private firms as well as bankruptcy cases.
The Astana International Financial Center, which opened in July 2018, includes its own arbitration center and court based on British Common Law and independent of the Kazakhstani judiciary. The court is now led by former Deputy President of the UK Supreme Court, Lord Mance, and several other Commonwealth judges have been appointed. The government advises foreign investors to use the capacities of the AIFC arbitration center and the AIFC court more actively. Provisions on using the AIFC law as applicable law are recommended for model investment contracts between a foreign investor and the government. In February 2020, the AIFC reported that both Chevron in Kazakhstan and Tengizchevroil included the AIFC arbitration center as their preferred institution for resolution of commercial disputes in Kazakhstan. Local lawyers have observed a growing positive influence of the high standards of AIFC court and the AIFC arbitration over the entire judicial system of Kazakhstan.
President Tokayev’s policy on a new Economic Course anticipates further judiciary reforms aimed to strengthen public trust in courts.
Laws and Regulations on Foreign Direct Investment
The following legislation affects foreign investment in Kazakhstan: the Entrepreneurial Code; the Civil Code; the Tax Code; the Customs Code of the Eurasian Economic Union; the Customs Code of Kazakhstan; the Law on Government Procurement; the Law on Currency Regulation and Currency Control, and the Constitutional Law on the Astana International Financial Center. These laws provide for non-expropriation, currency convertibility, guarantees of legal stability, transparent government procurement, and incentives for priority sectors. However, inconsistent implementation of these laws and regulations at all levels of the government, combined with a tendency for courts to favor the government, have been reported to create significant obstacles to business in Kazakhstan.
The Entrepreneurial Code outlines basic principles of doing business in Kazakhstan and the government’s relations with entrepreneurs. The Code reinstates a single investment regime for domestic and foreign investors, and in principal codifies non-discrimination for foreign investors. The Code contains incentives and preferences for government-determined priority sectors, providing customs duty exemptions and in-kind grants detailed in section 4, Industrial Policies.
The Code also provides for dispute settlement through negotiation, use of Kazakhstan’s judicial process, and international arbitration. U.S. investors have expressed concern about the Code’s narrow definition of investment disputes and its lack of clear provisions for access to international arbitration.
In 2020, Kazakhstan enacted a new provision to the Entrepreneurial Code on investment agreement between strategic investors and the government. According to the law, the investment agreement is expected to provide investors with incentives, preliminarily negotiated with the government. The government guarantees the stability of the legal regime for these investment agreements. The investment agreement is an addition to a system of investment contacts already established in Kazakhstan (see Section 4 for details).
A law on Currency Regulation and Currency Control, which came into force July 1, 2019, expands the statistical monitoring of transactions in foreign currency and facilitates the process of de-dollarization. In particular, the law treats branches of foreign companies in Kazakhstan as residents and enables the National Bank of Kazakhstan (NBK) to enhance control over cross-border transactions. The NBK approved a list of companies that keep their non-resident status; the majority of these companies are from extractive industries (see also section 6, Financial Sector).
The legal and regulatory framework offered by AIFC to businesses registering on that territory differs substantially from that of Kazakhstan. The AIFC activity has gained momentum since its establishment in 2018. More detailed information on the legal and regulatory implications of operating within AIFC can be found here: https://aifc.kz/annual-report/ and in Section 6, Financial Sector. Additionally, the government’s single window for foreign investors, providing information to potential investors, business registration, and links to relevant legislation, can be found here: https://invest.gov.kz/invest-guide/.
Competition and Antitrust Laws
The Entrepreneurial Code regulates competition-related issues such as cartel agreements and unfair competition. In 2020, in order to enhance an anti-monopoly policy, the President ordered the transfer of the functions on protection of competition to a newly created Agency for Protection and Development of Competition that operates under his direct supervision. The Agency is responsible for reviewing transactions in terms of competition-related concerns. Regulation of natural monopolies remained with the Ministry of National Economy. In order to be responsive to public opinion, the Agency for Protection and Development of Competition has established various consultative bodies, including the Open Space, the Council on Identifying and Removal of Barriers for Entering Markets, the Public Council, and the Exchange Committee. Foreign companies may participate in the Council on Identifying and Removal of barriers for Entering Markets.
Expropriation and Compensation
The bilateral investment treaty between the United States and Kazakhstan requires the government to provide compensation in the event of expropriation. The Entrepreneurial Code allows the state to nationalize or requisition property in emergency cases but fails to provide clear criteria for expropriation or to require prompt and adequate compensation at fair market value.
The Mission is aware of cases where owners of flourishing and developed businesses have been forced to sell their businesses to companies affiliated with high-ranking and powerful individuals.
ICSID Convention and New York Convention
Kazakhstan has been a member of the International Center for the Settlement of Investment Disputes (ICSID) since December 2001 and ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards in 1995. By law, any international award rendered by the ICSID, a tribunal applying the rules of the UN Commission on International Trade Law Arbitration, Stockholm Chamber of Commerce, London Court of International Arbitration, or Arbitration Commission at the Kazakhstan Chamber of Commerce and Industry is enforceable in Kazakhstan. However, the government does not always honor such awards.
Investor-State Dispute Settlement
The government is a signatory to bilateral investment agreements with 47 countries, the Energy Charter Treaty, and one multilateral investment agreement with EAEU partners. These agreements recognize international arbitration of investment disputes. The United States and Kazakhstan signed a Bilateral Investment Treaty in 1994.
Kazakhstan is legally obligated to recognize arbitral awards, yet does not always honor this fact.
In January 2021, Kazakhstan’s Ministry of Justice reported that in 2020, Kazakhstan was involved in 25 arbitration proceedings, including 15 in international arbitration courts. A number of investment disputes involving foreign companies have arisen in the past several years linked to alleged violations of environmental regulations, tax laws, transfer pricing laws, and investment clauses. Some disputes relate to alleged illegal extensions of exploration schedules by subsurface users, as production-sharing agreements with the government usually make costs incurred during this period fully reimbursable. Some disputes involve hundreds of millions of dollars. Problems arise in the enforcement of judgments, and ample opportunity exists for influencing judicial outcomes given the relative lack of judicial independence.
To encourage foreign investment, the government has developed dispute resolution mechanisms aimed at enabling aggrieved investors to seek redress without requiring them to litigate their claims. The government established an Investment Ombudsman in 2013, billed as being able to resolve foreign investors’ grievances by intervening in inter-governmental disagreements that affect investors. However, investors who have entered such settlement discussions in good faith report that the government pursued criminal litigation just as the parties were closing in on a deal (after the investors had devoted significant time and resources toward achieving a settlement).
The Entrepreneurial Code defines an investment dispute as “a dispute ensuing from the contractual obligations between investors and state bodies in connection with investment activities of the investor,” and states such disputes may be settled by negotiation, litigation or international arbitration. Investment disputes between the government and investors fall to the Nur-Sultan City Court; disputes between the government and large investor are in the exclusive competence of a special investment panel at the Supreme Court of Kazakhstan. Amendments to legislation on the court system the Parliament adopted in March 2021 will change this system once implemented. Starting from July 1, 2021, the Special Economic Court and the Special Administrative Court of Nur-Sultan City will be the courts of first instance for investment disputes between the government and investors. The Nur-Sultan City Court and the Judicial Chamber on administrative cases of the Supreme Court will serve as the first court of appeal.
International Commercial Arbitration and Foreign Courts
The Law on Mediation offers alternative (non-litigated) dispute resolutions for two private parties. The Law on Arbitration defines rules and principles of domestic arbitration. As of April 2020, Kazakhstan had 18 local arbitration bodies unified under the Arbitration Chamber of Kazakhstan. Please see: https://palata.org/about/. The government noted that the Law on Arbitration brought the national arbitration legislation into compliance with the United Nations Commission on International Trade Law (UNCITRAL) Model Law, the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, and the European Convention on International Commercial Arbitration. Local courts recognize and enforce court rulings of CIS countries. Judgement of other foreign state courts are recognized and enforceable by local courts when Kazakhstan has a bilateral agreement on mutual judicial assistance with the respective country or applies a principle of reciprocity.
When SOEs are involved in investment disputes, domestic courts usually find in the SOE’s favor. By law, investment disputes with private commercial entities, employees, or SOEs are in the jurisdiction of local courts. According to the European Bank for Reconstruction and Development’s 2014 Judicial Decision Assessment, judges in local courts lacked experience with commercial law and tended to apply general principles of laws and Civil Code provisions with which they are more familiar, rather than relevant provisions of commercial legislation. President Tokayev has recognized that that the judicial system lacks specialists in taxation, subsoil use, intellectual property rights and corporate law.
Even when investment disputes are resolved in accordance with contractual conditions, the resolution process can be slow and require considerable time and resources. Many investors therefore elect to handle investment disputes privately, in an extrajudicial way.
Kazakhstan’s 2014 Bankruptcy and Rehabilitation Law (The Bankruptcy Law) protects the rights of creditors during insolvency proceedings, including access to information about the debtor, the right to vote against reorganization plans, and the right to challenge bankruptcy commissions’ decisions affecting their rights. Bankruptcy is not criminalized, unless the court determines the bankruptcy was premeditated, or rehabilitation measures are wrongful. The Bankruptcy Law improves the insolvency process by permitting accelerated business reorganization proceedings, extending the period for rehabilitation or reorganization, and expanding the powers of (and making more stringent the qualification requirements to become) insolvency administrators. The law also eases bureaucratic requirements for bankruptcy filings, gives creditors a greater say in continuing operations, introduces a time limit for adopting rehabilitation or reorganization plans, and adds court supervision requirements. Amendments to the law accepted in 2019-2020 introduced a number of changes. Among them are a more specified definition of premeditated bankruptcy; a requirement to prove a sustained insolvency when filing a claim on bankruptcy; a possibility for the bank-agent to file a request for bankruptcy on behalf of a syndicate of creditors; a possibility for individual entrepreneurs to apply for a rehabilitation procedure to reinstate its solvency, and an option to be liquidated without filing bankruptcy in the absence of income, property, and business operations.
4. Industrial Policies
The government’s primary industrial development strategies, such as the Concept for Industrial and Innovative Development 2020-2025 and the National Development Plan for 2025 aim to diversify the economy from its current dependence on extractive resources. The Entrepreneurial Code and Tax Code provide incentives for foreign and domestic investment in priority sectors, which include agriculture, metallurgy, extraction of metallic ore, chemical and petrochemical industries, textile and pharmaceutical industries, food production, machine manufacturing, waste recycling, and renewable energy. The approach helps the government to take decisions on projects on a case-by-case basis. After signing investment contracts with the government, firms in priority sectors receive tax and customs duty waivers, in-kind grants, investment credits, and simplified procedures for work permits. The government’s preference system applies to new and existing enterprises. The duration and scope of preferences depends on the priority sector, the size of investment and type of the investment project.
The government has outlined different categories of investment projects. Each category corresponds with a particular type of contract between an investor and the government, and a particular set of incentives. For example, model investment contracts are prepared and signed for investment priority projects by the Investment Committee at the Ministry of Foreign Affairs and KazakhInvest. Details on their requirements are available here: https://invest.gov.kz/ and at https://invest.gov.kz/doing-business-here/regulated-sectors/.
Special investment projects and projects on industrial assembly of vehicles and agricultural equipment are in the competence of the Ministry of Industry and Infrastructural Development. Volume of preferences in such agreements depends on the level of localization.
In 2020, the government modified this system slightly. The government introduced model contract clauses on guaranteeing the stability of laws and lowered the threshold for the cost of projects in textile and light industries to USD 7 million in order to make them eligible for preferences. In addition, investors received the right to adjust model contracts twice a year with the consent of the government.
In January 2021, the government introduced to the Entrepreneurial Code one more type of contract– an investment agreement. Such agreements will be applied to investment projects exceeding USD 50 million in industries selected by the government. Only Kazakhstan’s companies or residents of the Astana International Financial Center will be eligible to sign such agreements with the government. Under this agreement, the government provides an investor with an individual scope of incentives and a stability of legal regime for 25 years. In turn, the investor undertakes commitments on project implementation. Some obligations on supporting a certain level of localization may be a part of the agreement. Unlike model contracts, investment agreements are subject to negotiations between an investor and the government.
A U.S. investor signed the first investment agreement early in January 2021. The Prime Minister enacted this agreement by issuing a special decree. Per the agreement, the government will establish a special economic zone at the location of the project with all implied tax and customs preferences. Potential investors can apply for preferences through the government’s single window portal; which are special offices for serving investors located in the capital and at district service centers in every region of Kazakhstan. Submission for investment preferences requires a collection of documents, including a comprehensive government’s expertise on the proposed investment project. The law also allows the government to rescind incentives, collect back payments, and revoke an investor’s operating license if an investor fails to fulfill contractual obligations. More information is available here: https://invest.gov.kz/invest-guide/ and at https://irm.invest.gov.kz/en/support/.
Prior to the pandemic the government substantially liberalized the visa regime for foreign investors, especially for non-extractive industries. In particular, the government approved visa-free travel for citizens of 73 countries, including the United States, Germany, Japan, United Arab Emirates, France, Italy, and Spain. Residents of these countries could stay in Kazakhstan without visas for up to 30 days. However, the COVID-19 pandemic prompted the government to suspend this regime temporarily. Through December 31, 2021, any visit of a foreigner, with some exceptions, must be approved by a special intra-agency government commission.
In 2020, the government also introduced a more liberal regime for violation of visa rules of stay. Foreign visitors are permitted to pay administrative fines only in the case of infringing rules for the first and the second time.
Foreign Trade Zones/Free Ports/Trade Facilitation
The Law on Special Economic Zones allows foreign companies to establish enterprises in special economic zones (SEZs), simplifies permit procedures for foreign labor, and establishes a special customs zone regime not governed by Eurasian Economic Union rules. A system of tax preferences exists for foreign and domestic enterprises engaged in prescribed economic activities in Kazakhstan’s thirteen SEZs. In April 2019, President Tokayev signed amendments which extend the rights of SEZ managing companies. As of the beginning of 2021, twelve managing companies control the SEZ activity. The Ministry of Industry and Infrastructural Development is in charge of monitoring SEZ activity and developing new policies and rules in this area.
Performance and Data Localization Requirements
The government requires local employment and content, although the country’s WTO accession commitments provide for abolition of most local content requirements over time. In 2015, Kazakhstan adopted legislative amendments to alter existing local content requirements to meet WTO accession requirements. Pursuant to these amendments, subsoil use contracts concluded after January 1, 2015, no longer contain local content requirements, and any local content requirements in contracts signed before 2015 phased out on January 1, 2021.
Kazakhstan’s WTO accession terms require that Kazakhstan relax limits on foreign nationals by increasing the quota for foreign nationals to 50 percent (from 30 percent for company executives and from 10 percent for engineering and technical personnel) by January 1, 2021.
Despite these commitments, the government, particularly at the regional level, continues to advocate for international businesses to increase their use of local content. In October 2020, Tengizchevroil, North Caspian Operating Company, and Karachaganak Operating Consortium, which have stabilized contracts, committed to maintaining local content requirements after January 1, 2021. The government has been signing voluntary agreements with other oil companies to support local businesses. In November 2020, the government announced the establishment of a fund for the development of local content. The new fund will invest in technology, IT, assembly of oil and gas equipment, and environmental projects.. The Ministry of Energy announced in March 2017 that foreign companies providing services for the oil and gas sector would need to create joint ventures with local companies to continue to receive contracts at the country’s largest oilfields. Although these recommendations are not legally binding, companies have generally elected to abide by them. The Ministry of Energy, Ministry of Industry and Infrastructure Development, the National Welfare Fund Samruk-Kazyna, and the National Chamber of Entrepreneurs Atameken monitor local content compliance.
The government regulates foreign labor at the macro and micro levels. Foreign workers must obtain work permits. Amendments to the Expatriate Workforce Quota and Work Permit Rules: (a) eliminate special conditions for obtaining a work permit for foreign labor (e.g. requirements to train local personnel or create additional vacancies); (b) eliminate the requirement that companies conduct a search for candidates on the internal market prior to applying for a work permit; (c) reduce the timeframe for issuance or denial of a work permit from 15 to 7 days; (d) eliminate the required permission of local authorities for the appointment of CEOs and deputies of Kazakhstani legal entities that are 100 percent owned by foreign companies; and (e) expand the list of individuals requiring no permission from local authorities (including non-Kazakhstani citizens working in national holding companies as heads of structural divisions and non-Kazakhstani citizens who are members of the board of directors of national holding companies). Kazakhstan offered a few extensions on work permits and visas due to pandemic- related restrictions on movement. The latest resolution allows foreign citizens with work permits or certificates of self-employment to stay in the country until June 5, 2021.
Following the June 2019 brawl at Chevron-operated Tengiz oilfield that reportedly resulted from discontent with wage discrepancies between local and foreign workers with similar qualifications, the Ministry of Labor and Social Protection has sought to revisit the definition of administrative liability and administrative violation to make state control over employers with foreign workers more effective.
The government approved a foreign labor quota for 2020 at 0.32 percent of the country’s total labor force. The number of work permits had been reduced by 37% for employees of category 3 (specialists) and by 23% for category 4 (qualified workers). The largest decreases were in administrative; real estate; wholesale and retail; construction; professional scientific and technological activities; and accommodation and catering. To replace the gap in the foreign workforce, the government introduced an obligation to replace foreign workers with skilled Kazakhstani labor. The foreign workforce annual quota for 2021 is 0.31 percent or 29.3 thousand units.
In 2021, Kazakhstan introduced a so-called scoring system of localization assessment. This system is aimed at stimulating local assembly of vehicles and agricultural equipment. The volume of incentives in agreements on industrial assembly will depend on the number of scores received for localization. The more scores the enterprise obtains, the more preferences the government extends to this enterprise.
Foreign investors may, in theory, participate in government and quasi-government procurement tenders, however, they should have established production facilities in Kazakhstan and should go through a process of being recognized as a pre-qualified bidder. In 2019, the government enacted new procurement rules, according to which, only pre-qualified suppliers will be allowed to bid for government contracts. A key requirement for being recognized as a pre-qualified bidder is that your product should be made in Kazakhstan and be added to a register of trusted products. While this requirement is applied to some selected sectors of government procurement (e.g. construction, IT, textile), it has been practiced since 2016 at procurement of quasi-sovereign companies under the National Welfare Fund Samruk-Kazyna. The pandemic has amplified the import substitution trend. In the course of 2020 and 2021 President Tokayev several times highlighted the importance of support to local producers and the increase of local content share at procurement processes and implementation of infrastructural projects.
The National Chamber of Entrepreneurs Atameken introduced in 2018 an industrial certificate that serves as an extra (and costly) tool to prove the financial and production abilities of the company to participate in tenders. The industrial certificate is also an indirect confirmation of status as a local producer. Thus, a foreign investor who plans to bid for government and quasi-government contracts can benefit from such an industrial certificate.
In 2019, the government introduced significant recycling fees on imported combines and tractors. Although major popular Western brands initially received waivers on recycling fees, the government revisited the exception and imposed recycling fees in 2020. The government suggested foreign producers start local production and hence, become eligible for preferential treatment. Foreign companies consider this measure to be a case of coercion to localize production.
Per Kazakhstan’s legislation, cross-border transmission of data would be possible if countries, receiving this data, provide due data protection. Otherwise, the data transmission should be regulated by respective bilateral agreements or allowed by the data subject. Kazakhstan reserves its right to restrict or to ban data transmission by enacting separate regulation. The National Security Committee and the Ministry of Digital Development, Innovations and Aerospace Industry supervise data protection and date storage in Kazakhstan.
5. Protection of Property Rights
With certain sectoral exceptions, private entities, both foreign and domestic, have the right to establish and own business enterprises, buy and sell business interests, and engage in all forms of commercial activity.
Secured interests in property (fixed and non-fixed) are recognized under the Civil Code and the Land Code. All property and lease rights for real estate must be registered with the Ministry of Justice through its local service centers. According to the World Bank’s Doing Business Report, Kazakhstan ranks 24 out of 190 countries in ease of registering property.
Under Kazakhstan’s constitution, agricultural land and certain other natural resources may be owned or leased only by Kazakhstani citizens. The Land Code: (a) allows citizens and Kazakhstani companies to own agricultural and urban land, including commercial and non-commercial buildings, complexes, and dwellings; (b) permits foreigners to own land to build industrial and non-industrial facilities, including dwellings, with the exception of agricultural lands and land located in border zones; (c) authorizes the government to monitor proper use of leased agricultural lands, the results of which may affect the status of land-lease contracts; (d) forbids private ownership of: land used for national defense and national security purposes, specially protected nature reserves, forests, reservoirs, glaciers, swamps, designated public areas within urban or rural settlements, except land plots occupied by private building and premises, main railways and public roads, land reserved for future national parks, subsoil use and power facilities, and social infrastructure. The government maintains the land inventory and constantly updates its electronic data base, though the inventory data is not exhaustive. The government has also set up rules for withdrawing land plots that have been improperly or never used.
In 2015, the government proposed Land Code amendments that would allow foreigners to rent agricultural lands for up to 25 years. Mass protests in the spring of 2016 led the government to introduce a moratorium on these provisions until December 31, 2021. The moratorium is also effective on other related articles of the Land Code that regulate private ownership rights on agricultural lands. In March 2021, President Tokayev initiated changes in the legislation to ban both the sale and lease of agricultural lands to foreigners. On March 17, the Mazhilis, the lower Chamber of the Parliament, started to consider the amended legislation, according to which, foreigners, persons without citizenship, foreign legal entities and legal entities with foreign participation, international organizations, scientific centers with foreign participation, and repatriated Kazakhs cannot own and take in temporary use agricultural lands. The amendments are expected to be adopted in the first half of 2021.
Intellectual Property Rights
The legal structure for intellectual property rights (IPR) protection is relatively strong; however, enforcement needs further improvement. Kazakhstan is not currently included in the United States Trade Representative (USTR) Special 301 Report. To facilitate its accession to the World Trade Organization (WTO) and attract foreign investment, Kazakhstan continues to improve its legal regime for protecting IPR. The Civil Code and various laws protect U.S. IPR. Kazakhstan has ratified 18 of the 24 treaties endorsed by the World Intellectual Property Organization (WIPO): https://wipolex.wipo.int/en/treaties/ShowResults?country_id=97C.
Kazakhstan’s IPR legislation has improved. The Criminal Code sets out punishments for violations of copyright, rights for inventions, useful models, industrial patterns, selected inventions, and integrated circuit topographies. The law authorizes the government to target internet piracy and shut down websites unlawfully sharing copyrighted material, provided that the rights holders had registered their copyrighted material with Kazakhstan’s IPR Committee. Despite these efforts, U.S. companies and associated business groups have alleged that 73 percent of software used in Kazakhstan is pirated, including in government agencies, and have criticized the government’s enforcement efforts.
To comply with OECD IPR standards, in 2018 Kazakhstan accepted amendments to its IPR legislation. The law set up a more convenient, one-tier system of IPR registration and provided rights holders the opportunity for pre-trial dispute settlement through the Appeals Council at the Ministry of Justice. In addition, the law included IPR protection as one of the government procurement principles that should be strictly followed by government organizations. Currently, the Parliament is considering a new bill on IPR issues. The bill introduces a notion of geographical indication, a short-term (up to three years) protection of unregistered industrial designs, an “opposition” system for challenging requests for registration of trademarks, geographical indications, and appellation of origin of goods. Also, the bill is expected to make copyright collective organizations more transparent and effective and to improve regulation of patent attorneys’ activity. In 2020, Kazakhstan ratified the Protocol on Protection of Industrial Designs of the Eurasian Patent Convention from September 1994 and signed the Agreement of the Eurasian Economic Union on trademarks, service marks, and appellation of origin of goods.
Kazakhstan’s authorities conduct nationwide campaigns called “Counterfeit”, “Hi-Tech” and “Anti-Fraud” that are aimed at detecting and ceasing IPR infringements and increasing public awareness about IP issues. In 2020, these campaigns resulted in the seizing of 4.8 thousand units of counterfeit goods. The Ministry of Justice and law enforcement agencies regularly report the results of their inspections. However, the moratorium on inspections of small and medium-sized businesses that came into force in December 2019 reduced significantly the number of IPR-related inspections in 2020.
In 2020, the Ministry of Internal Affairs initiated 14 criminal cases for copyright violations and seven administrative cases, imposing penalties of USD 5,300. In addition, regional authorities reportedly seized 3,800 units of counterfeit goods worth around USD 4,000 and identified 24 foreign websites, selling pirated software. On the border, customs officials suspended the release of counterfeited goods in the amount of USD 20.1 million.
In 2020, the government agency on investigation of economic crimes identified and closed one illegal plant that produced counterfeited pharmaceuticals. Criminals fabricated packages using known trademarks and altered the expiry dates of the drugs. Although Kazakhstan continues to make progress to comply with WTO requirements and OECD standards, foreign companies complain of inadequate IPR protection. Judges, customs officials, and police officers also lack IPR expertise, which exacerbates weak IPR enforcement.
Kazakhstan maintains a stable macroeconomic framework, although weak banks inhibit the financial sector’s development , valuation and accounting practices are inconsistent, and large state-owned enterprises (SOEs) that dominate the economy face challenges in preparing complete financial reporting. Capital markets remain underdeveloped and illiquid, with small equity and debt markets dominated by SOEs and lacking in retail investors. Most domestic borrowers obtain credit from Kazakhstani banks, although foreign investors often find margins and collateral requirements onerous, and it is often cheaper and easier for foreign investors to use retained earnings or borrow from their home country. The government actively seeks to attract FDI, including portfolio investment. Foreign clients may only trade via local brokerage companies or after registering at Kazakhstan’s Stock Exchange (KASE) or at the AIFC.
KASE, in operation since 1993 and with 189 listed companies, trades a variety of instruments, including equities and funds, corporate bonds, sovereign debt, international development institutions debt, foreign currencies, repurchase agreements (REPO) and derivatives. Most of KASE’s trading is comprised of money market (84 percent) and foreign exchange (10 percent). As of January1, 2021, stock market capitalization was USD 45.3 billion, while the corporate bond market was around USD 35.2 billion. The Single Accumulating Pension Fund, the key source of the country’s local currency liquidity accumulated USD 30.7 billion as of January1, 2021.
In 2018, the government launched the Astana International Financial Center (AIFC), a regional financial hub modeled after the Dubai International Financial Center. The AIFC has its own stock exchange (AIX), regulator, and court (see Part 4). The AIFC has partnered with the Shanghai Stock Exchange, NASDAQ, Goldman Sachs International, the Silk Road Fund, and others. AIX currently has 88 listings in its Official List, including 30 traded on its platform.
Kazakhstan is bound by Article VIII of the International Monetary Fund’s Articles of Agreement, adopted in 1996, which prohibits government restrictions on currency conversions or the repatriation of investment profits. Money transfers associated with foreign investments, whether inside or outside of the country, are unrestricted; however, Kazakhstan’s currency legislation requires that a currency contract must be presented to the servicing bank if the transfer exceeds USD 10,000. Money transfers over USD 50,000 require the servicing bank to notify the transaction to the authorities, so the transferring bank may require the transferring parties, whether resident or non-resident, to provide information for that notification.
Money and Banking System
As of January 1, 2021, Kazakhstan had 26 commercial banks. The five largest banks (Halyk Bank, Sberbank-Kazakhstan, Forte Bank, Kaspi Bank and Bank CenterCredit) held assets of approximately USD 47.4 billion, accounting for 64.0 percent of the total banking sector.
Kazakhstan’s banking system remains impaired by legacy non-performing loans, poor risk management, weak corporate governance practices, and significant related-party exposures. In recent years, the government has undertaken measures to strengthen the sector, including capital injections, enhanced oversight, and expanded regulatory authorities. In 2019, the National Bank of Kazakhstan (NBK) initiated an asset quality review (AQR) of 14 major banks, which combined held 87 percent of banking assets as of April 1, 2019. According to NBK officials, the AQR showed sufficient capitalization on average across the 14 banks and set out individual corrective measure plans for each of the banks to improve risk management. As of January 2021, the ratio of non-performing loans to banking assets was 6.8 percent, down from 31.2 percent in January 2014. The COVID-19 pandemic and the fall in global oil prices may pose additional risks to Kazakhstan’s banking sector.
Kazakhstan has a central bank system led by the NBK. In January 2020, parliament established the Agency for Regulation and Development of the Financial Market (ARDFM), which assumed the NBK’s role as main financial regulator overseeing banks, insurance companies, the stock market, microcredit organizations, debt collection agencies, and credit bureaus. The NBK retains its core central bank functions as well as management of the country’s sovereign wealth fund and pension system assets. The NBK, and ARDFM as its successor, is committed to the incremental introduction of the Basel III regulatory standard. As of January 2021, Basel III methodology applies to capital and liquidity calculation with required regulatory ratios gradually changing to match the standard. Starting December 16, 2020, as a part of WTO commitments, Kazakhstan allowed foreign banks to operate in the country via branches (previously only local subsidiaries were allowed). To open a branch, foreign banks must have international credit ratings of BBB or higher, a minimum of $20 billion in global assets, and comply with other NBK and ARDFM norms and requirements. Foreigners may open bank accounts in local banks as long as they have a local tax registration number.
There are no restrictions or limitations placed on foreign investors in converting, transferring, or repatriating funds associated with an investment (e.g. remittances of investment capital, earnings, loan or lease payments, or royalties). Funds associated with any form of investment may be freely converted into any world currency, though local markets may be limited to major world currencies.
Foreign company branches are treated as residents, except for non-financial organizations treated as non-residents based on previously made special agreements with Kazakhstan. With some exceptions, foreign currency transactions between residents are forbidden. There are no restrictions on foreign currency operations between residents and non-residents, unless specified otherwise by local foreign currency legislation. Companies registered with AIFC are not subject to currency and settlement restrictions.
Kazakhstan abandoned its currency peg in favor of a free-floating exchange rate and inflation-targeting monetary regime in August 2015, although the NBK has intervened in foreign exchange markets to combat excess volatility. Kazakhstan maintains sufficient international reserves according to the IMF. As of January 1, 2021, international reserves at the NBK, including foreign currency, gold, and National Fund assets, totaled USD 94.4 billion.
The U.S. Mission in Kazakhstan is not aware of any concerns about remittance policies or the availability of foreign exchange conversion for the remittance of profits. Local currency legislation permits non-residents to freely receive and transfer dividends, interest and other income on deposits, securities, loans, and other currency transactions with residents. However, such remittances are subject to reporting requirements. There are no time limitations on remittances; and timelines to remit investment returns depend on the internal procedures of the servicing bank. Residents seeking to transfer property or money to a non-resident in excess of USD 500,000 are required to register the contract with the NBK.
Sovereign Wealth Funds
The National Fund of the Republic of Kazakhstan was established to support the country’s social and economic development via accumulation of financial and other assets, as well as to reduce the country’s dependence on the oil sector and external shocks. The National Fund’s assets are generated from direct taxes and other payments from oil companies, public property privatization, sale of public farmlands, and investment income. The government, through the Ministry of Finance, controls the National Fund, while the NBK acts as the National Fund’s trustee and asset manager. The NBK selects external asset managers from internationally recognized investment companies or banks to oversee a part of the National Fund’s assets. Information about external asset managers and assets they manage is confidential. As of January 1, 2021, the National Fund’s assets were USD 58.7 billion or around 34 percent of GDP.
The government receives regular transfers from the National Fund for general state budget support, as well as special purpose transfers ordered by the President. The National Fund is required to retain a minimum balance of no less than 30 percent of GDP.
Kazakhstan is not a member of the IMF-hosted International Working Group of Sovereign Wealth Funds.
7. State-Owned Enterprises
According to the National Statistical Bureau, as of January 1, 2021, the government owns 25,386 state-owned enterprises (SOEs), including all forms of SOEs, from small veterinary inspection offices, kindergardens, regional departments for the protection of competition, and regional hospitals, to large national companies controlling energy, transport, agricultural finance, and product development.
SOEs plays a leading role in the country’s economy. According to the 2017 OECD Investment Policy Review, SOE assets amount to USD 48-64 billion, approximately 30-40 percent of GDP; net income was approximately USD 2 billion. In order to stop an expansion of the quasi-sovereign sector, President Tokayev introduced in 2019 a moratorium on establishing new parastatal companies that will be in effect until the end of 2021. A bill on improving the business climate adopted by Parliament in April 2020 disincentivizes the establishment of new parastatal companies.
In pursuance of his New Economic Course, President Tokayev proposed in September 2020 the creation of a unified information portal that would consolidate all information about the activity of quasi-sovereign companies (SOEs), including their financial statements. If this portal is established, it would improve transparency of the quasi-sovereign sector significantly. Portfolio investors are also required to have corporate governance standards and independent boards.
Despite these positive developments, the number of SOEs in the economy remains large. The preferential status of parastatal companies is also unchanged; for example, parastatals enjoy greater access to subsidies and government support.
The National Welfare Fund Samruk-Kazyna (SK) is Kazakhstan’s largest national holding company, and manages key SOEs in the oil and gas, energy, mining, transportation, and communication sectors. At the end of 2018, SK had 317 subsidiaries and employed around 300,000 people. By some estimates, SK controls around half of Kazakhstan’s economy, and is the nation’s largest buyer of goods and services. In 2019, SK reported USD 61 billion in assets and USD 3 billion in consolidated net profit. Created in 2008, SK’s official purpose is to facilitate economic diversification and to increase effective corporate governance.
In 2018, First President Nazarbayev approved a new SK strategy which declared effective management of its companies, restructuration and diversification of assets and investment projects, and compliance with principles of sustainable development as priority goals. SK stated its adherence to international standards of SOE management and its willingness to separate the role of the state as a main owner from its regulator’s role. To follow a new strategy, early in 2020, the SK removed the Prime Minister from the Board and elected four independent directors, one of whom became the Chair of the Board. Thus, the government is now represented by three members on the Board- an Aide to the President, the Minister of National Economy, and the CEO of Samruk-Kazyna. Regardless of these positive moves, in reality political influence continues to dominate SK. First President Nazarbayev is the life-long Chair of the Managing Council of SK, with the right to take strategically important decisions on SK activity. SK has special rights, such as the ability to conclude large transactions among members of its holdings without public notification. SK enjoys a pre-emptive right to buy strategic facilities and assets and is exempt from government procurement procedures. Critically, the government can transfer state-owned property to SK, easing the transfer of state property to private owners. More information is available at http://sk.kz/ .
Regardless of these positive moves, in reality political influence continues to dominate SK. First President Nazarbayev is the life-long Chair of the Managing Council of SK, with the right to take strategically important decisions on SK activity. SK has special rights, such as the ability to conclude large transactions among members of its holdings without public notification. SK enjoys a pre-emptive right to buy strategic facilities and assets and is exempt from government procurement procedures. Critically, the government can transfer state-owned property to SK, easing the transfer of state property to private owners. More information is available at http://sk.kz/ .
In addition to SK, the government created the national managing holding company Baiterek in 2013 to provide financial and investment support to non-extractive industries and to drive economic diversification. Baiterek is comprised of the Development Bank of Kazakhstan, the Investment Fund of Kazakhstan, the Housing and Construction Savings Bank – Otbassy Bank, the National Mortgage Company, KazakhExport, the Entrepreneurship Development Fund Damu and other financial and development institutions. In 2021, following the President’s request, Baiterek joined the other quasi-sovereign holding company – KazAgro. Thus, the financing of the agricultural sector will now be in the portfolio of Baiterek. Unlike SK, the Prime Minister remains Chairof the Baiterek Board, assisted by several cabinet ministers and independent directors. As of the end of September 2020, Baiterek had USD 14.3 billion in assets and earned USD 133.5 million in net profit. Please see https://www.baiterek.gov.kz/en .
Another significant SOE is the national holding company Zerde, which is charged with creating modern information and communication infrastructure, using new technologies, and stimulating investments in the communication sector (http://zerde.gov.kz/ ).
Officially, private enterprises compete with public enterprises under the same terms and conditions. In some cases, SOEs enjoy better access to natural resources, credit, and licenses than private entities.
In its 2017 Investment Review, the OECD recommended Kazakhstani authorities identify new ways to ensure that all corporate governance standards applicable to private companies apply to SOEs. Samruk-Kazyna adopted a new Corporate Governance Code in 2015. The Code, which applies to all SK subsidiaries, specified the role of the government as ultimate shareholder, underlined the role of the Board of directors and risk management, and called for transparency and accountability.
Kazakhstan has stated the aim to decrease the SOE share in the economy to 15 percent by 2020, in line with OECD averages. The goal has not yet been reached, but the government continues a large-scale privatization campaign. According to a government report, 93 percent of the 2016-2020 plan has been implemented. In 2020, the government enacted a new comprehensive privatization program for 2021-2025. The government’s reports on both campaigns are available at: https://privatization.gosreestr.kz/.
As of March 30, 2021, out of 1,748 organizations planned for privatization, 729 had been sold for USD 1.7 billion. The government sells small, state owned and municipal enterprises through electronic auctions. The public bidding process is established by law. By law and in practice, foreign investors may participate in privatization projects. However, foreign investors may experience challenges in navigating the process.
SK has an important role in the privatization campaign and as of March 2021 had sold full or partial stakes in 88 subsidiaries of large national companies operating in the energy, mining, transportation, and service sectors. 53 subsidiaries have been liquidated or reorganized. In June 2020, SK completed the privatization of 25 percent of KazAtomProm by selling the remaining 6.28 percent of common shares via a dual-listed IPO on the London Exchange and the Astana International Stock Exchange. Although the pandemic affected the preliminary privatization timelines, SK plans to offer institutional investors non-controlling shares in eight national companies via initial public offerings (IPOs), secondary public offerings (SPO) and sale to strategic investors. These companies are: state oil company KazMunaiGas, Air Astana, national telecom operator Kazakhtelecom, railway operator Kazakhstan Temir Zholy, KazPost, and Samruk–Energy, Tau-Ken Samruk and Qazaq Air.
8. Responsible Business Conduct
Entrepreneurs, the government, and non-governmental organizations are aware of the expectations of responsible business conduct (RBC). Kazakhstan continues to make steady progress toward meeting the OECD Guidelines for Multinational Enterprises, and the government promotes the concept of RBC. The OECD National Contact Point is the Ministry of National Economy.
A legal framework for RBC was introduced in 2015. The Entrepreneurial Code has a special section on social responsibility, which is defined as a voluntary contribution for the development of social, environmental, and other spheres. The Code says that the state creates conditions for RBC but specifies that it cannot force entrepreneurs to take a due diligence approach to ensuring socially responsible actions. The Code considers donations to charity one of the forms of social responsibility and envisions a tax deduction for charitable giving, though no such rule currently exists.
In April 2015, the National Tripartite Commission on Social Partnership and Regulation of Social and Labor Relations adopted the National Concept on Social Corporate Responsibility, developed by the Atameken National Chamber of Entrepreneurs and the corporate fund Eurasia-Central Asia. The non-binding document covers human rights, environmental protection, consumer interests, RBC, corporate governance, and community development.
First President Nazarbayev has repeatedly asked foreign investors and local businesses to implement RBC, including to provide occupational safety, pay salaries on time, and invest in human capital. The President presents annual awards for achievements in corporate social responsibility (CSR). Foreign investors report that local government officials regularly pressure them to provide donations to achieve local political objectives. Local officials attempt to exert as much control as possible over the selection and allocation of funding for such projects.
The government has signed on to the Extractive Industries Transparency Initiative (EITI). Kazakhstan produces EITI reports that disclose revenues from the extraction of its natural resources. Companies disclose what they have paid in taxes and other payments, and the government discloses what it has received; these two sets of figures are then compared and reconciled. The EITI Board started a second certification process on August 13, 2019, to review whether Kazakhstan has achieved meaningful progress and found that it had made considerable improvements since its first validation in 2017 by providing additional information on local content, social investment, and transportation of oil, gas, and minerals. The Board gave Kazakhstan 18 months before a third validation, i.e. until October 14, 2021, to carry out corrective actions regarding multi-stakeholder group oversight, license allocations, state participation, production data, barter arrangements, transport revenues, social expenditures, and quasi-fiscal expenditures.
Starting 2019, members of EITI, including Kazakhstan, are required to disclose subsoil use contracts signed after January 1, 2021. In June 2019 the Ministry of Industry and Infrastructure Development disclosed for the first time beneficial ownership data on its website. The data included names of beneficial owners and their level of ownership under new licenses only.
Kazakhstan’s rating in Transparency International’s (TI) 2020 Corruption Perceptions Index (CPI) is 38/100, ranking Kazakhstan 94 out of 180 countries rated – a relatively weak score, but the best in Central Asia. According to the report, corruption remains a serious challenge for Kazakhstan, amplified by the instability of the economy. Improvement of Kazakhstan’s CPI under the conditions of the COVID-19 emergency indicates that the country took persistent efforts to combat corruption. The world community assessed positively measures taken by the government of Kazakhstan to support people and businesses during the pandemic, as well as legislative amendments to tighten up liability for corruption, and to further digitalize government services. However, the authorities violated democratic standards related to transparency and access to financial information on healthcare spending, and imposed excessive restrictions on media, human rights, and civil society activities.
The 2015-2025 Anti-Corruption Strategy focuses on measures to prevent the conditions that foster corruption rather than fighting the consequences of corruption. The Criminal Code imposes tough criminal liability and punishment for corruption, eliminates suspension of sentences for corruption-related crimes, and introduces a lifelong ban on employment in the civil service with mandatory forfeiture of title, rank, grade, and state awards. The law on Countering Corruption introduces broader definitions of corruption and risks, anticorruption monitoring and analysis, and stronger financial accountability measures. The law on Government Procurement prohibits companies, the managers of which are directly related to decision makers of contracting government agencies, from participation in tenders. The law on Countering Corruption states that private companies should undertake measures to prevent corruption, while business associations can develop codes of conduct for specific industries. The law on Public Service sets adherence to the rule of law principles including anti-corruption and professionalism of civil service as the main duty of public servants. In 2020, Kazakhstan made amendments to anti-corruption legislation to tighten up liability for corruption crimes (below please see detailed descriptions of those amendments).
The country took actions to tighten up control of corruption. In October and December 2020, it passed two sets of anti-corruption legislative amendments which: – tightened up liability for accepting gifts by officials and their family members (Counter-corruption law and the Civil Code);
– tightened up liability for accepting gifts by officials and their family members (Counter-corruption law and the Civil Code); – added quasi-government organizations’ procurement officers to the list of officials who can be held accountable for corruption (Counter-corruption law article 1.4);
– added quasi-government organizations’ procurement officers to the list of officials who can be held accountable for corruption (Counter-corruption law article 1.4); – mandated establishment of counter-corruption compliance units in the quasi-government sector; other business companies have the right to establish such units (Counter-corruption law articles 16 and 16.3);
– mandated establishment of counter-corruption compliance units in the quasi-government sector; other business companies have the right to establish such units (Counter-corruption law articles 16 and 16.3); – banned high-level officials from taking a job which would put them in direct subordination to a close family member (Counter-corruption law article 14);
– banned high-level officials from taking a job which would put them in direct subordination to a close family member (Counter-corruption law article 14); – prohibited early release from prison of individuals convicted of grave and particularly grave corruption crimes, with a few exceptions (Criminal Code article 72.8);
– prohibited early release from prison of individuals convicted of grave and particularly grave corruption crimes, with a few exceptions (Criminal Code article 72.8); – strengthened punishment of law enforcement employees and judges for commitment of corruption crimes (several articles in the Criminal Code);
– strengthened punishment of law enforcement employees and judges for commitment of corruption crimes (several articles in the Criminal Code); – banned government officials from opening and owning accounts in foreign banks (Counter-corruption law, article 12 subparagraph 1.5 and article 14-1).
– banned government officials from opening and owning accounts in foreign banks (Counter-corruption law, article 12 subparagraph 1.5 and article 14-1).
The Agency for Countering Corruption presents its report on countering corruption annually. Kazakhstan ratified the UN Convention against Corruption in 2008. It has been a participant of the Istanbul Anti-Corruption Action Plan of the OECD Anti-Corruption Network since 2004, the International Association of Anti-Corruption Agencies since 2009, and the International Counter-Corruption Council of CIS member-states since 2013. Kazakhstan became a member of the Group of States against Corruption (GRECO) in January 2020. The government and local business entities are aware of the legal restrictions placed on business abroad, such as the Foreign Corrupt Practices Act and the UK Bribery Act.
Despite legal provisions, however, corruption allegations have been noted in nearly all sectors, including extractive industries, infrastructure projects, state procurements, and the banking sector. The International Finance Corporation’s Enterprise Survey, which gathers responses from thousand of small and medium-sized enterprises in each of more than 100 countries, finds that respondents indicate corruption as the most severe obstacle to doing business in Kazakhstan. For more information, please see: http://www.enterprisesurveys.org/data/exploreeconomies/2013/kazakhstan#corruption.
Transparency Kazakhstan conducted a survey in 2020 to assess corruption perception. 9,000 respondents were interviewed and 1347 written complaints were analyzed in all regions of the country, applying the methodology of Transparency International’s Global Corruption Barometer and the Corruption Perception Index. 37.4 percent of common citizens and 45.9 percent of entrepreneurs indicated a decrease of corruption in their regions. 11.3 percent of respondents faced petty corruption (a decrease compared to 13.4 percent in 2019), 8.2 percent of entrepreneurs had to resort to illegitimate ways in resolving issues with government (9.2 percent in 2019). More than 80 percent of the interviewed entrepreneurs stated that business could be developed without giving bribes. The survey showed that the most trusted officials and offices were the President (70 percent), the Anti-corruption Agency (65 percent), the Cabinet (62 percent), the Civil Service Agency (59 percent) and the Nur Otan party (55 percent); the most corrupt state institutions were viewed to be healthcare, police, tax, fire services, land relations and urban planning authorities, public service centers, and education institutions: http://tikazakhstan.org/transparency-kazakhstan-prezentoval-rezultaty-monitoringa-sostoyaniya-korruptsii-v-strane-za-2020-god/.
The Law on the First President of the Republic of Kazakhstan—Leader of the Nation establishes blanket immunity for First President Nazarbayev and members of his family from arrest, detention, search, or interrogation. Journalists and advocates for fiscal transparency are reported to have faced frequent harassment and administrative pressure.
Resources to Report Corruption
Under the Law on Countering Corruption, all government, quasi-government entities, and officials are responsible for countering corruption. Along with the Anti-Corruption Agency, prosecutors, national security agencies, police, tax inspectors, military police, and border guard service members are responsible for the detection, termination, disclosure, investigation, and prevention of corruption crimes, and for holding the perpetrators liable within their competence.
TI maintains a national chapter in Kazakhstan.
Contact at the government agency responsible for combating corruption:
Agency for Civil Service Affairs and Countering Corruption
37 Seyfullin Street, Nur-Sultan
+7 (7172) 909002 email@example.com
Contact at a “watchdog” organization:
Civic Foundation “Transparency Kazakhstan”
89 Dosmuhamedov Street,
Business Center Caspi
Almaty 050012 +7 (727) 292 0970; +7 771 589 4507 firstname.lastname@example.org
10. Political and Security Environment
There have been no reported incidents of politically motivated violence against foreign investment projects, and although small-scale protests do occur, large-scale civil disturbances are infrequent. No major terrorist attacks took place in Kazakhstan in 2020. In June 2016, individuals described by the government as Salafist militants attacked a gun shop and a military unit, killing 8 and injuring 37 people in the Aktobe region of northwestern Kazakhstan.
Kazakhstan generally enjoys good relations with its neighbors. Although the presidential transition in neighboring Uzbekistan has opened the door to greater regional cooperation, including on border issues, Kazakhstan continues to exercise vigilance against possible penetration of its borders by extremist groups. The government also remains concerned about the potential return of foreign terrorist fighters from Syria and Iraq.
After close to three decades as President, Nursultan Nazarbayev resigned March 20, 2019, and was succeeded by Kassym-Jomart Tokayev, the former Senate Chairman and next in line of constitutional succession. On June 9, 2019, Kazakhstan held an early presidential election, and Tokayev was elected to a full term with 71 percent of the vote. The Organization for Security and Cooperation in Europe (OSCE) noted in its final report that the election “was tarnished by clear violations of fundamental freedoms as well as pressure on critical voices;…significant irregularities were observed on election day”; “the election took place within a political environment dominated by the ruling Nur Otan party and with confined space for civil society and opposition views.” In the January 10, 2021 election for the Mazhilis (lower house of Parliament), Kazakhstan’s largest party, Nur-Otan, received 71 percent of the vote, while the business-friendly Ak Zhol party received 11 and the People’s party 9 percent. The OSCE similarly criticized the January 10 elections for their lack of adherence to OSCE standards for democratic elections.
11. Labor Policies and Practices
The July 2017 EBRD Kazakhstan Diagnostic Paper (the latest available) singles out skill mismatches across sectors as the fifth constraint that is holding back private sector growth in Kazakhstan. The gaps create real operational challenges such as high recruitment and training costs, lower productivity and constraints on innovation and new product development, according to the EBRD. The existing skill mismatches are not a result of lack of access to education, but rather failure to acquire job-relevant skills and competencies, the EBRD report reads. The 2019 OECD report on Monitoring Skills Development through Occupational Standards in Kazakhstan echoes the EBRD findings – despite improvements in educational attainment and labor market participation, Kazakhstan faces challenges with respect to skill relevance and availability, especially among large and middle-sized companies. Strengthening vocational education and training is critical because skilled manual workers, with medium and high qualifications, represent 40% of the total workforce need, according to the OECD. Many large investors rely on foreign workers and engineers to fill the void. Kazakhstan has approved a foreign workforce quota of 29.3 thousand for 2021. As of December 29, 2020, the Labor Ministry reported about 14,600 valid work permits. Chinese workers received the largest number of permits, with the rest going to foreign workers from Uzbekistan, Turkey, India, the UK, and others.
The Kazakhstani government has made it a priority to ensure that Kazakhstani citizens are well represented in foreign enterprise workforces. In 2009, the government instituted a comprehensive policy for local employment, particularly for companies in extractive industries. The government is particularly keen to see Kazakhstanis hired into the managerial and executive ranks of foreign enterprises. In January 2021, Energy Minister Nurlan Nogayev welcoming the new Director General of Tengizchevroil noted that a Kazakhstani citizen can become a future head of the company, according to the company’s charter documents. In November 2015, the government amended legislation on migration and employment that resulted in new rules for foreign labor starting January 2017 (please see details in Performance and Data Localization Requirements). U.S. companies are advised to contact Kazakhstan-based law and accounting firms and the U.S. Commercial Service in Almaty for current information on work permits. AIFC-registered entities may obtain and employ foreign workers without any work permit.
Kazakhstan joined the International Labor Organization (ILO) in 1993, and has ratified 24 out of 189 ILO conventions, including eight fundamental conventions pertaining to minimum employment age, prohibition on the use of forced labor and the worst forms of child labor, and prohibition on discrimination in employment, as well as conventions on equal pay and collective bargaining. In March 2019, Kazakhstan’s Federation of Trade Unions proposed that the Kazakhstani government join five more ILO technical conventions on social security (minimum standards), minimum wage fixing, collective bargaining, part-time work, and safety and health in agriculture.
The Constitution and National Labor Code guarantee basic workers’ rights, including occupational safety and health, the right to organize, and the right to strike. In September 2017, the ILO expressed concern over Kazakhstan’s compliance with the Freedom of Association and Protection of the Right to Organize Convention and the Right to Organize and Collective Bargaining Convention by calling on the government to amend the relevant legislation in order to: (1) enable workers to form and join trade unions of their own choosing, (2) allow labor unions to benefit from joint projects with international organizations, and (3) allow financial assistance to labor unions from international organizations.
On May 4, 2020, the government enacted amendments to labor-related laws, including the trade union law, to bring them closer to compliance with ILO standards, in particular, the convention on freedom of association. The amendments removed the requirement that lower-level unions affiliate with higher-level sectoral, territorial, and national-level federations. The amendments also lowered membership requirements and simplified other registration requirements. Kazakhstan’s three independent labor unions – the Federation of Trade Unions of the Republic of Kazakhstan (FTUK), Commonwealth of Trade Unions of Kazakhstan Amanat, and Kazakhstan Confederation of Labor (KCL) – had over three million members, or 40 percent of the workforce, as of March 1, 2020. Another trade union, Yntymak, with more than 57,000 members, was established in 2018 to represent small and medium enterprises. According to the FTUK, as of January 2020, ninety-eight percent of large and medium enterprises had collective agreements. Overall, 41.2 percent of all working enterprises had collective agreements.
Article 46 of the Labor Code gives the employer the right to change work due to fluctuating market conditions with proper and timely notifications to employees. Article 52 of the Labor Code gives the employer the right to cancel an employment contract in case of a decline in production that may lead to the deterioration of economic and financial conditions of the company. Article 131 of the Labor Code allows for severance payment of average monthly wages for two months in case of layoffs for economic reasons. The Ministry of Labor and Social Protection is responsible for offering alternative job openings with state programs of the so-called Employment Road Map, alternative professional training, or temporary jobs to workers laid off for economic reasons. The 2017-2021 Productive Employment and Mass Entrepreneurship National Program, run by the Ministry of Labor and Social Protection, aims at connecting workers with permanent jobs. The program provides micro-loans, grants, and equips workers with basic entrepreneurial skills.
Chapter 15 of the Labor Code describes a mechanism for resolution of individual labor disputes via direct negotiations with an employer, mediation commission, and court. Chapter 16 of the Labor Code identifies a mechanism for resolution of collective labor disputes via direct negotiations with an employer, mediation commission, labor arbitration, and the court.
Labor unrest presents a risk where unemployment is high and where the bargaining power of limited skilled labor is relatively high, but authorities have been quick to intervene with controls and mitigating measures. On March 1, 2021, FTUK reported on 22 labor conflicts since January 1, 2021. The conflicts that resulted in strikes were mostly observed in Chinese oil companies.
On January 31, 2021, the workers of KMK Munay, affiliated with China National Petroleum Corporation, resumed their work, following a seven-day strike to demand a 100-percent wage increase they had been seeking since March 2020. The workers of another Chinese company AMK Munay did not agree with the management offer to increase wages by seven percent. Following a joint meeting at the local municipality, AMK Munay agreed to increase wages and pay a bonus equal to 50-percent of the workers monthly wage. On January 6, 2021, three hundred workers of Bonatti, a contractor of Karachaganak Petroleum Operating B.V., declared a hunger strike, demanding a 50-percent wage increase. Local authorities reported that the company’s management and workers subsequently reached an agreement.
In August 2020, FTUK reported that over 4,000 employees appealed to FTUK during the pandemic, seeking clarifications on their rights. Each trade union established a call center to respond to inquiries from the employees. FTUK negotiated with M-TechService a payment of 50-percent wages to workers who could not come to work due to movement restrictions and the payment of double wages to workers who worked on rotational shifts longer than usual.
Other employers agreed to provide workers interest-free loans or cut working hours by two hours without withholding wages.
Tengizchevroil provided unprecedented support to its contractors during the pandemic. From March 23, 2020 to July 1, 2020, Tengizchevroil paid 100 percent of the average wage to all contract employees in Tengiz during the downtime due to the pandemic. These payments helped to save jobs and stabilize the social situation. From July 1, 2020 to October 1, 2020, Tengizchevroil lowered this compensation to 50-percent of the employee’s salary to contractors.
Workers’ right to strike are limited by several conditions. It may take over 40 days to initiate a strike in accordance with the law, representatives of labor unions report. Workers can strike if all arbitration measures defined by law have been exhausted. Strike votes must be taken in a meeting where at least half of workers are present, and strikers are required to give five days’ notice to their employer, include a list of complaints, and tell the employer the proposed date, time, and place of the strike. Courts have the power to declare a strike illegal at the request of an employer or the Prosecutor General’s Office. Employers may fire striking workers after a court declares a strike illegal. The 2014 Criminal Code enabled the government to target labor organizers by imposing criminal charges and up to three years in prison for calls to participate in strikes declared illegal by the court. The 2020 amendments to the Code reduced the penalty for such calls. If the calls for strikes did not result in a material violation of rights and interests of other individuals, they would be classified as minor criminal offenses, and the penalty would be limited to a fine or community service.
The Labor Union Law enacted in 2014 restricted workers’ freedom of association. Under the law, any local (and potentially independent) labor union had to be affiliated with larger unions, and the right to freely establish and join independent organizations without prior authorization had been restricted. On the basis of this law, in 2016 authorities did not allow the registration of one independent labor union and ordered its liquidation. In 2018, the U.S. government initiated a review of Kazakhstan’s compliance with the Generalized System of Preferences following a petition by the AFL-CIO, based on the country’s alleged failure to afford internationally recognized workers’ rights. The AFL-CIO petition highlighted the Law on Unions and also raised concerns about the use of Article 404 of the Criminal Code, which appeared to prohibit unregistered organizations. In May 2020, Kazakhstan signed into law amendments to labor-related laws. The amendments removed the requirement of affiliation with a large labor union for local labor unions and simplified procedures for registration of labor unions. The law no longer requires an industrial labor union to have no less than 50 percent of industry workers as its members. The time to register labor unions was extended from six months to one year. Other changes included reducing restrictions on strikes. Workers employed in the railway, transport and communications, civil aviation, healthcare, and public utilities sectors may strike if they maintain minimum services for the population, that is, provided there is no harm caused to other people. The amendments also reduced penalties for calls to continue strikes declared illegal by a court. Please see details at the Human Rights Report at: https://www.state.gov/reports/2019-country-reports-on-human-rights-practices/.
The official unemployment rate in Kazakhstan has regularly been near five percent in recent years. The unemployment rate in the fourth quarter of 2020 dropped to 4.9 percent, while it was 5 percent from April to September 2020. Youth unemployment rate was 3.6 percent.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source*
USG or international statistical source
USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Host Country Gross Domestic Product (GDP) ($M USD)