Options for relocation of your business to Central Asia

last updated on 14 June 2022

 
The sanctions against Russia, including the Russian counter-sanctions, have created significant challenges for many German and foreign companies. Every day there are questions about the sanctions provisions and many practical aspects.

 
The Russian ban on the payment of profits abroad, which is currently under discussion, and other measures to be taken by the Russian government raise the question for German small and medium-sized businesses, in particular whether it makes sense to move to other neighboring markets within the Eurasian Economic Union.

 
Below we would like to provide you with a brief overview of entering the Kazakhstan and Uzbekistan markets and answer the most important questions related to the possible relocation of your business to Kazakhstan or Uzbekistan.
  

Moving business activities within the Eurasian Union

In 2014, Russia, Belarus, Kyrgyzstan, Armenia and Kazakhstan founded the Eurasian Economic Union. The Eurasian Economic Union was originally created on the basis of a customs union and was aimed at facilitating the exchange of goods, capital assets and services. The principle of free flow of workforce, enshrined in the founding documents, was also based on the European Union model. As an independent state, Kazakhstan is one of the founding members and, across the border with Russia, through Russian as the second official language, offers German and foreign companies the opportunity to continue to supply goods to the Russian market within the Eurasian Economic Union and provide services there.
   

Uzbekistan is Germany's second most important partner in Central Asia after Kazakhstan

Uzbekistan, with more than 34 million people, is the most populous country in Central Asia and borders Kazakhstan to the north. The Uzbek market is the fastest growing market in Central Asia. For more than five years now, Uzbekistan has been pursuing a liberal economic policy under the new President Mirziyoyev. The country loosened its exchange rate policy, while also taking political measures to improve cooperation with neighboring countries. Among other things, Germany exports machinery and equipment, vehicles and their components, chemical products and other goods.
  

Key questions

What are the advantages of entering the market in Central Asia?

First, the geographic proximity of northern Kazakhstan to Russia is crucial. The existing duty-free regime within the Eurasian Union makes it possible to deliver goods through Kazakhstan to Russia, provided, of course, that they are not subject to extensive sanctions. In both Kazakhstan and Uzbekistan, Russian is still the language of communication. In addition to English, Russian is the business language in both Central Asian countries.

 
Although the business culture in Kazakhstan and Uzbekistan is different, both countries are linked by the Silk Road, a tradition of trade that goes back more than two thousand years. Kazakhstan's economic metropolis of Almaty is only an hour's drive from the Uzbek capital. The establishment of a branch in Almaty, for example, will allow the Uzbek market to be developed at the same time.
The principle of free flow of workforce allows companies to transfer Russian citizens to Kazakhstan without significant costs (see below).
  

What legal form is suitable for entering the market of Kazakhstan and Uzbekistan?

1. Kazakhstan
Besides a limited liability partnership (so called LLP), the authorized capital of which must comprise 1 tenge, foreign companies may establish non-subsidiary business units (branches or representative offices). The decisive factor here is weighing the advantages and disadvantages of each company's respective form and business approach. We will be delighted to advise you on further details.
 
2. Uzbekistan
Also in Uzbekistan, in addition to a limited liability company (so called LLC), representative offices may be established as non-subsidiary business units. The representative office may carry out auxiliary activities in accordance with double taxation treaties between Germany and the two Central Asian states. Therefore, the establishment of a representative office is appropriate for market research.
  

How long does it take to establish a limited liability company or a non-subsidiary business unit?

1. Kazakhstan
Kazakhstan has been digitizing its administration for more than six years. Generally, the establishment takes a maximum of two weeks upon the receipt of necessary documents from the foreign company. It takes two to three weeks to prepare a power of attorney, as well as to provide notarized excerpts from the commercial register and a tax withholding certificate. Thus, the establishment of a limited liability company can be completed in one to one and a half months. The same applies to the establishment of a branch or representative office.
  
We have prepared checklists and will immediately make them available to you if we are instructed respectively.

 
2. Uzbekistan
Obtaining the documents necessary to establish an Uzbek company takes a little longer than in Kazakhstan. While for Kazakhstan the documents must be notarized and provided with an apostille, in case of establishing a legal entity in Uzbekistan it will be necessary to legalize documents at the Uzbek diplomatic missions. It takes about one week longer, so all the necessary documents will normally be ready within three to four weeks. The act of establishment itself in Uzbekistan takes about two weeks.
  

Is a legal address required?

It must be confirmed for the establishment that the future company has a business address. Rödl & Partner can provide you with such legal address.
    

Are work permits required?

1. Kazakhstan
The principle of free flow of workforce allows Russian or Belarusian citizens to engage in labor activities in Kazakhstan without obtaining a work permit. A temporary residence permit, which is issued in a simplified procedure by registering a local Kazakhstani labor contract, is sufficient. Normally, this issue can be resolved within one week upon conclusion of the employment contract.
 
However, citizens of other states require a work permit, which, depending on the qualifications of the worker, can take up to three months. Ask us for the respective checklist.
 
Rödl & Partner may temporarily assume the functions of Managing Director. This saves you time and allows you to carry out your business without any time expenditures.
 
2. Uzbekistan
Under Uzbek migration legislation, foreigners are required to obtain a work permit. This can take from one to two months. The issuance of the permit involves the payment of an administrative fee of about EUR 1,500 and is usually done without any difficulties.
Rödl & Partner in Uzbekistan may also temporarily take over as Managing Director.
 

What else do you need to consider?

In Kazakhstan, as in Uzbekistan, each local company must submit so-called internal regulations, for example, on the protection of personal data. Rödl & Partner has its branches in both Central Asian countries that can constantly update such internal regulations and provide them to you.
Since its establishment, the company must keep accounting records. This function can be taken over by Rödl & Partner both in Almaty and in Tashkent.
 

Payments from abroad and abroad

The imposed sanctions are spearheaded against certain Russian banks. However, they are not spearheaded against either Kazakh or Uzbek banks. Payments from Kazakhstan or Uzbekistan can be made without restrictions in accordance with liberal regulations in the field of monetary law. In some cases, contracts to the amount of over USD 500,000 must be registered. However, this can easily be done within two to three business days. Distribution of dividends, servicing of credit agreements, payment for goods and services always remain possible. Contracts between residents and non-residents can be concluded in any currency, for example, in EUR or USD.
 

Protection of investments

Kazakhstan and Uzbekistan guarantee the protection of foreign investments. Agreements on investment protection have been concluded with Germany. There is an ample scope of opportunities for making investment agreements on tax, customs and VAT exemptions. For more information, please refer to our investment guide for Uzbekistan and Kazakhstan.