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In light of the sudden changes in the crypto mining situation in
Kazakhstan with the restrictions on Bitcoin computational processes
by the Chinese government that escalated into the recent strict
measures implemented in June 2021, Kazakhstan’s bitcoin mining
has dramatically surged into third place on the global market.
In order to further its advantage on the global mining market,
Kazakhstan has started its actions towards the creation of relative
advantages in mining conditions while also maintaining close
control of the situation.
In this article, we would like to describe the recent
developments in the legislation of the Republic of Kazakhstan on
the matters of cryptocurrency and digital mining, as well as to
shed the light on the opportunities of registering in the Astana
International Financial Centre (“AIFC”) for foreign
crypto miners.
It is important to draw your attention that the legal regulation
of cryptocurrency and digital mining is still in the process of
development in the Republic of Kazakhstan, and this article as of
the date of publication is solely based on the recent developments
and current legislation of the Republic of Kazakhstan.
1. Why register in the AIFC?
1.1. The AIFC as an international hub for development of the
digital asset market
The AIFC is a financial hub located in the Republic of a
Kazakhstan. It is a special territory defined by the Constitutional
Statute of the Republic of Kazakhstan. The main objective of the
AIFC is to ensure a friendly ecosystem for foreign investments and
secure independent regulation. This special territory operates on
Common law framework secured by the independent Court headed by
Chief Judge Lord Mance and other British judges.
Since its establishment in 2017, the AIFC became a centre of
attraction for crypto mining companies, which was facilitated by an
official legalization in 2020. For instance, such large players as
Bitfury, Powerry, Minebest and others registered their legal
entities in the AIFC jurisdiction to guarantee the Rule of Law.
1.2. Climate
Kazakhstan possesses a considerable amount of cheap electricity
in Central, Northern and North-Western regions and has a sharply
continental climate characterized by a cold and windy weather,
which are one of the main fundamental conditions for data centers
and mining farms operation.
Miners have an opportunity of benefitting from favorable weather
conditions, cheap electricity and legal status by opening legal
entity in the AIFC and operating data centers in Kazakhstan or
contracting mining hotels for hosting.
1.3. Legal status
In July 2020, Kazakhstan officially recognized Bitcoin as a
digital asset that could be accounted as any other commodity. The
AIFC Fintech rules allow establishment of crypto exchanges and
building other regulated activities based on digital assets.
1.4. Developments in the regulatory regimes for digital
assets and mining
The significant improvements in Kazakhstani regulatory regimes
for mining and digital assets were achieved. As such, the
legislation of the Republic of Kazakhstan established a legal
regime for mining and cryptocurrency. To date, there are 17 mining
farms that currently officially operate in the territory of
Kazakhstan.
At present, the Ministry of Digital Development, Innovation and
Aerospace Industry of the Republic of Kazakhstan together with the
AIFC and the Kazakhstan Association of Blockchain and Data Center
Industry are in the stage of drafting the blockchain technologies
and crypto industry regulations that would allow to achieve the
smooth operation of crypto exchanges in the AIFC territory.
In addition, due to the increased demand from mining companies,
in 2021, certain amendments to the Tax Code were presented with the
introduction of a tax for digital mining in the amount of 1 tenge
(0.00232 USD) per 1 kW/h from January 1, 2022. This legislative
decision should not be interpreted as an obstacle for the new
miners migration to Kazakhstan, but rather as another step towards
legalization of crypto mining and data centers (mining farms),
which is considered as a necessary measure taking into
consideration the restrictive control over miners around the
world.
As such, in order to obtain a special permit or license to carry
out digital mining in the Republic of Kazakhstan, the following has
been established:
- A company must obtain permission for the import of encryption
(cryptographic) equipment from the National Security Committee of
the Republic of Kazakhstan; - A company must notify the Ministry of Digital Development,
Innovation and Aerospace Industry of the Republic of Kazakhstan
about the planned activities (before design) for the construction
of data centers.
To point out, Kazakhstani legislation does not have any rules or
restrictions governing operations with hash rates. Therefore,
operations with hash rates are legal in Kazakhstan.
However, please kindly note that Kazakhstani legislation
characterizes cryptocurrency as a form of property, not a financial
instrument or means of payment. The Kazakhstani law prohibits the
issue and circulation of cryptocurrency in Kazakhstan.
1.5. IT park Astana Hub for Bitcoin mining
activities
The AIFC has established the IT park for Bitcoin mining
activities providing 0% tax regime (CIT, VAT, salary taxes 0%)for
data centers who registers and resides in the IT park Astana Hub
under the premises of the AIFC (only royalty of 1% of the annual
turnovers has to be paid).
1.6. Aspects of electricity price and the percentage of clean
energy
While establishing a legal status to data mining is a crucial
and vital element for attraction of new investors, the low
electricity prices in Kazakhstan are one of the most
significant factors in this regard.
Since cryptocurrency mining farms consume considerable amounts
of electricity and bitcoin mining rewards decreased by 50 percent
in May 2020, finding cheap sources of power is particularly
essential. Besides being cheap, Kazakhstan’s electricity prices
are not subject to high volatility and mostly remain stable during
the year in comparison to prices in China that are subject to
regular seasonal changes.
Uninterrupted availability of electricity in Kazakhstan is also
another reason that makes it one of the most appealing destinations
for data mining. Consequently, one of the world’s biggest
mining centers managed by Enegix company is planned to
be opened in Ekibastuz, Kazakhstan.
To date, there are 116 power facilities that produce renewable
energy in the Republic of Kazakhstan, with an installed capacity of
1685 MW, which accounts for 3% of the total electricity
produced. Since there is no need for electricity
transportation and storage, most electricity consumption comes from
the mining industry allowing to rapidly develop the
industry. Construction regulations and experienced contractors
can assist miners to set up a turnkey mining farms within 3-4
weeks.
Kazakhstan intends to increase the share of renewable energy in
total electricity production to 6% in 2025, to 10% by 2030, and by
2050, alternative and renewable energy sources should account for
at least half of all energy consumption according to
Kazakhstan’s obligations on Low-carbon and Climate-sustainable
Development under the Paris Agreement. At present, around 20% of
energy is a natural gas, which is cleaner than coal, since gas
mainly is a by-product of oil extraction.
Furthermore, apart from 0% tax regime for crypto miners and a
mild construction regime for mining farms construction, Kazakhstan
has a very reliable power grid system operating on several reserve
sources of energy.
1.7. Opportunities for Chinese crypto miners
The Chinese authorities prohibit crypto miners to make exodus
from China, but Chinese miners often inquire our Team on
registration and relocation issues in the AIFC. There are several
listed mining firms that are already operating and could be checked
through the economic activity codes of the registered legal
entities: 62032 – information and communication equipment
management activities, 63111 – hostings and related
activities.
1.8. Government support
Although this new field has generally been welcomed, the novelty
of the industry as well as the lack of a clear and determined
regulatory environment led to uncertainty within some government
agencies towards security and viability of the cryptocurrency
market.
However, nonetheless, the recent developments in
Kazakhstan’s crypto industry proved otherwise, and as was
indicated earlier, in 2020, the new amendments to the legislation
of legitimized mining and digital technologies were
established. Such key definitions as
“cryptocurrency”, “digital
asset”, and “digital mining” were also
initiated into the Law of the Republic of Kazakhstan “On
Informatization”. In addition, this Law stipulates
that only asset-backed cryptocurrencies can legally operate in
Kazakhstan, except in cases that will be introduced
later. Therefore, although unsecured cryptocurrencies are
not officially legal, it is still not clear whether the government
will impose a complete ban on unbacked digital currencies such as
Bitcoin.
In general, the current developments signals the interest
of Kazakhstan in this industry, which could be seen in
the establishment of the new legal regulation
that provides a clearer legal framework for the circulation and
operation of digital assets and legitimized mining. As part of the
vision of Kazakhstani government, this was initiated with the
aim of attracting high-tech industry investments for promotion of
economic growth and diversification.
1.9. Bank Accounts for Cryptocurrency
in Kazakhstan
The Kazakhstan Association of Blockchain and Data Center
Industry informed that crypto exchanges registered in the AIFC
might shortly start operating with local banks which would allow
their clients to openly and officially work with cryptocurrency.
Such an opportunity is planned to be realized after the launch of
the pilot project of the AIFC with second-tier banks.
According to the intended outline, in order to get on the crypto
exchange, an investor is required to be the legal account’s
owner in one of the banks registered with the AIFC. From this
account, the entrepreneur will have the opportunity to buy a
cryptocurrency, transfer money, and carry out various operations
with it on the exchange market.
The AIFC pilot project is estimated to last for one year for the
purposes of Kazakhstani government to assess and evaluate the
benefits and risks of digital assets. Although the circulation of
digital currency in Kazakhstan is currently prohibited, it is
projected that the ban on cryptocurrency in Kazakhstan might become
less categorical or might even be cancelled after the successful
completion of the pilot project.
1.10. Kazakhstan doubles mining
investment 1
Kazakhstan is planning to double its digital currency mining
investment, and is continuing to develop its central bank digital
currency (CBDC). The feasibility and opportunity of introduction of
the CBDC tenge by the Central Bank of Kazakhstan is currently being
demonstrated, and the AIFC intends to assist in a trial and
establishment of a legitimate ground for Kazakhstan to implement
its digital currency.
The AIFC’s covenant includes smart contract, crypto
categorizations, and digital wallets. Kazakhstan earlier has
already developed a way to store cryptocurrency and distribute it
to normalize the procedures via a proficient platform. In June
2020, Kazakhstan adopted a development plan for blockchain and
digital technology.
What do I need to do to register in the AIFC?
We believe that our specialists’ experience and knowledge
may be of great help to the organisations that are planning to
register in the AIFC. The registration of the company in the AIFC
takes about 3-5 business days upon the preparation and receipt of
all necessary documents.
Services
Our team has an extensive experience in provision of legal services
on the registration of a company in the Astana International
Financial Centre (AIFC), including all post-registration
services.
Once the company is registered, we will be happy to act as a legal
counsel in connection to its ongoing activities in the Republic of
Kazakhstan. Contracting for hosting could also be done with the
assistance of our Team through the AIFC, which operates as a
“one stop shop” for foreign investors.
About GRATA International
GRATA International is the largest independent Kazakhstani law
firm, and one of the leading law firms in Central Asia and the
Caspian Region. GRATA has provided a wide range of legal services
in these regions for almost 30 years.
250 professionals in 19 countries advise major international and
local ?rms, funds, banks, insurance ?rms, construction companies,
mining and crypto mining companies, airlines, light and heavy
industry companies, telecoms, pharmaceuticals and others.
GRATA International is recognized as one of the leading law ?rms
in all jurisdictions where it operates by major international legal
ranking agencies: The Legal 500, Chambers Global, Chambers
AsiaPaci?c, IFLR1000, Who’s Who Legal, Asialaw Pro?les and
award of China Business Law Journal.
Footnote
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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