Export Activities of Russian Entrepreneurs in the Republic of Kazakhstan

As a member of the Customs Union, Kazakhstan is one of the most attractive markets for Russian manufacturers.

Many begin their export activities precisely with this country. However, exporting to Kazakhstan, like any other country in the world, has a number of specific features.

General Characteristics of the Socio-Economic Situation of the Republic of Kazakhstan

The Republic of Kazakhstan is a state in the center of Eurasia, with the main part of its territory belonging to Asia and a small part to Europe. The country's territory area is 2.7 million km². The population, according to estimates by the State Statistics Committee as of January 1, 2021, reaches 18.9 million people. The population density is one of the lowest in the world: less than 7 people per square kilometer. The capital is Nur-Sultan. The largest city with a population of 2.0 million people is Almaty. Kazakhstan ranks 9th in the world by territory.

The Republic of Kazakhstan can be placed second in terms of economic development among CIS countries after the Russian Federation. In some indicators, Kazakhstan even surpasses Russia.

Considering Kazakhstan's Gross Domestic Product (GDP), it is worth noting that in nominal terms, this indicator is approximately 10 times lower than Russia's, but at the same time, it is larger than that of other CIS countries. In terms of GDP per capita, both nominally and by purchasing power parity, Kazakhstan ranks second after the Russian Federation. In terms of the ratio of public debt to GDP, Kazakhstan looks slightly worse than Russia, but nevertheless better than other CIS countries and also ranks 10th in the world list, ahead of 94% of countries. However, in various international rankings, Kazakhstan often surpasses Russia: ease of doing business, corruption perception index, index of economic freedom.

Kazakhstan's GDP indicator decreased by 2.6% in 2020. In 2020, the growth of the real sector became an economic driver, amounting to 2%. The service sector ended the year with a minus of 5.6%, although in recent months the dynamics began to recover.

Overall, Kazakhstan's average annual growth rates from 2010 to 2020 were in the range of 4%, which significantly exceeded Russia's growth rates of 1.8%. At the same time, Kazakhstan's economy grew significantly slower than some other CIS countries: Uzbekistan (7.5%), Turkmenistan (9%), Tajikistan (6-7%), where these values can be explained by the low base effect.

The total volume of imports for the year increased by 3.7% or by 1.4 billion US dollars. The following commodity groups showed the greatest growth:

- Machinery and equipment;

- Electrical equipment and their parts;

- Products of the chemical and related industries;

- Finished food products;

- Alcoholic and non-alcoholic beverages and vinegar;

- Tobacco and its substitutes;

- Optical, photographic, cinematographic, measuring instruments and apparatus.

The balance of foreign trade turnover at the end of 2020 is positive. The volume of Kazakhstan's exports exceeded the volume of imports by 7.4 billion US dollars.

What to Pay Attention to When Entering the Markets of Kazakhstan?

Marketing Research

In general, all organizations and individuals, within the framework of prioritization, are recommended to build the decision-making process for entering the market of a particular country starting with marketing research. The Republic of Kazakhstan is highly promising compared to other foreign trade partners of the Russian Federation and ranks 2nd among CIS countries (after Belarus), and is also in the top ten among other world trading partners. Thus, in 2019-2020, in terms of the volume of imports into the Republic of Kazakhstan, products from the Russian Federation occupy the first place. In 2020, the volume of exports from the Russian Federation to Kazakhstan amounted to 13 billion US dollars, which is 6.2% less than in 2019, when the import volume was 13.9 billion US dollars.

Business Missions and Exhibitions

Participation in business missions and exhibitions will also be useful, as personal contacts between people are of utmost importance in finding partners and developing sales channels. Business missions are precisely "tailored" to meet the need of each counterparty for deeper and longer contact. A business mission to the Republic of Kazakhstan, due to its geographical location and the absence of language barriers, can be organized with a relatively small budget. The organization of a business mission and the conduct of exhibition events can be entrusted to a third-party marketing agency.

Logistics Cost Assessment

The length of the Kazakh-Russian border is 7,000 km, which means, on the one hand, there are many options for fast and inexpensive delivery of various goods from Russian regions, ultimately contributing to the specifics of active trade. At the same time, on the other hand, the distance between the extreme northern and southern points of Kazakhstan is 1650 km, which in practice can manifest itself in a large difference in logistics costs in different regions of the republic, creating a barrier and limiting the search for partners to areas and regions bordering Russia. Separately, we note the existence of a number of interstate agreements that help simplify the process of documentary formalization of exports to Kazakhstan.

Geocultural Features

Along with the vast territory in Kazakhstan, as in the Russian Federation, there are multiple cultural and ethnic characteristics that must be taken into account in trade relations. Thus, in the North Kazakhstan Region, the percentage of the Russian population is 49.5%, and it is also one of the regions bordering Russia. Accordingly, this territory is more influenced by the Russian business model, as well as the popularity of certain goods and services. At the same time, in the country's second-largest city, Almaty, located in the south of the state, business is more "Asian" due to, among other things, foreign trade and cultural ties with the People's Republic of China.

Procedure and Form of Payments

Most foreign trade operations between the Russian Federation and the Republic of Kazakhstan are carried out in US dollars, less often in Russian rubles. Accordingly, export relations are strongly influenced by dynamics in the international currency market. Therefore, it is necessary to consider pricing and form a commercial proposal through the prism of agreements on the form and currency of financial settlements. It is also necessary to agree on the payment procedure: full or almost full prepayment for the delivery or post-payment.

Organization of Storage and Delivery

This point indirectly intersects with the assessment of logistics costs and the form of payments. A number of counterparts in Kazakhstan offer Russian exporters not direct delivery to the partner's warehouse, but the organization of product storage in the territory of the Republic in a third-party warehouse, seeing this as a benefit in reducing costs and settlements in the local currency, thereby increasing costs for Russian suppliers. This point should also be taken into account during the negotiation process.

Features of Formalizing Export Supplies to the Republic of Kazakhstan

Transaction Formalities

The general procedure regulating export operations is established by Federal Law No. 311-FZ of November 27, 2010 "On Customs Regulation in the Russian Federation."

Since Kazakhstan is a member of the Eurasian Economic Union, the formalization of an export transaction is carried out according to the accepted scheme, which is identical for all EAEU member states. To carry out the import of goods into the Republic of Kazakhstan for legal entities and individual entrepreneurs from the Russian Federation, the following types of documents should be prepared:

1. Foreign trade contract, according to which the goods are imported into Kazakhstan. This contract must be legally competently drafted and composed, there should be no inaccuracies or corrections in it, all company details and other significant aspects of the foreign trade transaction must be clearly written and indicated;
2. Application for the export of goods and payment of VAT for import by the buyer. The visa on this document from the tax service is of utmost importance. At the same time, the value-added tax itself must be paid into the state budget by the 20th of the following month. The exporting company must have a copy of this form.

It is important to describe the special procedure for VAT payment. When selling goods within the Customs Union, a special procedure regulated by the aforementioned legislative acts applies. According to Article 2 of the Customs Union Agreement, when selling goods within the CU, subject to documentary confirmation, a zero VAT rate applies (clause 1.1, paragraph 1, Article 164 of the Tax Code of the Russian Federation).

For this, when shipping products to Kazakhstan, it is necessary to prepare a goods invoice and an invoice, indicating a VAT rate of 0%. It is not necessary to put a mark on these documents at the tax inspection. If VAT on the exported goods was previously claimed for credit, it must be reinstated. The possibility of accepting the VAT amount for deduction, or claiming VAT for reimbursement, arises only after confirming the fact of the export operation.

To confirm the fact of an export operation, the exporting company must prepare a complete package of documents for the export supply.

The package of documents includes the following list:

- Contract (agreement) on the basis of which the products were shipped;

- Invoice with a zero VAT rate;

- Goods invoice;

- Transport and shipping documents confirming the export of goods;

- Contract with a transport company with appendices;

- Application for the import of goods and payment of indirect taxes of the approved form;

- Bank account statement confirming the transfer of the corresponding amount, according to the contract;

- Completed tax return. For this operation, section 4 or 6 of the VAT return is filled out. When filling out, the export operation code should be indicated:

- If the exported goods are subject to VAT at a rate of 20% domestically - 1010406;

- If the exported goods are subject to VAT at a rate of 10% domestically - 1010404;

The package of documents should be collected and submitted within 180 calendar days from the date of shipment. The date of shipment is considered the date of document preparation for the buyer or carrier. At the same time, the exporter also has the right to charge tax at rates of 10% or 20%.

The refund mechanism is detailed. For this, it is necessary to prepare and submit a tax return to the relevant tax authority. Also, clear and error-free filling of the declaration is of utmost importance, as there is a risk of non-refund of VAT when exporting to Kazakhstan, as well as a risk of receiving a fine with a substantial amount. After submitting the declaration, it is necessary to wait for the desk audit to be completed by an authorized employee of the tax inspection. The VAT refund process takes on average from three to five months based on its results.

3. Transport documentation. Export of goods from the Russian Federation cannot be carried out without appropriate documentary confirmation. This can be a transport waybill, a universal transfer document (UTD), which must be signed by the forwarder, the registration number of the vehicle transporting the exported goods must be indicated, and other accompanying procedures must be performed.
4. Other necessary documents. Depending on the production activity of the exporting company, additional licensing, certification, or permit documents may be required. These may be certificates of conformity, documents confirming safety: phytosanitary, veterinary, and other documents according to the regulatory legislative acts adopted in the Republic of Kazakhstan.

It should not be forgotten that when entering any export market, it is necessary to take into account and respectfully treat the established business rules, as well as the ethnocultural and regional features of working in it.