What is a branch or representative office?
In accordance with Article 43 of the Civil Code of the Republic of Kazakhstan (General Part):
- a branch office is a separate subdivision of a legal entity situated outside the place of its location and performing all or part of its functions, including representation functions; and
- a representative office is a separate subdivision of a legal entity situated outside the place of its location that protects and represents the interests of a legal entity, enters into transactions and performs other legal actions on its behalf (except for cases stipulated by legal acts of the Republic of Kazakhstan).
Branches and representative offices are not considered to be legal entities. The legal entity that establishes the branch or the representative office (the “parent company”) provides physical assets to them and the branch or representative office acts on the basis of approved guidelines.
Heads of branches and representative offices are appointed by an authorised body of the legal entity and they act under a power of attorney granted to them.
Consequently, there is a general functional focus of a branch and representative office; however, there are also certain differences between the two, expressed in legal and functional actions.
How do they differ?
A branch office has got more authority than a representative office. The branch can carry out production and business operations, trade, shipping, supply and marketing functions. It can also perform various activities, for example the branch has the right to carry out any activity stipulated by the branch office regulations, so long as it stays within the scope of activities of its parent company.
Moreover, pursuant to the power of attorney granted to the branch director, he or she has the right to sign contracts and enter into other transactions on behalf of the parent company, to represent interests of the legal entity in court and with other government bodies, to establish new business contacts and relations, and to negotiate with the partners of the parent company. Operations of the branch, as well as the activity of the parent company, are ultimately aimed to make a profit, therefore the branch independently supports its activities through the profit generated from the goods sold, the services rendered and the work performed by it.
Representative offices only represent the parent company and protect their interests. They have no right to engage in any other industrial or commercial activities. The technical, financial and administrative support of the representative office is carried out through the funds allocated by the parent company. To this extent, activities of a representative office are cost-based (in the long term, the costs associated with the functioning of the representative office are covered by the benefits derived from it, since achievement of the goals justifies the investment).
Thus, the main difference between a branch and a representative office is the nature and extent of the functions they perform. A branch is a more universal structural unit. Whereas, activities of the representative office are more truncated and limited.
How to register a branch or representative office in the Republic of Kazakhstan?
In accordance with the Law of the Republic of Kazakhstan “On State Registration of Legal Entities and Registration of Branch and Representative Offices”, a representative office and a branch of a foreign company in the Republic of Kazakhstan is established by its registration with an authorised body.
From 1 July 2019, the state registration of legal entities that are commercial organisations and record registration of their branches and representative offices, is carried out by the “Government for Citizens” State Corporation. The registration procedure is identical for both representative offices and branches.
For the record registration of a branch/representative office of a foreign company, a number of documents (determined by the legislation) should be submitted to the Registrar.
The registration procedure for a branch/representative office includes verification by the registrar of the documents submitted for registration, for their compliance with the legal acts of the Republic of Kazakhstan.
If the submitted documents comply with the legal requirements of the Republic of Kazakhstan, then the registering authority registers the branch/representative office and issues a “Certificate of record registration of the representative office (branch)” within one business day. During the process of record registration, the registering authority simultaneously registers the branch/representative office with the tax authorities of the Republic of Kazakhstan.
The certificate of record registration of a branch/representative office will contain information on the date of its issue, business identification number of the branch/representative office (BIN) assigned thereto, date of record registration, name and location of the branch/representative office, as well as the name of the foreign company that established the branch/representative office.
Prior to the submission of documents for registration, a non-resident company will need to make various organisational arrangements for the proper operation of a branch/representative office in the Republic of Kazakhstan. In particular, for example, it will be necessary to appoint the head of the branch/representative office, find an office to accommodate the branch/representative office and develop and approve branch office regulations in both Kazakh and Russian.
A branch/representative office is a taxpayer under the laws of the Republic of Kazakhstan; however, in order to determine the tax treatment of such a branch/representative office it is necessary to take into account the terms and conditions of international tax treaties concluded between the Republic of Kazakhstan and the country where the non-resident company is located.
According to the amended Law of the Republic of Kazakhstan “On Currency Regulation and Currency Control”, from 1 July 2019 branch/representative offices of foreign non-financial organisations will be recognised as residents of the Republic of Kazakhstan, with all that it implies.