Crypto License in Kazakhstan

General information about the Kazakh crypto license

The crypto license in Kazakhstan is granted by the Astana Financial Services Administration to companies registered within the Astana International Finance Center. Crypto licenses have been granted in Kazakhstan since 2020 and the framework has been built up until reaching maturity on February 6th of 2023 with the “Law on digital assets in the Republic of Kazakhstan”.

The Kazakh crypto businesses are regulated by a dedicated authority, ruling over a defined economic zone. Running a crypto business outside of this area is not permitted in Kazakhstan.

Major companies have set up a Kazakh antenna, including big players such as Binance, ByBit and Bitfinex. The Kazakh license provides consequent corporate advantages for crypto companies of important sizes:

• Exemption of corporate income tax;
• Exemption of personal income tax for workers on site;
• Facilitation for obtaining a work visa in Kazakhstan.

The regulations are simultaneously enabling the most common crypto activities (exchange and custody) while offering room for innovative and financial crypto-related services, thanks to the “Fintech Lab”. This regulatory sandbox provides crypto entrepreneurs with freedom of movement to provide unique services and products to the market.

As one may expect, the domestic AML-CFT rules shall be observed at all times, as well as compliance with the KYC and risk management obligations.

Kazakhstan Crypto License: Process and Duration

The process to obtain a crypto license in Kazakhstan is straightforward, the timeline being about 6 to 9 months. In the particular case of Kazakhstan, as the license is granted by a dedicated regulator ruling over a defined territory, the process engulfs both the incorporation and the licensing.

A full application shall then be addressed simultaneously as the company formation begins. Both are managed by the same authority: the Astana Financial Services Administration.

A crypto company in the Astana International Financial Center requires a physical office space, two local employees (AML officer and compliance officer) as well as an appointed board of directors (that do not need to reside in Kazakhstan).

Licensed VASP companies can easily open a corporate account in a Kazakh banking institution.

Obtaining the crypto license in Kazakhstan requires a lot of preparation. At a minimum, the following documents are required:

• Corporate documents of the head company abroad (if applicable);
• Resumes and background check of the board of directors;
• Evidence of source of funds;
• Financial projections and evidence supporting the estimates of revenue stream;
• Passport of every participant;
• Policies and procedures compliant with the law;
• Market making agreements.

The different types of crypto licenses in Kazakhstan

The Kazakh crypto license framework can be broken down into three elements:

• The 2 “white-labeled” licensed activities:
  • Operating a Digital Asset Trading Facility;
  • Providing Custody.
• The Fintech Lab and other financial services, that allows for a wide range of services.

The Kazakh crypto exchange license being granted and supervised by the same authority that regulates financial services companies (such as investment funds), it is possible to obtain additional licenses of that kind to provide extended services with crypto.

Being the most convenient and flexible regime, the Fintech Lab framework has been chosen by all the crypto companies registered in Kazakhstan. It must be pointed out that these companies are all subsidiaries of major exchanges. A company whose headquarter and only license would be in Kazakhstan will require a full authorization regime to operate.

The basis of the license allows for 2 crypto activities defined as such:

• Operating a Digital Asset Trading Facility (exchange): operating a platform facilitating the buying and selling or exchange of digital assets for a fiat currency or another digital asset;
• Providing Custody: safeguarding and administering digital assets belonging to the clients of the company.

The legality of cryptocurrency business in Kazakhstan

In Kazakhstan, cryptocurrency business is legal in the Astana International Finance Center (AIFC). This free zone equivalent is regulated by an independent body, the Astana Financial Services Authority (AFSA), and provides entrepreneurs with advantageous conditions for business.

The AFSA regulates cryptocurrency companies through a panel of frameworks, allowing for financial services of different kinds. Providing custody services (whether in crypto or not) is classified as a regulated activity, while operating a digital asset trading facility is recognized as a market activity.

The AIFC also includes the FinTech Lab: a regulatory sandbox for entrepreneurs to settle in Kazakhstan and enjoy beneficial conditions for business growth:

• No income tax;
• English speaking regulators;
• Common law;
• Facilitation in hiring domestic personnel at a low cost.

All in all, Kazakhstan with the AIFC is actively attracting crypto companies, successfully driving home major players such as Binance, ByBit, Bitfinex and the likes.

Cryptocurrency regulation in Kazakhstan

The cryptocurrency regulation in Kazakhstan’s AIFC is made out of an intersection between the AFSA rules and guidelines on the one side, and the laws of Kazakhstan on the other side.

The AFSA provides the framework to register into the AIFC, to form a legal entity and register for authorized activities, including the ones pertaining to cryptocurrencies.

The Kazakh crypto licensed companies must also comply with the Kazakh laws on anti money laundering and countering the financing of terrorism. Compliance is insured by the AFSA.

This way, companies willing to start a crypto business in Kazakhstan are faced with a specialized entity, whose role is precisely to assist them in setting up shop and doing business.

Kazakhstan Virtual Cryptocurrency Registry

Crypto licensed companies in Kazakhstan are listed in a public register on the website of the AFSA. Digital Asset Service Providers are listed in a category of their own, with their authorized activities and date of licensing in the file.

The register also includes detailed corporate information such as the board members, the capital of the company and its address. Therefore, there is absolute transparency on the actors of the cryptocurrency business market in Kazakhstan.

The registry is regularly updated with new information on the participants in the AIFC. It can be seen who is getting authorized for what kind of crypto activity, and when.

Crypto-authorization process in the Kazakhstan Virtual Currency Registry

An application to the crypto authorization in Kazakhstan has to be correctly prepared. The regulator underlines that a few crypto businesses fell into difficulties by trying to rush out the application forms, not taking into account critical aspects of the process.

The careful crafting of the application is key to successfully obtaining the VASP license in Kazakhstan. As all the criteria are met, the crypto-authorization process is straightforward and relatively simple.

The registration of Kazakhstan companies in the register of crypto currency companies

The VASP license in Kazakhstan is only available for companies registered in a specific economic zone: the Astana International Financial Center (AIFC). Due to this, it is sometimes stated here and there that crypto activities are not permitted in Kazakhstan, only in the AIFC.

The AIFC is unique, especially in regards to crypto businesses, as it is regulated and directed by a dedicated authority: the Astana Financial Services Authority (AFSA).

To start the process of receiving the crypto authorization, a project must first register a legal entity in the AIFC. This is made very easy thanks to the assistance of the AFSA.

Companies registered in the economic zone benefit from various corporate advantages, such as corporate income tax exemption, preferential migration regime and a financial springboard for asset management companies and other funds.

Governmental Statements on Crypto in Kazakhstan

Kazakhstan has adopted a strict and proactive approach to regulating crypto assets. On the one hand, it made issuing cryptocurrencies illegal in the country. On the other hand, it created an exception within the Astana International Financial Center in order to channel and even promote the formation of crypto businesses in the country.

Since the beginning of the 2020’s, Kazakhstan has been one of the leading countries for crypto mining. A fact that the Ministry of Digital Technology decided to own and develop, by creating a crypto mining license.

The Kazakh government, through these initiatives, shows that it is well aware of the importance of the growing industry of digital assets. Unsurprisingly, it wants to take the largest possible piece of the cake. This, as for now, means a win-win situation with crypto companies settling in Kazakhstan.

Requirements for companies engaged in crypto activities in Kazakhstan

As registering a company in the Astana International Financial Center requires registering for a dedicated activity, an applicant shall prepare its application from the very beginning. The company is incorporated as a crypto entity from the get go and shall receive a license, elseway it will not be completed.

This is why both the incorporation and the application should be prepared at once. As the first step will still be to form a legal entity with a local office and a business account in Kazakhstan, licensing requirements will include:

• 6 months worth of operating expenses as the company’s share capital;
• Appointment of personnel: CEO, CFO, CTO, and Director. One person can fulfill more than one of these roles, including the four of them if he has the background and education for it. The personnel does not need to be in Kazakhstan, but people located in Kazakhstan will benefit from income tax exemption;
• Appointment of local employees: AML officer and compliance officer. These two roles shall be fulfilled by two different individuals;
• AML-CFT and KYC documents, policies and procedures, compliant with the current legislation of Kazakhstan No. 191-IV “On Counteracting Money Laundering and Terrorist Financing”;
• A detailed business plan with 3 years worth of financial projections;
• Having the platform or software ready, and compliant with the requirements of the International Finance Commission.

In that regard, additionally to general requirements for companies and authorized market institutions, operators of a digital asset company should:

• Provide a detailed risk assessment of their operations;
• Provide a detailed description of their operations, internal controls and everything related to protecting customers and their assets;
• Provide a detailed cyber security plan, with policies and procedures, ensuring the protection of the systems and data;
• Segregate the trading activity (exchange) from the safeguarding activity (custody) to better protect the clients and their crypto assets.

The process of setting up a company for a cryptocurrency business in Kazakhstan

To apply for the crypto license in Kazakhstan, a project should set up a company in the Astana International Financial Center. This economic zone is a 1,600 hectares district located in the south of Astana (formerly Nur-Sultan), the capital city of Kazakhstan.

This area is composed of office spaces dedicated to hosting companies, providing a convenient range of corporate services. This underlines that a company setting up for a cryptocurrency activity in Kazakhstan should rent an office space.

Incorporation is done directly from the Astana Financial Services Authority. A company must register as a financial or non-financial company. A third regime exists: the Fintech lab, for innovative companies. This classification encompasses crypto companies, giving them room for new business models implying the issuance and/or the usage of digital assets.

Taxation for cryptocurrency companies in Kazakhstan

As Kazakh crypto licensed companies can only register in the Astana International Financial Center, they benefit from the special tax conditions of this free zone.

Notably, companies registered in the AIFC benefit from a 0% corporate tax for financial services. AIFC crypto companies are also exempted from VAT.

To encourage the hiring of domestic team members, there is no personal income tax levied on the salaries perceived by employees of a company registered in the AIFC.

Obligations for crypto companies in Kazakhstan

The active, licensed crypto company in Kazakhstan, must maintain communication with the AFSA at all times. Stated as a mandatory requirement, a licensed entity must report regularly to the regulatory authorities, provide annual audits and ensure constant compliance with all the applicable laws.

Among these rules to be followed, all the requirements for obtaining the license in the first place remain:

• The requirement for qualified personnel for the board management of the company;
• The requirement for two domestic employees: an AML officer and a compliance officer;
• Up-to-date and enforced policies and procedures pertaining to AML-CFT, KYC, cybersecurity, data protection and safety of customers’ assets;
• Hold the minimum capital of 200,000 USD for prudential requirement;
• Pay the supervision fee of 25,000 USD per year (plus variable quarterly fees).

Sanctions for violating Kazakhstan’s crypto-business obligations

The set of rules and laws provided by the Republic of Kazakhstan, the Ministry of Digital Technologies and the Astana Financial Services Administration does not give a detailed breakdown of the risks associated with breaching the law.

Given the organizational structure of the economic zone and the existence of a dedicated regulatory body, it is expected that law breaking crypto companies may face corporate and financial sanctions at the very least.