Having an eye on the condition of digital mining sector in Kazakhstan
Having an eye on the condition of digital mining sector in Kazakhstan

Nowadays, the situation with virtual currencies & crypto-mining has significantly improved, and many data center operators headed into Kazakhstan. Despite being an attracting sector, it is associated with significant costs and certain risks. Moreover, in different countries the legal regulation varies and adds more complications. Therefore, investors should consider all the pros and cons before selecting a corresponding jurisdiction for the intended projects.

Chinese government-imposed restrictions on Bitcoin computing processes and, thus, caused the reduction of the country’s share in world mining. On the contrary, other countries, including but not limited to Kazakhstan, have taken full advantage of this. Consequently, Bitcoin mining in the Republic of Kazakhstan has increased significantly making crypto-mining in Kazakhstan a center of interest for various investors.

To encourage further development in the mentioned sector, the country has taken all necessary measures to provide relative advantages, keeping an eye on the existing situation. Herein we are going to cover the following topics. We will talk about the latest alterations occurred in the legislation of the Republic of Kazakhstan for cryptocurrencies & large-scale mining sector and the reason why foreign cryptominers should be registered in the AIFC.

The data given herein rely merely on the latest developments. One should consider that legal regulation of cryptocurrencies & digital mining is still under elaboration in the country.

Answering the question why investors choose Kazakhstan

The country is offering a number of substantial benefits for cryptocurrency miners: low cost of electrical power and low taxes, and last but not least - a good legal environment.

Firstly, Kazakhstan has significant power resources equaling to 22 gigawatts, thus, feeding mining farms without hindrance. It is worth mentioning that electrical power in Kazakhstan is quite cheap if we compare it with other countries and, moreover, is constant throughout the year. Low cost of electrical power constitutes a great advantage since miners need a lot of electricity for cryptocurrency mining activities. Hence, miners can gain more profits.

Secondly, Kazakhstan is putting all the necessary efforts to double the investments in cryptocurrency mining. Moreover, its national digital currency (CBDC) is under the elaboration by the Central Bank. In this matter the AIFC is ready to give the necessary help. One should also mention a dedicated platform developed efficient storage and distribution of cryptocurrencies. In addition, Blockchain technology & digital technology plan was prepared and adopted by the authorities.

Moreover, cryptocurrency mining obtained a legal status. The Law "On amendments and additions to some legislative acts of the Republic of Kazakhstan on the regulation of digital technologies" was adopted in summer 2020. This law established the legal & regulatory regime for circulation of digital assets, it also covered Bitcoin currency and recognized it as a digital asset. It should be also noted that cryptocurrency is not classified as a means of payment, but only has a property status. AIFC Fintech rules allows to register a crypto exchange in Kazakhstan and to perform various operations.

To sum up, electricity price & good legal conditions contributed to the fact that Kazakhstan is one of the preferred world locations for cryptocurrency entrepreneurs. A favorable environment for launching mining companies is also provided there.

Read also: Kazakhstan

Answering the question whether mining is legal in Kazakhstan

Cryptocurrency mining is a sophisticated process that allows the entry of new coins into circulation. Creation of new “blocks” in blockchain is connected with powerful computers. Thus, significant amount of electric power is necessary for this. Having all the required energy resources, Kazakhstan is able to provide all this condition, and it is no surprise that it has become an appealing alternative for miners.

As we already mentioned, the measures of Chinese government, such as anti-crypto policy of the PRC and others, led to the significant growth of crypto mining in Kazakhstan. In earlier times, P. R. China used to lead this sector, but now its global market share in Bitcoin mining has dropped drastically, making miners to look for other countries to be moved into. Kazakhstan appeared to be a good choice for that due to its proximity and quite cheap electrical power.

Digital mining with its legal status and a dedicated legal regime for cryptocurrency mining, requires the following permits:

  • Firstly, the permission to bring the equipment intended for encryption into the country. It is issued by the National Security Committee of the Republic.
  • Secondly, prior to mining farm project planning the Ministry of Digital Development of the Republic of Kazakhstan must be notified hereof in writing.

Cryptocurrency main features and regulation

Сryptocurrencies - digital or virtual currencies that rely on cryptographic systems. In general, its main features are anonymity, decentralization and security. They also have the following advantage in comparison with paper money: safe online payments due to the absence of the third-party intermediaries.

Cryptocurrencies in Kazakhstan were not regulated in the past. But the situation has changed significantly. The Law “On Amendments to legislation regulating Digital Technologies” was adopted in June 2020. Today, according to the classification made in this country, virtual currencies are defined as a “digital asset”.

Digital assets can be classified into two categories:

  1. secured ones include tokens that provide property rights to specific goods/services released (provided) by the person who issued it
  2. unsecured ones include tokens received as a reward for participating in a project based on blockchain technology.

Benefits obtained from registration in the AIFC

The goal of the AIFC is to ensure that foreign investors have a favorable ecosystem for their activities. This financial center is located in Kazakhstan and operated under common law. Instantly after the establishment in 2017, it commenced to attract entrepreneurs in mining sector.

Governmental support

Latest events in Kazakhstan showed the government’s strong interest in developing the crypto mining sector. Firstly, mining and digital technologies were legalized by adopting new amendments to the legislation. Secondly, the Law "On Informatization" sets up the definitions for "digital asset", "cryptocurrency mining". It also states that only asset-backed cryptocurrencies are able to operate legitimately. It should be noted that unsecured cryptocurrencies are illegal in Kazakhstan, but nobody knows whether a countrywide ban will be put in place.

Benefits of Bitcoin mining on the favorable territory of IT-park Astana Hub

Kazakhstan tax policy is quite friendly for entrepreneurs. For example, an IT park (established by the AIFC), combining the best experience and the most modern opportunities of advanced financial centers from New York and London to Dubai, offers 0% tax regime for Bitcoin mining farms. However, such a regime is only applicable for data centers registered and located on the territory of the AIFC (it is worth mentioning that royalties amounting to 1% of yearly turnover are only due to be paid).

Cryptocurrency withdrawal account in Kazakhstan

Dealing with local banks will shortly be possible for crypto exchanges. However, there is one precondition: the registration with the AIFC. In other words, it means the possibility of using crypto currency on an official basis. However, we can expect this only if the pilot project (the planned duration is 1 year) on opening bank accounts to cryptocurrency companies in second-tier banks is successfully implemented. Let’s hope that after its completion the taboo regarding cryptocurrency will become less definite, and maybe even disappear altogether.

Access to the crypto exchange will be given in the event of opening an account with one of the banks. Only using the legally verified account, a person will be able to conduct such operations as purchase or transfer of a cryptocurrency.

Cryptocurrency mining taxes in Kazakhstan and new regulation for the sector

At the beginning of 2022, a new tax on digital mining (making profits for the government) was brought into effect in the country plus other general tax liabilities imposed on the miners. General tax rates to be paid in Kazakhstan are comparatively stable, namely 20% for CIT and 12% for VAT.

Moreover, the country's legislative body passed a law that introduces financial supervision over crypto platforms. Under this law, crypto-currency businesses in Kazakhstan may shortly be subject to Anti-Money Laundering (AML) regulations. The above-mentioned law promotes financial monitoring and is applicable to crypto service providers.

If an entrepreneur wants to start up digital assets or cryptocurrency trading service, he should notify the Ministry of Digital Development hereof. Risk assessments, compliance verification with Know Your Customer and AML rules will be conducted by this institution in order to have a strict supervision over this sector.

Conclusion

Thus, to strengthen the position, Kazakhstan has initiated measures aimed to create advantages in this sector, at the same without not letting the situation take its course. You can learn more about the current situation with cryptocurrency mining in Kazakhstan from YB Case specialists.

We support clients in determining the most appropriate strategies in this area. You can request legal support for a cryptocurrency startup by filling out the feedback form below.

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