New Kazakhstan’s digital asset regulation

Primary objectives

The laws have come into force on 1 April 2023. Thanks to an improved regulatory approach, there is now

1. Less regulatory uncertainty and clear development incentives for local startups and businesses.
2. Legal clarity surrounding taxation and reporting compliance for enterprises already operating in Kazakhstan.
3. Comprehensive legal framework governing both asset-backed and non-asset-backed digital assets was to establish.
4. Formally recognized the legality of cryptocurrency mining activities in Kazakhstan.
5. Created standardized rules around issuing and circulating virtual financial assets whilst bringing their trade into mainstream regulated channels.

In sum, Kazakhstan has passed landmark legislation to integrate digital asset frameworks into its existing financial law regime. These crypto-progressive laws cemented Kazakhstan's position as an attractive hub for virtual asset investment and innovation, both regionally and globally.

Key provisions of Kazakhstan’s digital asset regulation

The new laws introduce terminology related to digital assets, including “digital miners” and “digital mining pools”. Some concepts previously featured in Kazakhstan’s Law on Informatization have been removed to prevent duplication and contradictions.

To protect financial stability, secured and unsecured digital assets cannot constitute legal tender or financial assets.

Asset-backed digital assets

Subject to regulatory approval, individuals and corporate entities in Kazakhstan may issue and sell asset-backed digital assets on designated platforms, provided they furnish collateral. Money or securities cannot serve as collateral to mitigate systemic risk.

These assets must immutably showcase issuer information and asset ownership rights on their blockchain networks. Regulators published an approved list of permissible asset-backed crypto structures.

Issuers and traders of asset-backed digital assets fall under financial monitoring rules as reporting entities.

Kazakhstan’s new framework allows asset-backed digital asset issuance upon furnishing non-monetary collateral while upholding financial system integrity. Please consider these nuances, if you want to register a crypto company in Kazakhstan.

Digital asset exchanges in Kazakhstan

Since 2023 the operation of cryptocurrency exchanges and trading platforms in Kazakhstan, permitted only in the Astana International Financial Centre.

The AFSA consistently strengthens the regulatory framework for launching a crypto exchange in Kazakhstan by mitigating risks, improving consumer protection and enhancing the structure and governance of cryptocurrency exchanges based in the AIFC.

Changes in the AIFC’s digital asset trading rules:

• New mechanisms to prevent market manipulation, limit settlement risks, and mandate investor disclosures.
• Replacing the existing registration system for cryptocurrency exchanges in Kazakhstan with a formal licensing model.

Regulation of cryptocurrency mining in Kazakhstan

The new legislation mandates all cryptocurrency miners to register as corporate entities with the Ministry of Digital Development and Innovation, formally entering the tax system. Miners must also obtain a 3-year licence to conduct digital mining activities, which must occur via an accredited digital mining pool.

There are two types of renewable licences:

1. Digital mining licence for miners who own the physical digital mining centre infrastructure.
2. Digital mining licence for miners who utilize equipment hosted in third-party digital mining centres.

A digital mining pool is a legal entity that aggregates miners’ computational power and distributes digital asset rewards among the participants based on their relative contributions. Digital mining pools undergo mandatory state accreditation.

The government intends to levy corporate income tax on miners, as well as an additional special levy on mining pools' incomes.

The laws regulate cryptocurrency miners and mining pools while capturing their activities within Kazakhstan's tax legislation. Participation in accredited digital mining pools is now mandatory for licensed miners.

Conclusion

Kazakhstan's financial regulators have presented a comprehensive draft of amendments to the country's digital asset trading regime, some of which will come into force in 2023 and others in January 2024. These seek to mitigate cryptocurrency risks whilst strengthening existing exchange platforms.

Key proposals enhance investor protections, mandate market integrity tools, update licensing protocols and increase regulatory oversight of all virtual asset intermediaries.

As the legislation develops, we remain actively apprised of its status. Upon client request, our firm can offer expert guidance on Kazakhstan's crypto asset regulation along with start-up launch support in the AIFC.

With its progressive legislative agenda, Kazakhstan continues pioneering digital finance governance regionally. The proposed rules signal an acknowledgment of potential systemic risks paired with proportionate mitigation policies to nurture the industry responsibly.