Kazakhstan President Kassym-Jomart Tokayev signed two laws on February 6: one on digital assets (the Law) and one introducing amendments to other legal acts concerning digital assets and informatization (Amendments Law). Both legal acts will enter into force 1 April 2023.
Currently, Kazakhstan regulation of digital assets is rather scarce and is spread across few statutes, such as the Tax Code and the Law on Informatization. The Law and Amendments Law have been adopted in order to create a regulatory framework for the issuance and circulation of digital assets (including taxation of relevant activities), bringing trade of digital assets out of the shadow turnover and eliminating gaps and discrepancies between the relevant legal acts.
- By way of background, Kazakhstan law explicitly states that a digital asset is neither a financial nor payment instrument and divides digital assets into secured digital assets—i.e., digital tokens and other digital means of certifying the rights to assets and services provided by the issuer of the digital asset—and unsecured digital assets—i.e., digital tokens rewarded for participation in maintaining consensus within the blockchain. This general approach remains unchanged under the Law and Amendments Law, although they drop the term “digital token” and further specify that secured digital assets may not certify rights to money or securities.
- While the issuance and circulation of unsecured digital assets within the territory of Kazakhstan had been expressly prohibited, the Law provides a carveout from this general rule and allows the issuance and circulation of unsecured digital assets via the Astana International Financial Centre (AIFC).
ISSUANCE OF SECURED DIGITAL ASSETS
- To be eligible to issue secured digital assets, a person must obtain a permit, which is issued by the competent authority (currently the Ministry of Digital Development, Innovation, and Aerospace Industry of Kazakhstan) for three years.
- Issuers of secured digital assets are included in the relevant state register and become subjects of financial monitoring under the Kazakhstan regulation on anti-money laundering and financing of terrorism.
- The Law introduces further obligations of secured digital asset issuers, who must (1) hold the title (ownership rights) to the assets that secure the digital asset; (2) notify individuals and legal entities of risks associated with purchasing and operations with secured digital assets; and (3) publish the decision on the issuance of secured digital assets on their website (and such decision must comply with the rules that are yet to be developed).
- State control over digital assets activities will be carried out in the form of state inspections as per the Entrepreneurial Code.
DIGITAL ASSETS EXCHANGES
- Under the Law, digital assets exchanges will be licensed by the AIFC based on AIFC acts.
- According to the Law, activities of digital assets exchanges with unsecured digital assets are only permitted in the territory of the AIFC.
CHANGES TO DIGITAL MINING AND DIGITAL MINING POOLS
- Digital mining is now a licensed activity in Kazakhstan. The license is issued by the competent authority (currently the Ministry of Digital Development, Innovation, and Aerospace Industry of Kazakhstan) for three years.
- Only individual entrepreneurs and legal entities of Kazakhstan can carry out digital mining.
- Digital mining is carried out through digital mining pools and data processing centers.
- The Law clarifies that a digital mining activity does not fall under the “issuance and circulation of unsecured digital assets.”
- The Law further stipulates that starting from 1 January 2024, at least 50% (until 1 January 2025) and 75% (starting from 1 January 2025) of digital assets produced by digital miners in the territory of Kazakhstan must be sold via digital assets exchanges licensed by the AIFC.
- Requirements for digital mining pools include (1) passing tests confirming compliance with informational safety requirements, (2) having a physical location in Kazakhstan, and (3) holding valid accreditation.
- The Amendments Law introduces regulation on the purchase of electricity by digital miners. For example, a digital miner must install automatic electricity metering systems and purchase electricity within a set quota at applicable tariffs.