Rights to Land for Foreign Citizens, Persons without Citizenship and Foreign Legal Entities in the Republic of Kazakhstan
Yuliya Mitrofanskaya, attorney with the international law firm Salans Hertzfeld & Heilbronn, Ph.D. in Law, LLM
Saida Akhmetova, attorney with the international law firms Salans Hertzfeld & Heilbronn
In this article we will analyse the provisions of the Land Law that regulate rights to land (ownership rights and land-use rights) of foreign citizens and juridical entities and entities without citizenship and in addition we will briefly compare the basic features of Kazakhstan, Kyrgyzstan and Uzbekistan legislation in relation to the rights of foreign and state-less individuals and juridical entities to own land in these Central Asian republics.
For any country the question of land ownership is pivotal insofar as it has a great impact on its economic development and, as a result, on the quality of life of those who live there. During the first ten years of Kazakhstan’s independence, key changes have taken place in the regulation of land ownership. Until 1995, land relationships in the republic were governed by the Land Code of the Kazakh SSR1, according to which land was owned only by the State, while autonomous economic entities, including foreign citizens and foreign legal entities, could obtain merely the right to permanent or temporary land-use (Article 9). Land parcels could be leased - however, they could not be bought or sold, given as a gift, pledged as security or collateral or swapped in a private transaction (Article 3).
1 Land Code of the Kazakh SSR of November 16, 1990.
The development of market relationships and privatization which presented private individuals with the opportunity of obtaining ownership of factories and manufacturing facilities, but not the land they were located on, became the reason for introducing private ownership of land. Thus, in 1995 significant reform took place in land legislation. The greatest changes occurred in the area of the law that defined the legal subjects of the right to land ownership. Article 6 of the Republic of Kazakhstan Constitution2 and Article 30 of the Decree of the Republic of Kazakhstan President having force of law “On Land”3 (hereinafter the Land Decree) established the principle that land could be privately owned “on the bases, under the terms and within the limits established by law.”
2 Republic of Kazakhstan Constitution of August 30, 1995.
3 Decree of the Republic of Kazakhstan President having force of law of December 22, 1995 “On Land.”
According to the Land Decree, the right of ownership in land plots was granted to Kazakhstan citizens and legal entities as well as foreign citizens, persons without citizenship and foreign legal entities (Article 30). However, these non-Kazakh entities were only allowed to own lands granted for development or already developed with production or non-production facilities and structures and their concomitant complexes or lands designated for servicing such facilities and structures in accordance with their primary use (Article 33). A new feature of the Land Decree was the prohibition on granting foreign citizens and legal entities permanent land-use rights to land plots (Article 40).
The development of economic relationships and practical experience in applying the Land Decree indicated the necessity of improving and refining the legal regulation of land relationships. Thus, in 1998-1999 a new law on land began to be conceived. The original draft of the law, reviewed by the Parliament in 1999, envisioned the possibility of acquiring property rights in agricultural lands designated for “carrying out production of agricultural goods.” According to this draft law, rights to such agricultural lands could only be acquired by Republic of Kazakhstan citizens who had permanently resided in the country for no less than 20 years or by persons who had returned to Kazakhstan as their historical homeland. However, Kazakh society had mixed views on the possibility of introducing private ownership for agricultural lands. Newspapers and journals contained numerous articles warning that such novel changes were premature and could “lead to a rift in society.”4 For this reason the Republic of Kazakhstan Law “On Land” (hereinafter the Land Law) that was passed after a long discussion on January 24, 2001, did not introduce any real change in the approach to the issues concerning the regulation of private land ownership. It was a compromise solution on the way to creating the institution of private land ownership.5
4 See, for example, Tulegen Izdibaev, “Those who took part in the meeting to discuss the draft law “On Land” expressed the view that Kazakhstan was still not ready to introduce private property of land.” Panorama, May, 2000, #20; Nikolay Drozd, “The Deputy Group “Aul” insists on State and not private support of the agricultural sector.” Panorama, June, 2000, #23; Tamara Yeslyamova, “The new draft law gives rise to doubts on the part of agricultural goods producers,” Panorama, July, 1999, #28; Tatiana Abramenko, “One’s Own Land,” Kontinent, May 2000, #9; A.Yerenov, N. Mukhitdinov, Zh.Kosanov, A. Khadzhiev, “A Codified Land Law Is Needed,” Yuridicheskaya gazeta, May, 2000, #19.
5 Romin Madinov, “The Land Law was opportunely passed, but the issue of private ownership has still not been resolved,” Yuridicheskaya gazeta, February, 2001, #6.
In this article we will analyse the provisions of the Land Law that regulate rights to land (ownership rights and land-use rights) of foreign citizens and legal entities and entities without citizenship and in addition we will briefly compare the basic features of Kazakhstan, Kyrgyzstan and Uzbekistan legislation in relation to the rights of foreign and state-less individuals and legal entities to own land in these Central Asian republics.
Definition of Foreign Legal Subjects According to the Land Law
Chapter I of the Land Law sets forth the general provisions on which land-related legislation is to be based. In particular the principles and goals of land legislation, in it the main concepts which have been utilised in the law, land categories as well as the provisions on zoning and land-use payments. We draw particular attention to Articles 9 and 5 in this Chapter. Article 9, The Basic Concepts Utilised in the Law, provides the following definition of the concept of “foreign land users”: “foreigners, persons without citizenship, foreign legal entities, foreign states, international associations and organisations.” In Chapter 5 it is stated that “foreigners, persons without citizenship as well as foreign legal entities enjoy rights and bear obligations in land relations on an equal basis with citizens and legal entities of the Republic of Kazakhstan, unless otherwise provided in this Law or other legislative acts.”
Two main conclusions may be drawn from these provisions that have crucial significance for our analysis as well as for interpreting subsequent norms in the Law. First, the Law establishes the rule that foreign legal entities have the same rights and obligations in land-based relationships that exist for Kazakhstan legal entities, except in certain cases provided by law. Secondly, the Law has divided up the concepts of “foreigners” and “foreign legal entities,” by denoting as “foreigners” only foreign citizens and by separating “foreign legal entities” into a succinct category of legal subjects. This means that the norms in the Law referring to “foreigners” should be applied only to foreign individuals.
One would imagine that it would be more advisable to use instead of “foreigners” the term “foreign individuals” or “foreign citizens” as is done in the RK Civil Code (Art.3.7) or in the RK President Decree having force of law of June 9, 1995 On the Legal Status of Foreign Citizens in the Republic of Kazakhstan.
Ownership Rights to Land
The Land Law stipulates that land in the Republic of Kazakhstan is held in state ownership (Art.2). However, plots of land may also be held in private ownership by citizens and non-state legal entities (including foreign citizens and legal entities) on the bases, under the terms and within the limits established by the Land law (Art.2). In the Republic of Kazakhstan private ownership is recognised and protected on a par with state ownership (Art. 15).
Land plots which may be held in private ownership by citizens and non-state legal entities are defined in Article 18 of the Land Law. Kazakhstan citizens may have private-property interests in land plots that have been granted for personal homesteads, gardens and country cottage or “dacha” construction (agricultural lands6, Art. 18.1) In addition, according to the Law (Art.18.2), citizens and non-state legal entities may hold private property interests in lands granted for development or already developed with buildings (facilities and structures) and their concomitant complexes, including lands designated for servicing such buildings (facilities and structures).
6 According to Article 1 of the Land Law, the land fund of Kazakhstan is divided up into seven categories: agricultural lands; populated lands; industrial, transportation, communications, defence and other non-agricultural lands; specially protected nature areas and heath-resort, recreational and historical-cultural lands; and forestry, water and reserve fund lands. Although the Law does not state this directly, each land category is in turn further divided in accordance with how it is used. For example, an analysis of Article 79.4 allows one to assume that agricultural lands are sub-divided into lands used for agricultural goods production, protected tree breeding, scientific research, experimental and study purposes, private farming, gardening, animal husbandry, orchards and dacha construction.
The Land Law expressly establishes that foreigners and persons without citizenship are forbidden to hold in private ownership land plots that have been granted for personal homesteads, gardening and dacha construction (18.4). A literal interpretation of the Land Law allows one to conclude that this prohibition does not relate to foreign legal entities (since, as we indicated above, foreign legal entities are not “foreigners” as defined in Article 5 of the land). Therefore, in the absence of a direct prohibition, one may assume that foreign legal entities may own land plots that have been granted for personal homesteads, gardening or dacha construction.
At the same time, such a formal, overly logical interpretation of the Law contradicts the normal concept of a juridical person as an artificial construct that has been created for a definite purpose and which cannot conduct a “personal homestead.” Therefore, our interpretation of the Land Law is illogical to an extent and is possible only because the Law’s text is imperfect.
The Land Law does not contain an express restriction on foreign legal subjects obtaining ownership rights to land plots to be developed or developed with buildings (structures and facilities) and their concomitant complexes. Insofar as ownership rights to land plots to be developed or developed with some sort of structures are possible for citizens and non-state legal entities, and also by virtue of the fact that foreign citizens and legal entities, when the law contains no direct restriction, have the same rights in land-based relationships that Kazakhstan legal subjects enjoy (Article 5), it follows that foreign citizens, legal entities and persons without citizenship may own lands for development or already developed with buildings, structures and facilities.
The conclusion that foreign citizens and legal entities may own lands for development or already developed is bolstered by an analysis of the jurisprudence of independent Kazakhstan which from the very beginning gave foreign investors the opportunity of acquiring property rights to immovable property (for example, as a result of privatisation). Certainly the right to own immovable property would be incomplete if the land upon which such immovable property was located belonged to some other person or the government. Thus, as in the case of the preceding Land Decree (Art.18), the current Land Law establishes that the right of ownership to buildings, structures and facilities entails the right of ownership to the plot of land which is taken up by the particular buildings, structures and facilities (Art.37). This gives foreign companies who have acquired ownership of buildings the opportunity to also acquire ownership of the lands located under and around them. And vice versa, those foreign companies that have acquired ownership rights in land plots to be developed acquire the ownership rights to the buildings (facilities and structures) that are located thereon.
The laws of the Republic of Kyrgyzstan, unlike Kazakh legislation, establish that foreign citizens, persons without citizenship and foreign legal entities can have conveyed to them as private property only land plots that are within populated areas if they have supplied credits for mortgaged housing construction7. Lands designated for agriculture may not be granted or conveyed to foreign citizens, persons without citizenship or foreign legal entities8. In Uzbekistan private ownership rights to land plots may be possessed foreign individuals and legal entities only when they acquire dwellings along with the land upon which they are located9. In this manner, Kazakhstan legislation provides for wider possibilities for foreign citizens, persons without citizenship and foreign legal entities to acquire rights to private ownership of land plots.
7 Land Code of the Republic of Kyrgyzstan of June 2, 1999, Art.5, sec.2.
8 Land Code of the Republic of Kyrgyzstan of June 2, 1999, Art.5, sec.1.
9 Land Code of the Republic of Uzbekistan of April 30, 1998, Art.18.
The Right of Permanent (Indefinite) Land Use
Current Kazakhstan legislation, as was the case with its predecessors, provides that land plots held as state property may be granted under permanent or temporary land use (Art.17). However, the Land Law introduced major changes into the regulation of the rights of permanent and temporary land use. The previously valid Land Decree established the possibility of obtaining the right of permanent land use for both state and non-state land users. According to the current Land Law (Art.27), the right of permanent use may belong only to state land users (national and public legal entities). For foreign land users the Land Law offered nothing new in the way of permanent land use rights. As was the case previously, the Law establishes an express prohibition against foreign land users (which includes, according to Art.9 (12), foreign citizens, persons without citizenship, foreign legal entities, foreign states as well as international associations and organisations) possessing permanent use rights in land plots (Art.27).
In the Republic of Kyrgyzstan permanent use rights to land plots may only be granted to state and public land users10, while in the Republic of Uzbekistan the right to permanent land use may be granted to foreign legal entities and individuals11.
10 Land Code of the Republic of Kyrgyzstan, Art.25.
11 Land Code of the Republic of Uzbekistan, Art.20.
The Right of Temporary Land Use
The Land Law establishes that foreigners, persons without citizenship and foreign legal entities “may obtain land plots under leasehold,” that is, they may obtain land plots by right of temporary use (Art.29.5). However, they “do not have the right to convey agricultural land plots for secondary land use” (Ibid). No other restrictions on the obtaining of temporary land use rights by foreign legal entities apply, (Art. 79.4(3) establishes a limitation on the term of a lease of agricultural lands to ten years only in relation to foreign citizens and persons without citizenship). Otherwise the Law allows foreign citizens and legal entities as well as persons without citizenship to obtain land plots under temporary use rights on the same bases and for the same periods of time as Kazakh citizens and legal entities, that is, up to five years (short-term land use) or up to 49 years (long-term land use).
The right to land use of other sovereign states on the territory of the Republic of Kazakhstan may arise in accordance with international treaties ratified by Kazakhstan (Art.5).
We note that the Land Law has changed the term for which the right to temporary land use (short and long-term) may be granted. Short-term use has been increased to five years (earlier it was three years) and long-term use has been limited to 49 years (earlier it was 99 years).
In Kyrgyzstan the time period granted for temporary land use is limited to 50 years12, while in Uzbekistan the maximum is ten years13. However, Uzbek legislation in certain instances establishes different term for temporary land use. Thus, agricultural lands may be granted in leasehold from ten to 50 years14, while land plots for pasture-type animal husbandry may be granted to agricultural enterprises, institutions and organisations for up to 25 years15.
12 Land Code of the Republic of Kyrgyzstan, Art.7.
13 Land Code of the Republic of Uzbekistan, Art.20.
14 Land Code of the Republic of Uzbekistan, Art.24.
15 Article 20 of the Land Code of the Republic of Uzbekistan
State In-Kind Grants
One of the ways in which foreign investment is being enticed into priority sectors of the Kazakh economy is the granting of state in-kind grants. According to the RK Law of February 28, 1997 On State Support of Direct investments, state in-kind grants are one of the forms of privileges or preferential treatment granted to investors in order to carry out an investment project (Art.7). The Land Law denotes as one of these types of grants land grants transferred “to an investor on a free-of-charge basis into private ownership or land use in accordance with the procedure established by this Law and legislation on state support of direct investments” (Art.9(5)). According to the Land Law, investors (Kazakhstan as well as foreign) may obtain “land plots and land use rights in the form of state in-kind grants.” (Art.8).
As a result of our search for regulatory acts that regulate the procedure and the size of land plots that may be conveyed to an investor as state in-kind grants, two documents were revealed. These are the Rules of Granting Privileges and Preferential Treatment when Executing Contracts with Investors Carrying Out Investment Activities in Priority Sectors of the Economy16 and the Instruction on the Amounts and Procedure of Granting Privileges and Special Treatment17. However, as far as conveying land plots to investors as state in-kind grants is concerned, these acts simply state that land plots as basic assets may be conveyed as state in-kind grants18, and also that state in-kind grants are granted to investors as private property in an amount not exceeding 30% of the volume of the direct investment in the basic assets19. But if the value of the requested in-kind grant exceeds the maximum amount, the investor has the right to pay the resultant difference according to procedure set by legislation20.
16 Rules of Granting Privileges and Preferential Treatment when Executing Contracts with Investors Carrying Out Investment Activities in Priority Sectors of the Economy approved by RK President Decree of March 6, 2000.
17 Instruction On the Amounts and Procedure for Granting Privileges and Special Treatment when Executing Contracts with Investors Carrying Out Investment Activities in Priority Sectors of the Economy approved by the Order of the Chairman of the RK Agency on Investments of April 14, 2000.
18 Rules for Granting Privileges and Preferential Treatment when Executing Contracts with Investors Carrying Out Investment Activities in Priority Sectors of the Economy, sec.8(1).
19 Instruction On the Amounts and Procedure for Granting Privileges and Special Treatment when Executing Contracts with Investors Carrying Out Investment Activities in Priority Sectors of the Economy, sec.13.
20 Ibid.
In everyday legal practice in our country, investors active in non-agricultural sectors of the economy have received land plots as state in-kind grants. However, we have not come across precedents of state in-kind grants of agricultural land being made available to foreign investors. Preceding on the premise that the Instruction on the Amounts and Procedure for Granting Privileges and Special includes agriculture21 as a priority sector of the economy for which direct investments are sought, one can surmise that agricultural lands may be conveyed to foreign investors as state in-kind grants.
21 Instruction On the Amounts and Procedure for Granting Privileges and Special Treatment when Executing Contracts with Investors Carrying Out Investment Activities in Priority Sectors of the Economy, Attachment 3.
Court Practice
The courts of Kazakhstan presently review a significant number of cases connected with land-based relationships. In particular, several cases concern the actions of State organs resulting in the confiscation of land plots from owners and users who are foreign citizens or foreign legal entities.
We will describe an incident from the practice of the international law firm Salans Hertzfeld and Heilbronn which has on several occasions in Kazakhstan courts defended the interests of foreign entities. A foreign enterprise which was a client of ours acquired the right to a land plot designated for development with buildings and structures. After a certain amount of time had passed, the municipal Akim passed a decision to appropriate the plot from its owner “due to its not being developed.” That same decision granted the appropriated property to a Kazakhstan company under right of temporary land use.
The Akim’s decision was illegal in that the limited list of grounds for taking a land plot away from this owner established by the Land Law (Art.63.2) does not include lack of development. Nevertheless, the akim did not agree to rescind its clearly illegal decision during the phase before the matter was brought before a judge. Only in the course of judicial proceedings was it possible to enter into a settlement agreement whereby the akim conveyed to our client a different, but equivalent in value plot of land. The Kazakhstan company that received the plot compensated all of our client’s expenses connected with the appropriation of the plot.
We also wish to draw the reader’s attention to a significant point. The land plot conveyed to our client by way of the settlement agreement had also been illegally appropriated from yet another property owner. Whether this was merely coincidence or an indication of a consistent trend, one notes that this other property owner was also a foreign company who likewise filed a suit against the Akim. As in our case, the Akim was compelled to execute a settlement agreement with the company (the terms of which are unknown to us).
Unfortunately, such violations by government agencies of land legislation decrease the effectiveness of investment projects and discourage the flow of foreign capital into the economy of Kazakhstan.
Thus, even a brief analysis of a small section of the Land Law that governs the rights and duties of foreign individuals and legal entities as well as persons without citizenship points to its imperfection. The imprecise wording of certain provisions in the Law makes applying it in actual practice difficult, leads to ambiguous understanding of its rules and entails the necessity of additional interpretation. In particular the legislators must clearly define who “foreigners” are: this could be “foreign individuals” or individuals and legal entities.
Table of contents
Eurasian Economic Union: a Long Way to Go Nigmatzhan Isingarin
Restructuring and Privatisation of Kazakhstan’s Power Industry: Basic Results and Achievements Kenzhemurat Dukenbayev
Development of Mineral Resources in Kazakhstan: a Five Year History Elvira Jantureyeva
Transfer Pricing in Kazakhstan BILL PAGE
Implementing Subsoil Use Contracts: Contractor’s Obligations and Control over their Fulfillment Olga I. Chentsova
Excess Profits Tax in the Republic of Kazakhstan: Methods and Problems Arising when Calculating Excess Profits Tax Anvar Yaushev
Rights to Land for Foreign Citizens, Persons without Citizenship and Foreign Legal Entities in the Republic of Kazakhstan Yuliya Mitrofanskaya, Saida Akhmetova
Court of Arbitration in Kazakhstan: Opportunities and Prospects Pyotr Greshnikov
