For a foreign company entering Kazakhstan's extractive sector, the structural question arises quickly: can an existing subsoil use right be combined with — or operated through — a franchise or commercial concession arrangement with a Kazakhstani counterpart? The answer is not a simple yes or no. Kazakhstan's Code on Subsoil and Subsoil Use (2017) — the primary instrument governing subsurface resource extraction — does not itself regulate franchising, but it creates a body of conditions, restrictions, and transfer-of-rights rules that materially shape what franchise structures are permissible alongside a subsoil use contract. Understanding where the Subsoil Code ends and Kazakhstan's civil law begins is the first practical task for any inbound investor combining these two legal instruments.
The Code on Subsoil and Subsoil Use (2017) establishes the framework under which the Kazakhstani state grants rights to explore and extract mineral resources, hydrocarbons, and certain groundwater. Its central instrument is the subsoil use contract — a direct agreement between the investor and the competent authority (the Ministry of Energy for hydrocarbons; the Ministry of Industry and Infrastructure Development for solid minerals). The Subsoil Code specifies who may hold a subsoil use contract, how rights may be transferred, what local content obligations apply, and what conditions trigger renegotiation or termination.
Franchising arrangements, by contrast, are governed by Chapter 45 of the Civil Code of Kazakhstan — the commercial concession provisions — which permit one party (the rightholder) to grant another (the user) the right to exploit a complex of exclusive rights: a trademark, know-how, a commercial model, or a combination thereof, in exchange for remuneration. This is Kazakhstan's civil law analogue of a franchise.
The two regimes intersect in one critical scenario: where the subsoil use rightholder wishes to appoint a Kazakhstani operational partner to manage day-to-day site operations, market downstream products, or operate under the foreign investor's brand — and structures that appointment through a commercial concession agreement rather than a direct employment or service contract.
Before drafting any franchise or commercial concession agreement in a subsoil use context, an inbound investor should confirm the following:
Each of these points is examined in the steps below.
[CTA: If you are structuring a franchise or commercial concession arrangement alongside a Kazakhstani subsoil use contract — make an enquiry: info@vetrovpartners.com | WhatsApp/Telegram: +7 (983) 510-38-76]
The subsoil use contract is the foundational document. Before any downstream commercial arrangement is considered, the investor must review the contract's provisions on assignment, sublicensing, and operational delegation.
The Subsoil Code draws a clear distinction between a full transfer of subsoil use rights (which requires competent authority consent and, for strategically significant subsoil areas, government approval) and a delegation of operational functions to a contractor or service provider. A franchise agreement that grants a Kazakhstani operator the right to use the investor's brand and know-how to carry out extraction-adjacent operations will almost certainly involve some transfer of operational decision-making. Whether that transfer rises to the level of a "transfer of subsoil use rights" is a question of the specific facts and the wording of the subsoil use contract.
In practice, the competent authority's interpretation of this boundary has not always been predictable. Investors should seek a written confirmation — or at minimum a formal legal opinion — before completing any franchise documentation. Proceeding without this confirmation risks the franchise agreement being characterised as an unauthorised transfer of subsoil use rights, with consequences ranging from contractual invalidity to termination of the underlying subsoil use contract.
Note: The Subsoil Code provides the competent authority with grounds to terminate a subsoil use contract where rights are transferred without consent. This is not a curable defect in most cases. Investors who discover this issue after the franchise agreement has been executed face materially worse options than those who obtain confirmation before signing.
Assuming the subsoil use contract permits the arrangement — or that the competent authority's consent has been obtained — the franchise structure itself is created under Kazakhstan's civil law commercial concession provisions.
A commercial concession agreement under Kazakhstani civil law must: identify the complex of exclusive rights being granted (typically: trademark, brand standards, operational know-how, proprietary processes); specify the territory and scope of the grant; set out the remuneration structure (which may be a flat fee, a royalty calculated on turnover, or a combination); and define the term, renewal conditions, and grounds for termination.
Critically for subsoil-related franchises: the agreement should expressly define which operational activities the franchise user is authorised to carry out, and should align those activities with the permitted operations under the subsoil use contract. Any activities the subsoil use contract restricts should be equally restricted in the franchise agreement. Gaps between the two documents are a common source of regulatory and commercial risk.
Where the franchisor's brand and know-how include technology specifically used in subsoil extraction — drilling methods, processing techniques, environmental management systems — the transfer of that technology may trigger additional requirements under Kazakhstan's technology transfer and export control rules, which are separate from both the Subsoil Code and the civil law commercial concession framework.
Franchising agreements that include a trademark licence are subject to registration with the National Institute of Intellectual Property (NIIP) — Kazakhstan's IP registration authority. This requirement applies regardless of whether the agreement is labelled a "franchise," a "commercial concession," or a "brand licence." If the trademark is not registered in Kazakhstan at the time of signing, the licence cannot be registered, and an unregistered trademark licence is unenforceable as against third parties under Kazakhstani law.
For foreign investors, this creates a sequencing requirement: trademark registration in Kazakhstan must be confirmed before the commercial concession agreement is executed, not after. In practice, many investors assume that registration in their home jurisdiction (or under an international filing via the Madrid System) is sufficient. It is not sufficient for enforcement in Kazakhstan, which requires either a Kazakhstan national registration or a Madrid Protocol extension designating Kazakhstan.
The registration process at the NIIP typically takes several months. Investors should account for this timeline when planning the franchise launch date relative to the subsoil use contract commencement date.
Kazakhstan's Subsoil Code imposes local content requirements on subsoil use contractors — minimum thresholds for the use of Kazakhstani goods, works, and services in subsoil operations. These obligations attach to the subsoil use contract holder, not automatically to a franchise user. However, where the franchise agreement delegates operational functions that are themselves subject to local content reporting, the contractual allocation of local content responsibility between the franchisor and the franchise user requires careful drafting.
A poorly drafted franchise agreement may result in the subsoil use contractor (the franchisor) being unable to demonstrate compliance with its local content obligations, because the activities generating the reportable local content are being carried out by the franchise user — a separate legal entity — under a different contractual relationship.
Kazakhstan's membership of the EAEU is relevant here in a second dimension: goods, technology, and services sourced from other EAEU member states — including Russia — generally qualify as local content under Kazakhstani procurement rules, subject to the applicable EAEU origin rules. For Russian-based investors structuring a franchise in Kazakhstan, this may allow certain procurement to satisfy both local content obligations and commercial efficiency targets simultaneously. The same principle applies, in principle, to Armenian, Belarusian, and Kyrgyz goods and services.
[CTA: For in-house counsel managing a Kazakhstan subsoil use contract and considering a franchise or distribution structure — make an enquiry: info@vetrovpartners.com | WhatsApp/Telegram: +7 (983) 510-38-76]
The remuneration payable by the Kazakhstani franchise user to the foreign franchisor — typically structured as a royalty on turnover or a flat monthly fee — will, in most cases, be a cross-border payment from Kazakhstan to a foreign entity. Two overlapping legal regimes apply.
First, Kazakhstan's transfer-pricing legislation requires that related-party transactions — including royalties paid by a Kazakhstani subsidiary or affiliate to its foreign parent or related entity — be priced on arm's-length terms and documented accordingly. The State Revenue Committee is the monitoring authority. Failure to maintain contemporaneous transfer-pricing documentation exposes the payer to reassessment and penalties.
Second, where the franchisor and franchise user are not related parties — that is, where the franchise is granted to an independent Kazakhstani operator — the royalty is still subject to Kazakhstani withholding tax on income from Kazakhstani sources. The applicable rate may be reduced under a double taxation convention, if one exists between Kazakhstan and the franchisor's home jurisdiction. Kazakhstan has concluded tax treaties with a substantial number of states, including Russia and most EU member states; the applicable rate and procedural conditions for treaty relief should be confirmed before the remuneration structure is finalised.
A franchise agreement in Kazakhstan may designate Kazakhstan law as the governing law or, in a cross-border context, a foreign law — subject to limitations under Kazakhstan's private international law rules. However, where the agreement is closely connected to a subsoil use contract that designates Kazakhstan law, designating a foreign governing law for the franchise agreement creates interpretive inconsistency that can complicate enforcement.
Dispute resolution may be provided by Kazakhstan state courts (the specialised interdistrict economic courts for commercial disputes), the Kazakhstan International Arbitration Centre (KIAC), or international arbitration under LCIA, ICC, or other institutional rules. For disputes arising under or connected to a subsoil use contract, additional limitations may apply: certain disputes with the Kazakhstani state or competent authority may be subject to mandatory jurisdiction clauses in the subsoil use contract itself, which cannot be overridden by the franchise agreement.
For foreign investors, the Astana International Financial Centre (AIFC) and its associated court (AIFC Court) and arbitration centre (AIFC International Arbitration Centre) offer an English-law-based dispute resolution framework that a number of international investors prefer for commercial contracts. Whether AIFC jurisdiction is available and appropriate in a subsoil-connected franchise context depends on the specifics of the contractual structure.
[CTA: For advice on dispute resolution clauses in Kazakhstan franchise or commercial concession agreements — make an enquiry: info@vetrovpartners.com | WhatsApp/Telegram: +7 (983) 510-38-76]
Q: Does a franchising arrangement under Kazakhstan's civil law require prior approval from the subsoil use competent authority?
A: Not automatically — but in practice, the answer depends entirely on the structure of the specific subsoil use contract and the scope of operational rights the franchise agreement confers. Where the franchise effectively transfers decision-making authority over subsoil operations, the competent authority may characterise it as a transfer of subsoil use rights, which does require prior consent. Investors should obtain a legal opinion addressing this specific question before signing. The risk of proceeding without clarity is severe: an unauthorised transfer may give grounds for termination of the underlying subsoil use contract, which is not a curable defect under the Subsoil Code.
Q: Can a foreign franchisor receive royalties from a Kazakhstan franchise user without withholding tax?
A: Royalties paid by a Kazakhstani entity to a foreign franchisor are generally subject to Kazakhstani withholding tax on income from Kazakhstani sources. The rate may be reduced if a double taxation convention applies between Kazakhstan and the franchisor's home jurisdiction, and if the franchisor satisfies the treaty's beneficial ownership and residence requirements. The procedural conditions for claiming treaty relief in Kazakhstan are specific: documentation must be submitted to the State Revenue Committee in advance of payment in many cases. The applicable rate, documentation requirements, and timing should be confirmed with qualified Kazakhstani tax counsel before the remuneration clause is drafted.
Q: What happens if the franchise agreement is signed before the trademark is registered in Kazakhstan?
A: A trademark licence that is part of a commercial concession agreement cannot be registered with the National Institute of Intellectual Property (NIIP) if the underlying trademark is not registered in Kazakhstan at the time of application. An unregistered licence is not enforceable against third parties. In a subsoil use context, this creates operational risk: if a competitor or bad-faith registrant obtains a conflicting trademark registration while the foreign investor's registration is pending, the franchise user's right to operate under the investor's brand may be challenged. The correct sequencing is to confirm trademark registration in Kazakhstan before executing the franchise or commercial concession agreement.
Vetrov & Partners is a Russian boutique law firm established in 2009. The firm is recognised by Pravo-300 — Russia's principal legal directory — for eight consecutive years.
The firm advises foreign companies on cross-border commercial arrangements in the EAEU region, including distribution, franchising, and market entry structures with a Russian or CIS dimension. On matters governed by Kazakhstani law, the firm works alongside trusted regional counsel. With over 1,000 matters handled since inception, the team provides direct partner involvement on every engagement.
For matters with a Kazakhstan or EAEU dimension: info@vetrovpartners.com | WhatsApp / Telegram: +7 (983) 510-38-76 | t.me/vitvetcom
This publication is provided for informational purposes only and does not constitute legal advice under Russian or any other applicable law. The information herein should not be relied upon as a substitute for professional legal counsel tailored to your specific circumstances. Vetrov & Partners is a Russian-qualified law firm. For matters governed by foreign law or requiring local admission in another jurisdiction, we collaborate with trusted counsel in the relevant jurisdiction. For advice regarding your particular situation, please contact info@vetrovpartners.com.
— Aigerim Serikbayeva Contributing Regional Analyst — Kazakhstan, EAEU Trade, Customs and Market Entry vetrovpartners.com/contributions/