Introduction to Taxation 27.10.2018 Contents

What is tax?

Tax Code of the Republic of Kazakhstan;

Types of taxes;

PIT;

VAT;

CIT;

Other taxes;

Tax audit

Prepared by: Gulsaya Tatikova 2 1. What is tax?

Tax is a compulsory contribution to state revenue, levied by the government on workers' income and business profits, or added to the cost of some goods, services, and transactions for public purposes.

Prepared by: Gulsaya Tatikova 3 2. Tax Code of the Republic of Kazakhstan

• The main legal act establishing and regulating taxation in Kazakhstan is the Code “On Taxes and Other Obligatory Payments to the Budget” (the “Tax Code”). • On 25 December 2017 the President of the Republic of Kazakhstan has signed and enacted the New Tax Code (came into force on 1 January 2018). • The State Revenue Committee is a tax and customs authority established under the Ministry of finance of RoK.

Prepared by: Gulsaya Tatikova 4 3. Main taxes

Direct tax tax paid directly to the Government by the person on whom it is imposed.

• Individual Income Tax; • Corporate Income Tax, • Property tax; • Land tax; • Social tax; • Transport vehicle tax; • Rent export tax; • Special taxes for subsoil users. Indirect tax tax collected by intermediary (retail store) from customer and paid to the Government. • VAT; • Excises.

Prepared by: Gulsaya Tatikova 5 4. Individual Income Tax

Taxpayers Tax rate - 10%, except for dividends All individuals having taxable income: which are taxed at 5%.

1. income taxable at the source of payment: • income of an employee; • income of an individual from a tax agent; • dividends, interest and winnings; • pension payments from pension funds; • income from insurance agreements; • scholarships.

2. income not taxable at the source of payment: • property income; • taxable income of an individual entrepreneur; • income of advocates and private notaries; • other income.

Prepared by: Gulsaya Tatikova 6 5. Individual Income Tax Employments income

Employee’s gross income Deductions An employee’s income (irrespective of residency status) • the Minimum Monthly Wage established by the State subject to taxation, is any kind of income received from on an annual basis (KZT 28 284 as of 01.01.2018) ; an employer in cash or in kind e.g. accommodation, • Obligatory pension contributions (10%); benefits, compensation, company car, reimbursable business trip expenses in excess of limits. Wage = (Basic salary – MMW – OPC)*10%

The deductions do not apply to tax non-residents.

Business Expenses Business expenses are not deductible for employees. An individual may claim business deductions if registered as an individual entrepreneur.

Prepared by: Gulsaya Tatikova 7 6. Value-added tax

 A value-added tax (VAT) is a consumption tax placed on a product whenever value is added at each stage of the supply chain, from production to the point of sale.

 The VAT rate is 12%.

 The tax period for VAT in accordance with Article 423 of the Tax Code is the calendar quarter.

 Taxpayers are required to register if their VATable turnover in the preceding 12 months exceeded 30,000 MCI* (approximately USD 187,147).

*Monthly calculation index - KZT 2 405 for 2018.

Prepared by: Gulsaya Tatikova 8 6. Value-added tax How VAT works?

50 + 6 (VAT) 100 + 12 (VAT)

“Input” VAT “Output” VAT

Payment to the budget = 12 – 6 (VAT Offset) = 6

Prepared by: Gulsaya Tatikova 9 6. Value-added tax Zero-rating tax VS Exempt supplies

0 % VAT Exempt from VAT

. export sales of goods; • sale of residential buildings; . international transport services; • transfers of assets under finance leases; . sales of goods in SEZs under certain conditions. • geological exploration and prospecting; • sales of goods and services, associated with the implementation of infrastructure projects; • sale of an enterprise; • import of certain assets, the list of which is approved by the Government; • revenue from refining precious metals (gold and platinum); • sales of goods and services associated with medical and veterinary activities, the list of which is approved by the Government.

Prepared by: Gulsaya Tatikova 10 6. Value-added tax Zero-rating tax VS Exempt supplies

0 % VAT Exempt from VAT

50 +6 100 +0 50 +6 100..

No refund VAT = 0 – 6= -6 VAT REFUND!

Prepared by: Gulsaya Tatikova 11 7. Corporate Income Tax

. Corporate income taxes are levied . CIT deductions - expenses by government on profit earned by associated with the earning of business in particular time period. income are deductible. . Tax rate is 20%. • Business Trip Expenses. . The tax period is a calendar year • Interest Expense. (from 1 January till 31 December). • Doubtful Debts. not paid within three years are recognized as doubtful. • Depreciation. The maximum depreciation rates vary from 10% to 40%.

Prepared by: Gulsaya Tatikova 12 7. Corporate Income Tax CIT calculation

Taxable income = Aggregate annual income +/- Adjustment of income – Deductions +/- Adjustments of income and deductions

Adjustments of income: Income and deductions are In accordance with Article 241 of subject to adjustments in cases Tax Code dividends and certain of totally or partially return of types of income are excluded from goods, changes in price and aggregate annual income. discounts (Article 287 of the Code).

CIT = 20% (Taxable Income – decrease in TI – prior-year losses)

(If applicable)

Prepared by: Gulsaya Tatikova 13 8. Property tax

 Payers of the corporate property tax  Individual Property Tax: include: The tax is payable by individuals who own 1. legal entities (Kazakh or foreign) holding houses, buildings, country houses, garages and taxable items in Kazakhstan through other facilities, constructions and premises. ownership, economic or operational control; The tax rate is determined based on a sliding 2. individual entrepreneurs (sole traders) scale and is dependent on the value of a taxable holding taxable items in Kazakhstan through item. ownership; and 3. concessionaires holding taxable items through ownership or use right, which items form the subject of concession under the concession agreement.

Tax rate: 1.5% of the average annual value of taxable items

Prepared by: Gulsaya Tatikova 14 9. Land tax

 Tax base: land plot  Basic rates of the land tax are established by the Tax Code and differ depending on the soil quality, location,  Tax payers: holding land plots (or a land water supply and other parameters of share, in case of joint shared ownership the land plot. over a land plot) : -individuals,  For agricultural and farming enterprises -legal entities, engaged in certain types of operations, -individual entrepreneurs, payment of the land tax is substituted by  based on: a unified land tax payment. -right of ownership, -right of permanent land use  Exempt taxable items: -right of primary free-of-charge -land of public use (streets, parks); temporary land use. -land under state automobile roads of public use etc.

Prepared by: Gulsaya Tatikova 15 10. Transport vehicle tax

Tax payers: Exempt taxpayers: Legal entities and Individuals with the • Agricultural producers; right of ownership. • State institutions; • Public associations of invalids; The tax rate depends on the vehicle • WWII participants etc. type and engine size.

Prepared by: Gulsaya Tatikova 16 10. Transport vehicle tax

Prepared by: Gulsaya Tatikova 17 11. Social tax

 Social tax is an obligation which is imposed on taxpayers to obtain revenue required for pension insurance, state health insurance and other social needs.

Taxpayers: Tax rate: 9,5 % (payed by employers); Social contribution: 3,5% 1)individual entrepreneurs; Tax period: on monthly basis. 2) private notaries, private officers of justice, advocates, and professional mediators; 3) resident legal persons of the Republic of Social Tax = (Salary – OPC)*9,5% - SC; Kazakhstan SC = (Salary – OPC)*3,5% 4) non-residents via permanent establishments in Kazakhstan

Prepared by: Gulsaya Tatikova 18 12. Tax Audit

 Tax audits main categories: • Comprehensive tax audit • Thematic (targeted) tax audit • Cross-check tax audit

 Tax audits are carried out by tax authorities for the purpose of securing taxpayers’ compliance with the legislation of Kazakhstan concerning taxes.

 Tax audits can cover any period within the statute of limitations, which is generally five years.

 Upon completion of a tax audit, the state revenue authorities usually issue a tax audit act (if no violations of tax law are discovered, an appropriate note is made in the tax audit act).

 The Code of Administrative Violations imposes administrative penalties for non-compliance with tax regulations (usually 30% to 50% of the under-declared amount).

Prepared by: Gulsaya Tatikova 19 Thank you for attention!

If you will need my further assistance please feel free to contact me: [email protected]

20