International Tax Kazakhstan Highlights In Plain English

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Phone : +1 202 792 6600 www.CastroAndCo.com Investment basics: dividends (such as dividends received from risk investment funds), in respect of which Currency – Kazakhstan Tenge (KZT) specific requirements must be met to Foreign exchange control – Payments obtain an exemption. between residents may be made only in Capital gains – Capital gains are taxed at KZT, payments between residents and the standard corporate income tax rate. nonresidents may be made in any currency. Certain categories of capital gains (including Certain transactions may be subject to the gains derived from the sale of shares that national bank’s notification or registration principally do not derive their value from regime. subsurface use property) are exempt if Accounting principles/financial statements certain conditions are satisfied. – Large entities and public companies in Losses – Operating losses generally may be Kazakhstan must use IFRS, while small and carried forward for up to 10 years following medium-sized enterprises, branches and the year in which the loss is incurred. The representative offices of foreign entities carryback of losses is not permitted. may use IFRS or national financial reporting standards. Rate – The standard corporate income tax rate of 20% applies to domestic and foreign Principal business entities – The principal companies. forms of business include the joint stock company, limited liability company, Surtax – A surtax exists in the form of an unregistered partnership (consortium), excess profits tax levied on subsurface branch and representative office of a foreign users. The excess profits tax was abolished corporation. for subsurface users engaged in the mining industry as from 1 January 2018. Corporate taxation: Alternative minimum tax – No Residence – A company is considered to be a Kazakh tax resident if it is established Foreign tax credit – A credit generally is under the laws of Kazakhstan or if its available for foreign taxes paid on foreign- governing body/place of actual management source income, based on documentation and control is located in Kazakhstan. confirming the foreign income tax payment.

Basis – Resident companies are taxed on Participation exemption – No worldwide income. Nonresidents generally are taxed only on Kazakhstan-source Holding company regime – No income. Incentives – Certain tax and non-tax Taxable income – Entities are subject to incentives are available. Tax incentives corporate income tax on business profits are provided in the form of accelerated and other taxable income. Expenses tax deductions for capital expenditure, may be deducted against income if they provided certain requirements are met. are wholly and exclusively incurred for Special tax regimes/incentives are available business-related purposes and if they for qualifying nonprofit organizations are substantiated by supporting source and organizations operating in social documentation. spheres. Tax incentives in the form of a 100% reduction of corporate income tax, a Taxation of dividends – Dividends received zero coefficient to the land tax rates and are effectively exempt from income property tax at a zero rate apply in relation taxation, except for certain categories of to investments in qualifying investment priority projects if certain conditions Technical service fees – The tax code does are met. Other non-tax reliefs granted not specifically provide a definition of depending on the type of the investment technical services. However, as a general project mainly include exemptions from rule, payments for technical services to customs duties, access to state material nonresidents without a PE in Kazakhstan are grants and investment subsidies. considered Kazakh-source income, and are subject to a 20% withholding tax. Certain Withholding tax: technical service fees may be reclassified as Dividends – A 15% withholding tax is royalties subject to a 15% withholding tax. levied on dividends paid to nonresidents The tax rate may be reduced in line with without a permanent establishment (PE) in the provisions of an applicable tax treaty. A Kazakhstan. A 20% rate applies to dividends 20% rate applies to technical service fees paid to nonresidents registered in a tax paid to a nonresident registered in a tax haven. The rate may be reduced under an haven, regardless of the nature of services applicable tax treaty. provided.

Qualified dividends (except for dividends Branch remittance tax–A PE of a paid to persons registered in a tax haven) nonresident foreign company is subject may be exempt from withholding tax to a net profit tax of 15% on net after-tax under domestic tax legislation where income, in addition to corporate income the underlying shares are listed on the tax. The net profit tax is payable regardless Kazakh stock exchange or the Astana of whether net profits are remitted to international exchange (AIX) or are held the parent company. The tax rate may be in Astana International Financial Center reduced under an applicable tax treaty. (AIFC) participants; or where the underlying Other – A 15% withholding tax is levied on shares/participation in a non-subsurface capital gains from dispositions of property user have been held by a nonresident for located in Kazakhstan that is subject to more than three years and no more than state registration, rights or transactions 50% of the value of the non-subsurface user that are subject to state registration, and is derived from subsurface use. shares/participations of resident legal A domestic WHT exemption also is available entities. A 15% withholding tax is levied for dividends (except for dividends paid to on capital gains from dispositions of persons registered in a tax haven) paid by shares/participations of nonresidents if subsurface users if certain conditions are 50% or more of the value of the shares/ fulfilled. participations or assets of the nonresident constitute property situated in Kazakhstan. Interest – A 15% withholding tax is levied on A 20% rate applies to capital gains of interest paid to nonresidents without a PE nonresidents registered in a tax haven. in Kazakhstan. Interest paid to nonresidents Capital gains may be exempt from WHT registered in a tax haven is subject to a 20% under an applicable tax treaty or under the rate. The tax rate may be reduced under an domestic tax legislation (except for capital applicable tax treaty. gains of persons registered in a tax haven) if certain conditions are fulfilled (subject to Royalties – Royalties paid to nonresidents certain procedures). without a PE in Kazakhstan are subject to a 15% withholding tax. A 20% rate applies to A domestic WHT exemption may apply royalties paid to nonresidents registered in to capital gains from dispositions of the a tax haven. The tax rate may be reduced following: under an applicable tax treaty. • Shares by open auction on the Kazakh or a foreign stock exchange; immovable property located in Kazakhstan at progressive rates ranging from 0.1% to • Shares on the Astana international 1.5%, depending on a taxpayer’s activities. exchange (AIX); Social security – The employer must pay • Shares / participations in AIFC social security contributions to the State participants; or Social Security Fund at a rate of 3.5% (with an income cap of KZT 297,500), in • Shares/participations in non-subsurface addition to local employees’ salaries. Any users that have been held by a nonresident social contributions paid ultimately reduce for more than three years and where no the amounts of social tax due (see under more than 50% of the value of the non- “Payroll tax,” above). subsurface user is derived from subsurface Obligatory contributions to the Social use. Medical Insurance Fund also are paid by A domestic WHT exemption also is available the employer, in the amount of 1.5% of an for capital gains (except for capital gains of employee’s gross salary (taxable income is persons registered in a tax haven) realized capped at KZT 425,000). on shares/participations in subsurface users Stamp duty – No standalone stamp duty if certain conditions are fulfilled. regime exists. However, the authorities may Other taxes on corporations: impose a levy on various legal actions, such as the issuance of documents by state Capital duty – No bodies.

Payroll tax – An employer is required Transfer tax – No to remit social tax at a flat rate of 9.5%, applied to an employee’s gross salary (both Other – Corporate taxpayers undertaking local and foreign), at its own expense. licensed activities to extract mineral resources in Kazakhstan are subject to a The employer is required to withhold and specific subsurface user taxation regime, remit 10% individual income tax and a 10% which includes the excess profit tax (see obligatory pension fund contribution on under “Surtax,” above), mineral extraction behalf of employees. Obligatory pension tax and rent tax on exports, in addition to fund contributions to private pension bonuses payable upon signature of license accounts, similarly, are equal to 10% agreements. As from 1 January 2019, the of the employee’s monthly salary. The bonus that formerly was payable upon threshold set for the purposes of pension confirmation of commercial discoveries is contributions is 10% of 50 times the abolished. minimum monthly salary established by the law on the republican budget, which Certain oil and gas companies may choose currently is KZT 212,500 per month. See also to apply an alternative tax on subsurface under “Social security,” below. usage, instead of certain taxes generally applicable to subsurface users. In addition to employee contributions, the employer is liable for additional professional Tax also is levied on transportation pension fund contributions equal to 5% of activities. gross income of employees (Kazakh citizens Anti-avoidance rules: and residence permit holders) involved in hazardous/harmful activities. Transfer pricing – Kazakhstan’s transfer pricing legislation applies to all cross- Real property tax – Property tax is levied on border transactions and certain domestic Disclosure requirements – Tax residents transactions between related and unrelated (both individuals and legal entities) are parties. The law adopts the arm’s length required to notify the Kazakh tax authorities concept, although the definition is of a direct, indirect and/or constructive somewhat different from that in the OECD participation in (control over) a CFC. transfer pricing guidelines. A notification of participation in an MNE Kazakhstan has introduced the concept of group may be required to be filed by three-tiered transfer pricing documentation, qualifying MNE group members subject including a country-by- country (CbC) to CbC reporting requirements (see under reporting requirement. A notification of “Transfer pricing”). participation in a multinational enterprise (MNE) group may be required to be filed Compliance for corporations: by qualifying MNE group members by Tax year – Calendar year 1 September of the year following the reporting year. A requirement for submission Consolidated returns – Consolidated returns of the local file and master file is effective are not permitted; each company must file as from 1 January 2019. a separate tax return. However, in certain cases, nonresidents with several PEs in A framework for advance pricing agreements Kazakhstan may opt to file a consolidated is included in the domestic legislation. tax return.

Thin capitalization – The deduction of Filing requirements – The corporate income interest generally is limited by a specific tax return is due by 31 March of the year debt-to-equity formula set by the tax following the reporting tax year. A one- legislation. Deductions of interest accrued month extension may be obtained for with respect to nonresident parties also are electronically filed tax returns. limited by the applicable market rate. The amount of interest accrued with respect to Penalties – Penalties are assessed at nonresident related parties in excess of the 1.25 times the official refinancing rate applicable market level must be recognized established by the national bank for each as a deemed dividend. day of delay in paying the tax due.

Controlled foreign companies – CFC rules Rulings – The tax authorities generally apply to residents with at least a 25% issue nonbinding rulings of an explanatory shareholding or control (as defined by nature. However, rulings issued by the tax IFRS) in a tax haven entity or an entity authorities individually to taxpayers will be that is taxed at an effective tax rate of considered during the tax appeal process. less than 10%. The government has issued Advance pricing agreements also are a list of tax haven jurisdictions. Kazakh possible. residents holding shares or control in CFCs are required to include CFC profits Personal taxation: proportionate to their shareholding or Basis – Resident individuals are taxed on control in their aggregate annual income. worldwide income. Nonresidents are taxed A law enacted in April 2019 retroactively only on their Kazakh- source income. suspends the application of the CFC rules for the period 1 January 2018 until 1 January Residence – Tax residence is based on 2020 in relation to entities registered in a whether an individual is permanently jurisdiction that has concluded a tax treaty residing in or has his/her center of vital with Kazakhstan. interests in Kazakhstan. The permanent residence test is based on the number of days of presence in Kazakhstan: a foreign taxed at 15%, and insurance premiums on individual is deemed to be a resident if he/ contracts of risk reinsurance and income she is present in Kazakhstan no less than from services of international transportation 183 days in any consecutive 12-month are taxed at 5% for nonresidents. Other period ending in the reporting tax year. The income is taxed at 10% for residents and center of vital interests test is based on 20% for nonresidents. whether an individual is a citizen or a holder of a Kazakh residence permit and has a Other taxes on individuals: spouse and/or close relatives and a place of Capital duty – No abode in Kazakhstan. Stamp duty – See under “Other taxes on Filing status – Joint filing is not permitted; corporations,” above. each individual must file his/her own return, if required. Capital acquisitions tax – No

Taxable income – Kazakh-source income Real property tax – Property tax is levied on includes income from employment and immovable property located in Kazakhstan other activities in Kazakhstan and any other at progressive rates, depending on the benefits received in this respect, regardless value of the property. The applicable of where payment is made. Taxable income rate of taxation varies from 0.05% to KZT comprises employment income (including 2,946,600 + 2% x (property value minus KZT benefits in kind), income from a business 450 million) on the value of the object of and passive income. Certain dividend taxation. income is exempt. Inheritance/estate tax – No Capital gains – Income derived from the sale of property is treated as capital gains Net wealth/net worth tax – No subject to taxation unless the individual Social security – See under “Other taxes on has held the property for more than corporations.” one year. Subject to certain exceptions, income derived from the sale of shares of Compliance for individuals: participations and securities is treated as capital gains subject to taxation. Income in Tax year – Calendar year the form of capital gains is taxed at the rate Filing and payment – Individual income generally applicable to the individual. tax on employment income is subject to Deductions and allowances – Standard withholding, payment and reporting by the monthly deductions are allowed for tax employer. Payment is due by the 25th day residents, such as a minimum monthly of the month following the month in which salary deduction (KZT 42,500 per month) the income was paid. Income and tax must and deductions for obligatory pension fund be reported on a quarterly basis by the contributions, medical costs, etc., with 15th day of the second month following the certain limitations. reporting quarter.

Rates – Employment income is taxed at If an individual receives income not a flat rate of 10% for both residents and subject to taxation at source, or if a tax nonresidents. Kazakh-source dividends resident (applicable only to residents are taxed at 5% (or 10% if from foreign that are citizens, oralmans (certain sources) for residents. Insurance premiums immigrants intending to stay permanently on contracts of risk insurance, dividends, in Kazakhstan) or residence permit holders interest, royalties and capital gains are in Kazakhstan) possesses foreign assets (an overseas bank account with a minimum Source of tax law: Code of the Republic of balance, immovable property, foreign legal Kazakhstan on taxes and other mandatory entity shares or equity capital interests), a payments to the budget (Tax Code) tax return may be required to be filed by 31 March of the year following the reporting Tax treaties: Kazakhstan has concluded 54 year, with the payment of the final tax due tax treaties. Kazakhstan signed the OECD by 10 April. multilateral instrument (MLI) on 25 June 2018. Penalties – Penalties apply for late payment of taxes, and administrative fines are Tax authorities: State Revenue Committee imposed for noncompliance. of the Ministry of Finance; state revenue departments at the regional level and for Value added tax: the cities of Almaty and Astana; state revenue agencies at the district and town Taxable transactions – VAT is levied on the levels supply of goods, works and services, as well as on imports. A reverse-charge VAT applies on supplies of works and services by nonresidents, if the place of supply is deemed to be in Kazakh territory, except for certain cases (such as VAT-exempt supplies, etc.).

Rates – The standard rate is 12%. A 0% rate or exemption applies in certain cases.

Registration – Registration is compulsory for companies whose turnover exceeds KZT 75,750,000 in a calendar- year period. Otherwise, registration is optional.

Filing and payment – Payment is due by the 25th day of the second month following the reporting quarter. VAT and related turnover must be reported on a quarterly basis, by the 15th day of the second month following the reporting quarter. A two-week extension may be obtained for electronically filed tax returns.

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