Corporate tax in Kazakhstan

Summary

Corporate Income Tax Rate (%) 20
Capital Gains Tax Rate (%) 20
Permanent Establishment Tax Rate (%) 20
Branch Profits Tax Rate (Additional Tax) (%) 15 (a)
Withholding Tax (%)
Dividends
15 (b)(c)
Interest 15 (c)
Royalties from Patents, Know-how, etc. 15 (c)
Capital Gains 15 (c)
Other Income 20
Net Operating Losses (Years)
Carryback 0
Carryforward 10
    a)This tax is imposed on the taxable profits of permanent establishments after deduction of corporate income tax.
    b) This withholding tax applies to dividends paid to nonresident legal entities. Dividends paid to resident legal entities are generally exempt from tax (with some exceptions).
    c) A 20% withholding tax rate applies to Kazakh-source income paid to entities registered in tax havens.

Taxes on corporate income and gains

Corporate income tax. Kazakhstan legal entities and foreign legal entities operating through a permanent establishment are subject to tax. The definition of “permanent establishment” is generally similar to the definition in the model treaty of the Organisation for Economic Co-operation and Development, without the standard exemptions but with certain peculiarities. Kazakhstan tax-resident legal entities are subject to tax on their worldwide income. Non­resident legal entities are subject to tax on income from Kazakh sources that are earned through a permanent establishment.

Rates of corporate tax. The regular corporate income tax rate is 20%. This rate applies to Kazakhstan companies, including enter­prises with foreign participation (joint ventures) and companies with 100% foreign participation, and permanent establishments of foreign companies.

Permanent establishments are also subject to a 15% branch prof­its tax on their profits after deduction of corporate income tax. The 15% branch profits tax is imposed regardless of whether the profits are remitted to the home country of the permanent estab­lishment. The branch profits tax rate may be reduced by an appli­cable double tax treaty.

Payments to foreign or nonresident legal entities without a per­manent establishment are subject to withholding tax. The rate is 15% for dividends, interest, royalties, capital gains and insurance premiums. For reinsurance premiums and international transpor­tation services, the rate is 5%. For all other payments, the rate is 20%. The rate is 20% for payments of any type of Kazakh-source income to tax-haven entities. The withholding tax rates may be reduced by an applicable tax treaty.

Taxation of subsurface users. Businesses engaging in the explo­ration and extraction of mineral resources in Kazakhstan ( usually referred to as subsurface users under Kazakhstan law) operate under subsurface use contracts. The taxation under such contracts differs from the standard regime.

Tax incentives. Expenditure on certain qualifying fixed assets can be deducted in the first three years after commissioning, with each deduction equaling one-third of the initial value of the asset. Alter­natively, it can be deducted in full in the tax year in which the expenditure is incurred.

Special-Economic Zones. Currently, the following 10 special-economic zones exist in Kazakhstan:

  • Astana-New City
  • National Industrial Petrochemical Technopark
  • Innovation Technology Park
  • Sea Port Aktau
  • Ontustyk
  • Burabai
  • Saryarka
  • Khorgos-East Gate
  • Pavlodar
  • Chemical Park Taraz

The Kazakhstan Tax Code provides certain tax benefits for entities carrying out their activities in a special-economic zone. These tax benefits generally include a reduction of the corporate income tax payable by 100% and exemptions from land and property taxes and payments for the use of land plots. In addition, an ex emption from social tax may be applied by entities carrying out their activities in the Innovation Technology Park special- economic zone. The tax benefits may be claimed by entities that meet certain requirements established by the Tax Code.

Other incentives. Tax benefits that are similar to the special-economic-zone benefits are provided to entities outside special-economic zones that carry out priority investment projects based on investment agreements concluded with the government. Cer­tain requirements and conditions must be met.

Capital gains. Capital gains are included in taxable profit and subject to tax at the regular corporate income tax rates. For non­residents, certain capital gains are taxed by withholding tax.

Administration. The tax year is the calendar year.

Legal entities must make advance payments of tax on or before the 25th day of each month. These payments are generally based on the esti mated income and corporate income tax due for the current year. Annual tax returns must be filed by 31 March of the year following the tax year. Corporate income tax due must be paid within 10 calendar days after the deadline for filing annual tax returns. The following legal entities are not required to make advance payments of tax:

  • Legal entities that had adjusted aggregate annual income not exceeding 325,000 monthly calculation indices (this index is established annually) in their antepenultimate tax year
  • Legal entities in their year of registration and in the following year

Dividends. Dividends paid to nonresident legal entities are subject to withholding tax at a rate of 15% (for legal entities from tax-haven countries, a 20% rate applies). Dividends paid to resident legal entities are generally exempt from withholding tax (with some exceptions). Dividends received by resident legal entities are generally exempt from corporate income tax (with some ex­emptions).

For purposes of the Tax Code, resident legal entities are legal enti­ties created in accordance with Kazakhstan legislation and legal entities with their place of effective management (actual manage­ment body) located in Kazakhstan.

Foreign tax relief. A foreign tax credit is available for foreign tax paid on income earned abroad, unless such income is exempt from tax in Kazakhstan. The amounts that may be offset are determined for each country separately and equal the lowest amount of the following:

  • The amount actually paid in a foreign state on income received by a taxpayer outside of Kazakhstan
  • The amount of income tax on income received by a taxpayer outside Kazakhstan, calculated in accordance with the Tax Code and the provisions of an international treaty

Determination of taxable income

General. Under accounting legislation, large business entities, financial institutions, joint stock companies and certain other companies must prepare their financial reporting in accordance with International Financial Reporting Standards (IFRS). Other entities may choose to prepare their financial reporting in accor­dance with IFRS. Entities that do not choose to follow IFRS must prepare their financial reporting in accordance with National Accounting Standards.

In general, taxable profit equals the difference between annual aggregate income and allowable deductions. Income and expenses in accounting records generally serve as the basis for the calcula­tion with adjustments.

In general, under the Tax Code, all properly documented expenses related to activity aimed at generation of revenues are deductible, unless the Tax Code explicitly indicates that a certain expense is nondeductible.

Interest (in certain cases, the amount actually paid within the amount of accrued interest expense) is deductible up to an amount calculated on the basis of the following formula:

(A + E) + (OC) x (MC) x (B + C + D) AL

The following are descriptions of the items contained in the above formula:

  • “A” is the amount of the interest, excluding amounts included in values B, C, D and E.
  • “B” is the amount of interest payable to a related party, exclud­ing amounts included in value E.
  • “C” is the amount of remuneration payable to persons registered in a state with a preferential tax regime (tax haven), excluding amounts in cluded in value B.
  • “D” is the amount of interest payable to an independent party with respect to loans granted against a deposit or a secured guar­antee, surety bond or other form of security provided by related parties in the event of the enforcement of the guarantee, surety bond or other form of security, excluding amounts included in value C.
  • “E” is the amount of remuneration for credits (loans) issued by a credit partnership established in Kazakhstan.
  • “MC” is the marginal coefficient – seven for financial institutions and four for others.
  • “OC” is the average annual amount of owners’ capital.
  • “AL” is the average annual amount of liabilities.

The amount of interest in excess of the amount calculated under this formula is not deductible.

Subsurface users (see Section B) may deduct in the form of depre­ciation deductions expenses incurred during the exploration peri­od on geological studies, exploration and preparation work for the extraction of mineral resources, including expenses for assess­ment, expenses for equipping, general administrative expenses and expenses connected with the payment of bonuses. Subsurface user operations are works related to geological studies and to the exploration and production of natural resources. Enterprises begin to calculate depreciation when the extraction of mineral resources begins after commercial discovery. They may set the annual depre­ciation rate at their discretion, but the rate may not exceed 25%.

Provisions. Banks and insurance companies may deduct provi­sions for doubtful and bad debts created in accordance with IFRS in the order established by the National Bank of Kazakhstan and agreed to by the authorized state body. Other entities may gener­ally deduct actual bad debts that are three years past due if certain other conditions are met.

Tax depreciation. Buildings may be depreciated using an annual declining-balance rate of up to 10%. The maximum annual declining-balance depreciation rate for machinery and equipment (with the exception of machinery used in the oil and gas extrac­tion industry) is 25%. The maximum depreciation rate for com­puters and software is 40%. Other fixed assets not included in the above categories are depreciated at a rate of up to 15%. Deprecia­tion rates for subsurface users may be doubled in the tax year in which fixed assets are first placed into service in Kazakhstan if these fixed assets are used in the business for at least three years.

Relief for losses. Enterprises may generally carry forward tax losses from business activities to offset annual taxable profits in the following 10 tax years. Loss carrybacks are not allowed.

Groups of companies. The Tax Code does not include any measures permitting related enterprises to offset profits and losses among group members.

Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate (%)
Value-added tax; imposed on supplies
of goods, work and services that are
considered to be supplied in Kazakhstan,
as well as on imports of goods
Standard rate 12
Exports of goods 0
Export duties on certain types of goods
(for example, crude oil and specified oil
products); the duty is calculated as a specific
percentage of the customs value, with a
minimum duty of a specified amount of
euros or US dollars per unit of measurement
Various
Import duty on certain goods; the duty is
calculated as a specific percentage of the
customs value, with a minimum duty of
a specified amount of euros or US dollars
per unit of measurement
Percentage rates Various
Excise taxes on certain goods; the tax is
calculated as a specified amount of tenge
per unit or a specified percentage of the
customs value
Percentage rates Various
Property tax; imposed on annual average
balance-sheet value of immovable property
1.5
Payroll taxes
Personal income tax, payable by employee;
calculated at a flat general rate
10
Social tax, paid by employer; calculated
at a flat rate
11
Pension fund contributions; withheld from
employees’ salaries; the maximum base used
to calculate the monthly contributions is
KZT1,714,425 (approximately USD5,000)
Standard rate 10
Additional professional pension fund
contributions; paid by employer for
employees working in hazardous health
conditions (according to a list of
professions); calculated at a flat rate
5
Social insurance contributions paid by
employers and self-employed individuals;
the base used to calculate the monthly
contributions may not exceed KZT228,590
(approximately USD670)
Percentage rate 5
Rent tax on crude oil and gas condensate
for export
Percentage rates 0 to 32

Other taxes include land tax and vehicle owners’ tax.

Miscellaneous matters

Foreign-exchange controls. The currency in Kazakhstan is the tenge (KZT).

The principal measures governing foreign-exchange controls in Kazakhstan are the Law on Currency Regulations and Currency Control and the resolutions of the National Bank of Kazakhstan. The foreign-exchange control system operates largely through the following two sets of rules:

  • Rules for residents (that is, Kazakhstan citizens, Kazakhstan legal entities, representative offices and branches of Kazakhstan legal entities in and outside Kazakhstan, diplomatic, trade and other official representative offices of Kazakhstan, located out­side Kazakhstan, and foreign citizens having a Kazakh resi­dency permit)
  • Rules for nonresidents (that is, foreign citizens, foreign compa­nies, representative offices and branches of foreign legal entities, international organizations, and diplomatic and other official re presentative offices of foreign countries)

In general, payments between residents may only be made in tenge.

Under the Civil Code, an obligation between two residents may not be denominated in foreign currency, with certain exceptions. This rule does not apply to contracts between residents and non­residents.

Transfer pricing. The Transfer Pricing Law strengthens controls over prices used by taxpayers in cross-border transactions and certain domestic transactions related to cross-border transactions.

The law does not differentiate between related and unrelated par­ties in applying transfer-pricing controls (for example, no price deviation allowed for unrelated parties). The law contains exten­sive transfer-pricing documentary and monitoring re quirements that include, among other items, industry, market, functional and risk analysis. Under the law, the following methods may be used to determine the market price:

  • Comparable uncontrolled price method
  • Cost-plus method
  • Subsequent resale price method
  • Profit-split method
  • Net margin method

Treaty withholding tax rates

The following table lists the withholding tax rates under Kazakh-stan’s tax treaties.

Dividends

%

Interest

%

Royalties

%

Armenia 10 10 10
Austria 5/15 (a) 10 10
Azerbaijan 10 10 10
Belarus 15 10 15
Belgium 5/15 (a) 10 10
Bulgaria 10 10 10
Canada 5/15 (a) 10 10
China 10 10 10
Czech Republic 10 10 10
Estonia 5/15 10 15
Finland 5/15 (a) 10 10
France 5/15 (a) 10 10
Georgia 15 10 10
Germany 5/15 (b) 10 10
Hungary 5/15 (b) 10 10
India 10 10 10
Iran 5/15 (c) 10 10
Italy 5/15 (a) 10 10
Japan 5/15 (a) 10 10
Korea (South) 5/15 (a) 10 10
Kyrgyzstan 10 10 10
Latvia 5/15 (b) 10 10
Lithuania 5/15 (b) 10 10
Luxembourg 5/15 (d) 10 10
Macedonia 5/15 (b) 10 10
Malaysia 10 10 10
Moldova 10/15 (b) 10 10
Mongolia 10 10 10
Netherlands 5/15 (a) 10 10
Norway 5/15 (a) 10 10
Pakistan 12.5/15 (a) 12.5 15
Poland 10/15 (c) 10 10
Romania 10 10 10
Russian Federation 10 10 10
Singapore 5/10 (b) 10 10
Slovak Republic 10/15 (e) 10 10
Spain 5/15 (a) 10 10
Sweden 5/15 (a) 10 10

 

Switzerland 5/15 10 10
Tajikistan 10/15 10 10
Turkey 10 10 10
Turkmenistan 10 10 10
Ukraine 5/15 (b) 10 10
United Arab Emirates 5/15 (a) 10 10
United Kingdom 5/15 (a) 10 10
United States 5/15 (a) 10 10
Uzbekistan 10 10 10
Vietnam 5/15 (f) 10 10
Non-treaty countries 15 (g) 15 (g) 15 (g)

a) The lower rate applies to dividends paid to companies owning at least 10% of the payer. The 15% rate applies to other dividends.

b) The lower rate applies to dividends paid to companies owning at least 25% of the payer. The 15% rate applies to other dividends.

c) The lower rate applies to dividends paid to companies owning at least 20% of the payer. The 15% rate applies to other dividends.

d) The lower rate applies to dividends paid to companies owning at least 15% of the payer. The 15% rate applies to other dividends.

e) The lower rate applies to dividends paid to companies owning at least 30% of the payer. The 15% rate applies to other dividends.

f) The lower rate applies to dividends paid to companies owning at least 70% of the payer. The 15% rate applies to other dividends.

g) For payments to entities registered in tax havens (according to a list), the rate is 20%.