Kazakhstan tax system - taxation of Kazakhstan's companies and individuals: VAT, income tax and capital gains. Tax treaties of Kazakhstan

Kazakhstan tax residents are taxed on their worldwide income, while tax non-residents are taxed only on their income derived from sources in Kazakhstan.

A flat flat personal income tax rate of 10% (20% in some cases) applies to most types of personal income; the 5% rate applies only to dividends received in Kazakhstan.

The corporate income tax rate is 20% and is assessed on a calendar year basis.

Resident companies in Kazakhstan tax worldwide profits, while non-resident companies operating through a permanent establishment (PE) in Kazakhstan are subject to Kazakhstan income tax only on profits attributable to that PE.

Non-residents without a PE in Kazakhstan who derive income from sources in Kazakhstan are generally subject to Kazakhstan withholding income tax on income derived in Kazakhstan.

A reduced income tax rate of 6% applies to qualified agricultural income of legal entities producing agricultural products.

In addition, taxpayers operating in Special Economic Zones (SEZs) may be fully exempt from income tax if certain conditions are met.

The current rate of VAT is 12%. This tax applies to the value of sales of goods, works and services, as well as to imports. The export of goods and international transportation services are taxed at 0%.

There is a list of goods, works and services that are exempt from VAT: e.g. sales of medicines, financial services of financial institutions, financial leasing services, notary and lawyer services, operations with financial securities and investment gold, credit operations.

All VAT payers must issue invoices in electronic format ("electronic invoices").

VAT payers issuing electronic invoices and involved in the sale of certain types of goods (specifically listed in the Finance Ministry's order) must register these goods in the Virtual Warehouse (VS) module - otherwise they will not be able to issue invoices.

In addition, Kazakhstan has launched a pilot project for issuing electronic invoices for import, shipment and export of goods from Kazakhstan. Different terms of the pilot project are envisaged for different categories of goods.

Non-resident legal entity is exempt from withholding tax on dividends, if the following conditions are simultaneously met

• the dividends are not paid to persons registered in blacklisted jurisdictions;
• the holding period of shares or interests exceeds 3 years;
• the person paying the dividends is not a subsoil user; and
• 50 percent or more of the value of the entity paying the dividends is not formed by the subsoil user's property.

Based on the amendments to the Tax Code that came into effect on 1 January 2021, the above exemption applies only to net income that was previously subject to corporate income tax in Kazakhstan.

A non-resident entity is exempt from withholding tax on capital gains if the following conditions are simultaneously met

• capital gains are not paid to persons registered in blacklisted jurisdictions;
• the holding period of shares or participatory interests exceeds 3 years;
• the person from whom the shares/participatory interests were alienated is not a subsoil user, and 50 percent or more of the enterprise value (value of the entity) in which the shares/participatory interests were alienated is not formed at the expense of the subsoil user's property.

Income of non-residents from rendering services in Kazakhstan (if a non-resident renders services to a Kazakh resident and payment for such services is made from Kazakhstan), including certain types of services (management, financial, consulting, engineering, marketing, auditing and legal), is taxable at source of payment at the rate of 20%. Such income is considered as income received from Kazakhstan irrespective of the place of actual rendering of the service.

Under the Kazakhstan Tax Code, a controlled foreign company (CFC) is an entity that simultaneously meets the following two conditions:

• 25% or more shares of a non-resident company are owned directly, indirectly or structurally by a Kazakh legal entity or such non-resident company is related to a Kazakh resident by control (i.e. the resident exercises control over the foreign entity); and
• the non-resident company's effective income tax rate is less than 10% or the non-resident company is registered in a blacklisted jurisdiction.

However, foreign companies will not be recognized as CFC for Kazakh taxation purposes if:

• the foreign entity is registered in a country with a valid Double Taxation Agreement (DTA) with Kazakhstan, and the nominal corporate income tax rate in such country exceeds 15%;
• the foreign entity is not registered in a state with preferential taxation, and the aggregate amount of such entity's income, according to separate unconsolidated financial statements, is less than 150 495 times the MRR (i.e. approximately USD 1 000 000)
• at the period end in separate unconsolidated financial statements such entity has

Under Kazakhstani transfer pricing legislation, the tax authorities have the power to monitor and adjust prices used in cross-border and certain domestic transactions when prices are considered to deviate from market prices, even if such transactions are conducted with unrelated parties.

If the authorities adjust the prices, the reassessed liabilities will include taxes, duties, penalties and fines paid to the state budget.

Transfer pricing rules affect the following transactions:

• international commercial transactions;
• domestic transactions that are directly related to international commercial transactions when:

1. the sale relates to a subsoil use contract;
2. either party to the transaction has a tax preference; or
3. one party has a loss in the 2 years preceding the year of the transaction.

Immovable property tax is assessed annually at a flat rate of 1,5% on the average net book value of immovable property.

Immovable property tax applies to buildings and structures that are in actual use even if they are not registered with the justice authorities.

Legal entities and individuals owning land plots (or a land portion in cases of common shared ownership of land plots) must pay land tax annually. Land tax rates vary depending on the purpose of use, as well as the size and quality of the land.

Employers are obliged to pay a social tax of 9,5% of the gross remuneration (wages and certain benefits) of all employees (national and foreign).

Mandatory social insurance contributions are paid by employers at a rate of 3,5% to the National Pension Centre.

Mandatory pension contributions (MTPL) are withheld at 10% of employees' gross income and transferred to the State Pension Center. Gross income subject to the MTP is limited to 50 times the monthly minimum wage (approximately USD 8 215) per employee per month.

Effective January 1, 2020, the employer's mandatory social health insurance (OMC) contributions increased to a rate of 2%. All employers, including branches and representative offices, must pay OMC for all their employees. The monthly income taken into account for the calculation of deductions and contributions must not exceed ten times the minimum monthly wage (in 2022 the income calculation will not exceed KZT 600 000).

Kazakhstan has concluded 57 Double Tax Treaties (DTCs) with the following jurisdictions:

57 DTCs: Armenia, Austria, Azerbaijan, Belarus, Belgium, Bulgaria, Canada, China, Cyprus, Egypt, Georgia, Germany, Hungary, India, Iran, Ireland, Italy, Qatar, Korea, Kyrgyzstan, Kuwait, Latvia, Lithuania, Luxembourg, Macedonia, Spain, United Kingdom and Northern Ireland, Vietnam, Malaysia, Moldova, Mongolia, Netherlands, Norway, Pakistan, Poland, Qatar, Romania, Russia, Saudi Arabia, Serbia, Singapore, Slovakia, Slovenia, Sweden, Switzerland, Tajikistan, Turkey, Turkmenistan, Ukraine, United Arab Emirates, United States, Uzbekistan, Croatia, Estonia, Finland, France, Japan.

In addition, Kazakhstan has signed and ratified the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). The Multilateral Convention entered into force for Kazakhstan on October 1, 2020.

Currency control in the Republic of Kazakhstan is carried out with respect to residents, including financial organizations, carrying out currency operations as well as non-residents carrying out currency operations in the Republic of Kazakhstan.