Income Tax in Kazakhstan
Personal Income Tax
Kazakhstan tax residents are taxed on their worldwide income, whereas tax non-residents are taxed only on their Kazakhstan-source income that is non-taxable at source (e.g. capital gain, rental, or property income).
Personal income tax rates
A single flat rate of 10% (in some cases 20%) is applicable to most types of personal income; 5% is applicable for dividends received in and outside of Kazakhstan.
Tax residents are defined as individuals who permanently reside in Kazakhstan or have their centre of vital interests in Kazakhstan even if they do not permanently reside in Kazakhstan.
Kazakhstan tax residents
For the 2018 tax year, a Kazakhstan tax resident will be an individual who has spent 183 or more days in Kazakhstan in any 12 consecutive month period, ending in 2018 (including days of arrival and departure), or who has spent less than 183 calendar days in any 12 consecutive month period but whose centre of vital interest is located in Kazakhstan during 2018.
One's centre of vital interest will be deemed as located in Kazakhstan during 2018 if the following criteria are simultaneously met:
· An individual holds Kazakhstan citizenship or a residence permit during 2018.
· An individual’s family and (or) close relatives were living in Kazakhstan during 2018.
· An individual and (or) one's family members had real estate in Kazakhstan in accordance with owners' rights, which was available for stay in Kazakhstan at any time for the individual or one's family members.
Kazakhstan tax residents are obligated to file tax returns:
· indicating their worldwide income received during the 2018 tax year (i.e. income received for the activity(ies) in other countries)
· to report funds on foreign bank account(s) together with respective balances as at the end of the reporting period
· to disclose the information about owned property such as real estate located outside of Kazakhstan; securities whose issuers are registered outside of Kazakhstan; share in authorised capital of a legal entity which is registered outside of Kazakhstan
· to report income that is non-taxable at source (e.g. capital gain, dividends, interests, property income, rental income from sources in/outside of Kazakhstan), or
· based on other applicable criteria stipulated by Kazakhstan tax legislation.
Kazakhstan tax non-residents
A Kazakhstan tax non-resident is an individual who (i) does not fall under the definition of a 'Kazakhstan tax resident' or (ii) provided a Certificate of Tax Residency in another country in accordance with an effective double tax treaty (DTT). Under the Tax Code requirements, such certificate should be properly legalised (apostilled) and notarised translation into Russian/Kazakh should be enclosed. Finally, this should be provided by the filing deadline of the tax return (i.e. 31 March of the year following the reporting one).
Kazakhstan tax non-residents are obligated to report on a Kazakhstan tax return their income that is non-taxable at source (e.g. property income [i.e. sale of real estate or a car], capital gain, rental income from Kazakhstan source).
Please note that there may be exceptions to these general statements and a Kazakhstan tax filing obligation may arise under other given circumstances.
Employee income (irrespective of one’s residency status) subject to taxation in Kazakhstan is any kind of income received by an employee from an employer in cash or in kind (e.g. accommodation provided by an employer, benefits, compensation, personal use of company provided car, reimbursable business trip expenses in excess of statutory limits).
However, certain types of income (i.e. income from employment, benefits in kind paid to non-residents in connection with their stay in Kazakhstan) of non-resident individuals who are employed by non-resident legal entities with no permanent establishment (PE) in Kazakhstan should not be subject to Kazakhstan individual income tax unless such individuals become Kazakhstan tax residents.
If properly structured, services on provision of personnel (i.e. secondment) will not lead to PE in Kazakhstan. Under secondment arrangement, an entity to which personnel is seconded is generally treated as a tax agent and expected to withhold and pay all applicable Kazakhstan payroll taxes and obligatory contributions, if any, from remuneration of personnel.
No taxable income is recognised at either the grant date or date of exercise for equity compensation, as the difference between the actual cost and fair market value is specifically excluded from taxation.
The taxable income of an individual entrepreneur shall be determined in a manner similar to that of corporations.
Capital gains are subject to income tax at the rate of 10%. However, capital gains associated with the disposal of the following securities may be exempt from taxation in Kazakhstan:
· Government securities.
· Agency bonds.
· Securities listed at the day of disposal on the stock exchange operating in Kazakhstan (if sold by the method of advertised bidding on such stock exchange).
· If all of the following conditions are met:
o On the date of sale, taxpayer owns shares for more than three years.
o Company whose shares are sold is not regarded as a subsurface user.
o More than 50% of company whose shares are sold is not owned by subsurface user(s).
Generally, dividend income is taxable at 5%, both from Kazakhstan or foreign sources.
Dividend income may be exempt from taxation in Kazakhstan if one of the following conditions is met:
· Dividends and interest on the securities listed on the date of accrual of dividends and interest in a stock exchange operating in the territory of the Republic of Kazakhstan.
· If the following conditions are met simultaneously:
o On a date of dividends accrual, taxpayer owns shares (in relation to which dividends are paid) for more than three years.
o Legal entity paying the dividends is not regarded as a subsurface user for the period in relation to which dividends are accrued.
o More than 50% of company is not owned by subsurface user(s) on the date of payment of dividends.
In accordance with the provisions of the Kazakhstan tax legislation, interest income received from foreign banks is taxable in Kazakhstan irrespective of the level of interest rate, whereas, interest income from Kazakhstan banks (operating under the licence of the authorised Kazakhstan state body on regulation and supervision of financial markets and financial institutions) is exempt from taxation in Kazakhstan.
Interest on debt securities, government securities, and agency bonds is also exempt from taxation in Kazakhstan.
When calculating taxable income associated with renting out or leasing a property, the taxpayer can exclude maintenance and repair costs or reimbursement of such costs associated with leasing of this property.
The following types of income shall be exempted from taxation:\
· Alimony received on children and dependents.
· Interest paid to individuals on their bank deposits, debt securities, state issue securities, and agent’s bonds.
· Dividends and interest on debt securities that are listed on the date of assessment of such dividends and interest on the official list of a stock exchange functioning on the territory of the Republic of Kazakhstan.
· Income of military servicemen and officers of law enforcing authorities.
· Winnings in lotteries, within 50% of the minimum amount of wages.
· Payments in connection with the performance of public work and professional training and payment made at the expense of funds of grants is capped at the minimum monthly wage (approximately USD 75).
· Payments for medical services in case of provision with relevant documentation is capped at eight times the monthly coefficient index (approximately USD 55).
Deductions from Income
Kazakhstan obligatory and voluntary pension contributions are deductible.
This does not apply to foreign pension/social security contributions.
Insurance premiums payable by individuals in their own favour under accumulative insurance agreements are deductible.
Expenses for medical services (except cosmetics), with certain limitations, are deductible, provided all supporting documents are in place.
Amounts aimed at repayment of interest on housing loans provided to an individual who is a Kazakhstan resident by housing construction savings banks are deductible.
The most notable allowance is a general deduction based on the minimum monthly wage of 28,284 Kazakhstan tenge (KZT) or KZT 339,408 per annum, which is applicable to Kazakhstan tax residents.
There are no business deductions allowed for employees. An individual may claim business deductions only if registered as an entrepreneur.
Corporate Income Tax
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
· Khorgos-East Gate
· 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 exemption 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 estimated 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
Note: Information placed here in above is only for general perception. This may not reflect the latest status on law and may have changed in recent time. Please seek our professional opinion before applying the provision. Thanks.