Tax NewsFlash - July 2022

Dear readers,

We present you an overview of amendments¹ to the Tax Code and to the Law on the Enactment of the Tax Code, signed on 11 July 2022.

Dividends Taxation

(Effective from 1 January 2023)

• The income tax exemption of dividends on securities listed on the stock exchanges in Kazakhstan is applicable only if these securities were actively traded on the stock exchange. The Government will establish criteria for the active trading on a stock exchange;
• The amendments cancel the full tax exemption of dividends held for more than three years for individuals and nonresident entities.

Kazakh Entities

• The amendments exempt from taxation dividends paid by legal entities reducing their corporate income tax by 100%;

Resident Individuals

• The amendments withdraw the provision providing for a 5% personal income tax rate on dividends. A single personal income tax rate of 10% will be applicable to all types of personal income;
• Dividends from a resident legal entity in the amount of up to 30 000 times the monthly index factor for a year are exempt from taxation;

Nonresidents

• Instead of the full tax exemption of dividends held for more than three years, the amendments introduced a reduced income tax rate of 10% (the conditions for this benefit remain the same).

Intangible Services from Nonresident Related Parties

(Effective from 1 January 2023)

• The amendments restrict deductions of expenses for certain intangible services received from nonresident related parties. The list of the services includes management, consulting, audit, design, legal, accounting, marketing, financial, royalties and others (sixteen types of services in total);
• Expenditures on such intangible services from nonresident related parties are not deductible but they may reduce a taxpayer’s taxable income for up to 3% of the total amount of the taxable income;
• The amendments broaden the definition of the related parties for the purpose of the application of these provisions.

Digital Mining

(Effective from 1 January 2023)

• The amendments increase the rate of payment for digital mining. The rate ranges from 1 to 25 tenge per 1 kilowatt-hour of electricity depending on the electricity price (the higher the price of electricity, the lower the rate). The minimum rate of 1 tenge per 1 kWh is applicable for renewable energy sources produced at own power plants.
• The maximum rate of 25 tenge per 1 kilowatt-hour of the consumed electricity applies in the absence of electricity meters and (or) if they are out of order. In this case, the state authorities will measure the consumed electricity based on the round-the-clock consumption of the maximum power of the mining equipment.

Mineral Extraction Tax

(Effective from 1 January 2023)

• The amendments increase the mineral extraction tax rates for solid minerals:
  • by 50% for exchange-traded metals (gold, silver, copper, zinc, aluminum, uranium);
  • by 30% for other metals;
• For the exploration and development of new deposits, taxpayers may apply a zero tax rate for 5 years from the start of commercial production (subject to certain conditions);
• Subsoil users will be able to apply the mineral extraction tax rates effective on 31 December 2022, if the deposit profitability does not exceed 5%;
• -The Government will establish criteria for classifying deposits as low-profitable and the procedure for calculation of the profitability and internal rate of return.

Personal Income Tax Declarations

• Individuals subject to the nationwide filing reflect their personal income tax obligations related to income not taxed at the source of payment in Kazakhstan on their declarations of income and property (form 270.00). These individuals are exempt from filing personal income tax declarations (form 240.00). The calculated personal income tax is due within ten calendar days after the filing deadline for the declaration of income and property (effective from 1 January 2022);
• A citizen of Kazakhstan/qandas²/person with a residence permit in Kazakhstan is required to file a personal income tax declaration if he/she has money in their foreign bank accounts in an amount exceeding 2 000 times the monthly index factor as of 31 December of the reporting year (effective from 1 January 2023).

Compensation of Damages during the State of Emergency

The amendments introduce rules governing the taxation of compensation for damages resulted from the state of emergency.

Regulations regarding corporate income tax (effective from 1 January 2022 to 1 January 2023):

• Compensation for property damage resulted from the state of emergency is exempt from corporate income tax of small and medium-sized entities, if paid by the decision of the local executive authorities;
• Small and medium-sized entities do not deduct expenses related to property damages caused during the state of emergency, if they receive the property damage compensation;
• If a taxpayer writes off fixed assets in book accounts due to a damage or loss during the state of emergency, the taxpayer reduces the tax value of the fixed assets by the amount of the monetary compensation for the property damage/loss.

Regulations regarding the taxation of individuals and VAT (effective from 1 January 2022):

• The state compensations for property damages caused during the state of emergency are exempt from personal income tax;
  
  
• A taxpayer is not allowed to reduce its input VAT that is related to goods damaged/lost in an emergency or during the state of emergency, provided certain supporting documents are available;
  
  
• In case of damages or loss of goods resulted from emergency situations or during the state of emergency, a VAT payer is required to prepare a tax register reflecting certain information about the damaged/lost goods.

Other

• To stimulate the agricultural sector activities, the amendments supplement the list of goods qualifying for the offset method of import VAT payment with pesticides, breeding animals, equipment for artificial insemination and live cattle (effective from 1 January 2022);
  
  
• The requirement to apply the state-approved minimum price level to determine the customs value of certain goods will be applicable to imports from any countries and not only imports from the member states of the Eurasian Economic Union (effective from 1 January 2023);
  
  
• The amendments increase excise rates on tobacco products. Excise rates for products with heated tobacco will gradually increase with rates set at 70% of the excise rates for cigarettes. The tax base for heated tobacco products will change from kilograms to pieces (effective from 1 January 2023);
  
  
• The amendments introduce a payment for satellite communications using non-geostationary systems (effective from 1 January 2023).

¹ Law No. 135-VII of the Republic of Kazakhstan On Amendments and Addenda to the Code on Taxes and Other Mandatory Payments to the State (the Tax Code) and the Law on Enactment of the Code on Taxes and Other Mandatory Payments to the State (the Tax Code), dated 11 July 2022

² A qandas is an ethnic Kazakh and (or) ethnic Kazakh members of his/her family who were not Kazakhstan citizens and who arrived in Kazakhstan (their historic motherland)