Tax NewsFlash - February 2023

Dear Readers,

The state is introducing changes¹ to the tax legislation to regulate the taxation of digital assets. The amendments provide mechanisms for taxation of activities related to the production and circulation of cryptocurrency.

Digital mining pools² and digital asset exchanges are required to collect and provide to the tax authorities information on operations with digital assets:

• Digital mining pools must provide the tax authorities with information on cryptocurrency distributed among digital miners on a monthly basis by the 25th day of the month following the distribution;
• Digital asset exchanges, as well as other participants in Astana International Financial Centre (hereinafter – the AIFC), must provide the tax authorities with information on transactions conducted by residents of Kazakhstan and rewards paid to residents and nonresidents for activities related to digital assets, by the 15th day of the second month following the reporting quarter.

The amendments³ excluded digital asset exchanges from the list of the AIFC participants qualified for corporate income tax exemption. Therefore, the income of digital asset exchanges will be subject to corporate income tax under the statutory tax legislation of Kazakhstan.

A joint act of the AIFC and the tax authorities will determine a list of qualified digital assets, their value, and the procedure for publishing this information.

A digital miner recognizes income from the mining activities for taxation purposes at the time of distribution of the mined cryptocurrency from a mining pool at the value determined by the joint act of the AIFC and the tax authorities.

The value of cryptocurrency retained by a digital mining pool as a commission is not regarded as income for digital miners. Accordingly, expenses incurred by a digital asset miner for digital mining pools’ services are not deductible.

Digital mining pools recognize taxable income in the form of cryptocurrency retained as a commission at the time of distribution among digital miners at the value determined by the joint act of the AIFC and the tax authorities.

To avoid double taxation, a taxpayer’s earnings from a sale of cryptocurrency that the taxpayer included in the taxable income at the time of its distribution will be excluded from the annual income of the seller.

A taxpayer’s expenses related to the acquisition of digital assets are not deductible if the taxpayer sells the digital assets outside the MFCA exchange.

A digital mining pool’s distribution of cryptocurrency among digital miners is not regarded a turnover for VAT purposes, since the digital miners are regarded as owners of the mined cryptocurrency.

The amendments establish the following license fee rates for digital mining activities:

• 2000 times the Monthly Index Factor for a digital miner owning a digital mining data center;
• 5 times the Monthly Index Factor for a digital miner who do not possess a digital mining data center but carries out digital mining using equipment located in someone’s digital mining data center.

A license fee for a digital mining license issued from 1 April to 31 December 2023 is payable by 15 February 2024. This provision applies only to the licenses issued in 2023. Starting from 2024, the license fee for digital mining activities will be paid in accordance with Tax Code Article 552 prior to obtaining the license.

The maximum rate of payment for digital mining (currently, 25 tenge per 1 kilowatt-hour of the consumed electricity) will apply for digital mining activities carried out without the appropriate license.