Tax NewsFlash - February 2023

Dear Readers,

On 21 December 2022, the President signed a law¹ introducing amendments to the Tax Code and to the Law on the Enactment of the Tax Code (hereinafter – the Law). We offer you an overview of some of the most important amendments.

The majority of the amendments entered into force on 1 January 2023. Some amendments entered into effect before or after this date. We indicated the effective date next to each provision.

A taxpayer will be able to electronically (via the Cabinet of Taxpayer) appoint an authorized representative and the representative's powers to act on the taxpayer’s behalf in the state revenue authorities (Effective from 1 January 2024).

To ensure transparency, the state revenue authorities will publish on their website the list of taxpayers receiving money and (or) other property from foreign states or international organizations.

Information on the number of employees reflected on tax reports will not be regarded as confidential.

The Law extended from five calendar to five business days the deadline for submission of a notice on agreement with the tax authorities’ decision on the results of the monitoring for taxpayers subject to the state monitoring. The amendments establish that tax authorities’ claims, notices and/or decisions can be delivered by post or electronically (to the web application or a taxpayer's personal account) (Effective from 1 January 2024).

Tax Review

The Law abandoned clauses on special tax audits and introduced rules for periodic tax audits based on risk degree assessments. The tax authorities will approve the periodic tax audits schedule semi-annually with no changes allowed. The schedule will be posted on the tax authorities’ website by 25 December of the year preceding the audit year, and by 25 May of the current year.

The tax authorities are not permitted to extend or suspend the approved 30-day period for a chronometric review.

The amendments introduce a procedure for the service of a tax audit act if a taxpayer refuses to accept it by preparing a protocol with the involvement of attesting witnesses.

If a complaint against a notification on the results of an audit is left unsatisfied, the application of methods for ensuring the fulfillment of the outstanding tax liabilities is suspended for fifteen business days after the consideration of the complaint.

Expenses related to damages or loss of goods that a large-sized entity incurred during the state of emergency are deductible for corporate income tax purposes if: (Effective from 1 January 2022 to 1 January 2023)

• The criminal prosecution authorities have issued a resolution recognizing the taxpayer as a victim in criminal cases with respect to the state of emergency;
• The taxpayer has issued a document confirming the facts of the damage or loss of goods in accordance with the legislation on accounting and financial reporting;
• The taxpayer has reflected on its tax registers information about the damage or loss.

Income tax deductions related to the damage/loss of goods should not exceed the book value of the goods. A large-sized entity is also entitled not to adjust the amount of input VAT related to the damaged/lost goods, subject to certain conditions.

Accrued expenses related to contributions to the social health insurance fund are deductible, regardless of the remitted contributions.

The amendments excluded the requirement to substantiate business trip expenses with boarding passes or other documents confirming the trip.

A discount or a coupon on debt securities held by the Unified Accumulative Pension Fund is regarded as deductible interest expenses not subject to the equity-to-debt ratio.

Advances (prepayments) payable to a nonresident under a contract for the period exceeding two years are regarded as Kazakh-source income if the nonresident registered in a non-treaty country.

Insurance payments to non-resident individuals under pension annuity agreements are regarded as income from Kazakh sources subject to tax at the source of payment.

A resident individual is regarded as a tax agent for payments of income to foreign entities with no tax registration in Kazakhstan selling (shall be enforced from February 21, 2023):

• property subject to the state registration or the rights to which (transactions with which) are subject to the state registration in Kazakhstan;
• securities issued by a resident, stakes in an entity or in a consortium located in Kazakhstan;
• shares issued by a non-resident, stakes in a nonresident entity or a consortium, if 50% or more of the value of the shares, stakes or assets of the non-resident originated from the property located in Kazakhstan.

The Law provides an exemption from this rule for transactions with securities on a stock exchange.

To meet the norms established by the MLI², the Law amended the criteria for the automatic application of the treaty-reduced tax rates on dividends, interest and royalties. The reduced tax rates are applicable to dividends, interest and royalties payable to a related party that is a resident of an MLI covered tax-treaty country, if all of the following conditions are met:

• the income is subject to tax in the nonresident’s home country with no exclusions, adjustments or refunds;
• the applicable tax rate established by the nonresident’s home country tax legislation is equal or above 15%.

Goods temporarily imported from the EEU member-states may stay in Kazakhstan for no more than two years from the date of importation. After the two-year period, the goods are recognized as taxable import and are subject to import VAT from the date of registration.

Realization of fuels and lubricants to refuel foreign airlines aircrafts is subject to zero-percent VAT not only for airports but also for ground handling service providers.

The deadline for a VAT refund to taxpayers which zero-percent turnover does not exceed 70% of the total taxable turnover reduced from 155 calendar to 75 business days.

Sale of the following goods is exempt from VAT:

• Household appliances and/or consumer electronics devices sold by dealers (an authorized representative of the manufacturer) under certain conditions (valid from January 1, 2023 to January 1, 2028);
• Household appliances and/or consumer electronics devices and their components, subject to certain conditions (valid from January 1, 2023 to January 1, 2028);
• Refined gold and silver by entities producing precious metals, jewelry or other goods in Kazakhstan.

VAT on Foreign E-Commerce

To simplify the calculation of VAT liabilities by foreign Internet companies, a foreign currency value of the transaction should be converted into tenge at the market exchange rate on the last business day preceding the date of the tax payment (instead the date of payment for the goods or service).

The date of payment for the goods or services is regarded as the date of the VAT turnover for the purpose of determination of the tax payment deadline.

As foreign Internet companies do not submit VAT reports, VAT refunds are not manageable. Therefore, the Law states that VAT paid by foreign Internet companies is not subject to a refund.

The amendments specify that a document prepared in the electronic VAT invoices information system signed by an electronic digital signature is valid for tax documentation purposes (Effective from 1 January 2018).

The Law expanded the list of taxpayers required to issue electronic VAT invoices by including on the list:

• Taxpayers engaged in compliance confirmation activities;
• Taxpayers engaged in customs-related activities (authorized economic operators, customs representatives, customs carriers, temporary storage warehouses owners, customs warehouses owners).

For transactions where a supplier was entitled not to issue an electronic VAT invoice, the amendments established the time period during which:

• A buyer may request the supplier to issue an electronic VAT invoice – 180 calendar days after the date of the transaction;
• The supplier may issue a VAT invoice – 195 calendar days after the date of the transaction.

The amendments introduced into the Tax Code the provisions restricting the issuance of electronic VAT invoices for a failure to eliminate violations detected in a desktop review. The introduced procedure also contains the risk gradation of violations detected in a desktop review.

Mineral Extraction Tax

In connection with the transition to the international minerals reporting standards CRIRSCO³, the object of taxation for the mineral extraction tax will be actually extracted minerals instead of extinguished mineral reserves. The Law introduces the corresponding changes to the definitions and to the mineral extraction tax reporting and calculation procedures (Effective from 1 January 2024).

Complex Oil and Gas Projects

To stimulate investments in challenging complex oil and gas projects, the Law introduced a favorable taxation regime for subsoil users operating under contracts for the exploration and/or production of hydrocarbons on complex deposits. Under the provided taxation regime, subsoil users operating on complex deposits will be subject to the alternative subsoil use tax. Alternative subsoil use tax rates for complex offshore oilfields are three times lower than the statutory rates. In addition, for the alternative subsoil use tax calculation purposes, subsoil users on complex offshore projects may carry operating losses forward for 10 years.

The provided tax benefits also include:

• Notional multiplying factor (capital uplift) applicable to certain expenses for the subsequent deduction from the total annual income (1.5 – for complex onshore projects; 2.0 – for complex offshore projects);
• 50% higher maximum depreciation rates for fixed assets and exploration and development costs for complex offshore projects;
• Property tax exemption.

However, these subsoil users may not apply the double depreciation rate in the first year of a fixed asset operation to exclude a double tax benefit.

The amendments clarify that an increase in the tax value of fixed assets resulting from the application of the notional multiplying factor is not regarded as taxable income.

The Law also specifies a transition procedure for the conversion of the current subsoil use contracts to the tax regime for the exploration and/or production of hydrocarbons on complex deposits.

Subsoil users paying the alternative subsoil use tax on the basis of a notification submitted by 31 December 2022 should calculate and pay the alternative subsoil use tax at the rates effective on the date of the notification until 31 December 2023.

Benefits for Gas Projects

The amendments exempted from corporate income tax subsoil users developing gas onshore deposits.

The tax period for the digital mining payment for 2022 is a calendar year. The filing deadline for the digital mining payment declaration for 2022 is 31 March 2023 and the payment is due by 10 April 2023.

Tax period for the digital mining payments for 2023 is a calendar quarter. The declaration is due to the tax authorities at the taxpayer’s location by the 15th day of the second month following the reporting quarter. The payment due date is the 25th day of the second month following the reporting quarter.

Taxpayers providing services of complex computing infrastructure to entities/individuals engaged in mining cryptocurrencies will be also subject to the digital mining payments (effective from 1 January 2024).

Taxpayers engaged in mining and/or circulation of digital assets are not permitted to be payers of the unified payroll tax.

The amendments expanded the list of tax-exempt income. The Law introduced certain amendments to the taxation of capital gains.

Taxation of Digital Assets

An individual’s income from a sale of a digital asset is regarded as a capital gain. Citizens of Kazakhstan, qandases⁴ and persons with a residence permit in Kazakhstan owning digital assets as of December 31 of the reporting year are required to reflect these assets on their personal income tax declarations (Effective from 1 January 2023).

Taxation of capital gains from the sale of digital assets is similar to the taxation of capital gains from alienation of securities (effective from 1 January 2024).

Payroll Taxes

To simplify the payroll-related taxes payment procedure for micro and small businesses, the amendments introduced a unified payroll tax. The unified payroll tax rate will increase annually from 20% in 2023 to 26.3% in 2028. The unified payroll tax will be deposited to the account of the Government for Citizens Corporation which will distribute the funds in accordance with the established procedure.

Local employees of entities-members of the Astana Hub International Technology Park are subject to social tax.

Personal Filing Obligations

The state officials and persons equivalent to them accepting the anti-corruption restrictions under the Law on Combating Corruption are required to reflect on their tax declarations money in foreign banks located outside of Kazakhstan, regardless of the amount.

Agreements on Investment Obligations

The Law amended the criteria for concluding agreements on investment obligations to expand the range of taxpayers qualifying for the established requirements. The amendments abandoned a requirement for an investor to be an export-oriented company. A large or medium-sized entity may conclude an agreement on investment obligations with the state (not only large taxpayers subject to the horizontal monitoring).

Property tax

Property tax on an object transferred to a finance lease is payable by the lessor. The tax base for the transferred property is the average annual amount of accounts receivable with respect to the corresponding finance lease agreement.

Excise Tax

The Law cancels an exemption from excise taxes on alcohol sold or used for medicinal and pharmaceutical products (Effective from 1 January 2024).

Vehicle Tax

The Law abandoned an obligation to pay outstanding vehicle tax liabilities upon a deregistration of a vehicle. Vehicle tax is due by 1 April of the year following the reporting period for the actual period of ownership of the vehicle.

Payment for Outdoor (Visual) Advertising

The Law doubles the rates for outdoor (visual) advertising (Effective from 1 January 2024).