|
| 1 | Tax laws in Kazakhstan have changed regularly in recent years. It is therefore important that tax planning is robust, i.e. it can cope with changes in tax law and can be restructured without significant tax costs. |
|
| 2 | Corporate and Individual income tax rates in Kazakhstan are low by international standards. However, penalties for non-payment and non-reporting, whether intentional or not, are high. The first focus of tax planning in Kazakhstan should be to ensure that all tax that ought to be paid in Kazakhstan is paid and reported. In addition, Kazakhstan is a documentation-driven place. Therefore, keeping documentation in order (including support documentation) is of paramount importance. |
|
| 3 | The scope of withholding taxes on cross-border payments is wide and rates are high (even sometimes when the recipient has never entered Kazakhstan). These can be totally avoided in many cases provided that the transactions are structured using a tax treaty country and the payer has all of the necessary documentation in place. Otherwise tax will be withheld, and getting a refund may be an uncertain process. Moreover, Kazakhstan has a unique position in regard to transfer pricing: transfer pricing control potentially applies to all cross-border transactions regardless of whether the parties are in any way related or not. |
|
| 4 | There are many downsides to dealing with tax havens when structuring cross-border investments or transactions in Kazakhstan. Thus, tax havens should not usually form part of tax planning in Kazakhstan. |
|
| 5 | The rules for determining whether a taxable presence for corporate income tax (CIT) in Kazakhstan (a “permanent establishment”) exists for a business dealing with Kazakhstan are very wide and can apply to whole groups of companies collectively if their total presence exceeds six months in country. |
|
| 6 | The rules for determining whether a taxable presence exists for VAT are independent of the rules for CIT, and the penalties for breaches can be draconian. Never forget to consider VAT separately when thinking about whether you have a taxable presence in Kazakhstan. |
|
| 7 | For financing investments, there is a basic 6 to 1 debt equity ratio (9 to 1 for banks), while from 2012 the ratio will be 4 to 1 (7 to 1 for banks). An investor will at best pay 10% WHT on cross-border interest (based on a double tax treaty) and get at best a CIT deduction at 20%. Furthermore, exchange gains and losses on loans are recognized for tax purposes. |
|
| 8 | There is a safe harbor which would avoid a deemed taxable presence for an entity that seconds staff to work in Kazakhstan. Provided the arrangements are properly structured, this is likely to be more tax-efficient than using those same staff to provide consultancy or other services. |
|
| 9 | Branch profit tax applies to all permanent establishments of foreign legal entities at a general rate of 15%. It is usually reduced by tax treaties. There is an equivalent tax on dividends at the same general rates and also reduced by treaties. In the case of dividends the rate is zero after the investment has been held for three years (except for investments into oil and gas or mining). |
|
| 10 | Capital gains tax on exiting from an investment in Kazakhstan can be legitimately avoided in many cases, provided that the correct structuring is used when the investment is first made. How onerous the structuring would be depends on the nature of the asset. |
|
|
| 1 | Most investors use a Kazakhstan limited liability partnership (LLP) as their investment vehicle. |
|
| 2 | Settlements between residents of Kazakhstan (legal entities and citizens) must be performed in Kazakh tenge. Settlements between nonresidents (legal entities and citizens) and Kazakhstani residents may generally be performed in any currency. |
|
| 3 | The range of business and professional activities that require a license is very broad and it is important for investors to determine whether they need a license beforehand. The penalties for not having licenses can be significant. |
|
| 4 | Obtaining work permits is a rather sophisticated process. Thus, it is important to plan this process well in advance. |
|
| 5 | Using “brass plate” legal addresses is not sufficient in practice. The authorities will expect an investor to have some presence at its registered legal address in Kazakhstan. |
|
| 6 | Kazakhstan is very formalistic in many aspects. In most cases, a company’s representatives should have power of attorney for their actions and will regularly be required to refer to it, for example when signing contracts. |
|
| 7 | Local content is very important for mining and oil and gas companies and their subcontractors, and is constantly being monitored by the state authorities. |
|
| 8 | Kazakh is the state language of Kazakhstan. Russian is an official language and also may be used equally with Kazakh. English is not recognized as a legal language for official purposes. Thus, English documents will need to be translated. Where necessary, translations must be notarized. |
|
| 9 | For commercial contracts Kazakhstan does, generally, permit the use of foreign law as the governing one, except for subsoil use contracts with the state and foundation agreements of a Kazakhstan legal entity and agreements on transfer of participation shares in such a legal entity. |
|
| 10 | International arbitration is not usually available for contracts between Kazakh legal entities. |
|
Double tax treaties