BUSINESS IN KZ

WHAT YOU SHOULD KNOW

WHAT YOU SHOULD KNOW

BEFORE STARTING BUSINESS IN KAZAKHSTAN?

WHAT YOU SHOULD KNOW BEFORE STARTING BUSINESS IN KAZAKHSTAN?

Kazakhstan, being the young developing country, has always been the attractive emerging market for the investments and businesses. It is easy to register and start a business activity in Kazakhstan. However the ever changing Kazakh legislation makes it challenging for the businesses to develop and grow in such changing environment.

It is especially vital and difficult to control the changes in the Kazakh tax legislation. If you look at Russian or Kazakh legal practice then you can see the that inaccurate use or incorrect interpretation of the tax norms could result in significant legal consequences, jeopardizing a further business development.

Our specialists will assist you in understanding and solving these issues, which will help you to concentrate all your efforts and resources on the development of the main business activity.

The underlying taxes of the Republic of Kazakhstan are as following:

  • Corporate Income Tax (CIT)
  • Personal Income Tax (PIT)
  • Value Added Tax (VAT)
  • Excise taxes
  • Social tax
  • Vehicle tax
  • Land tax
  • Property tax
  • Export rent tax

There is also taxation of subsoil users which contain of the following taxes and special charges:

a) Special charges of subsoil users:

  • Subscription bonus,
  • Commercial discovery bonus,
  • Payment on reimbursement of past costs;

b) Mineral Extraction Tax;
c) Excess profit tax.

 

Type of tax Tax rate Notes on tax rates
Corporate Income tax

 

1 CIT not withheld at source of payment

Clause 1 Art. 147 of Tax Code

20% As per. Art. 4 of the Legislation of RK «Оn enactment of the Tax Code» dated 10 December 2008 № 100-IV the following rates of CIT are applicable:
1) From 1 January 2009 till 1 January 2013 at the rate of 20 %;
2) From 1 January 2013 till 1 January 2014 at the rate of 17,5 %.
2 CIT for legal entities – growers of agricultural products

If such revenue is gained from carrying out of activities on manufacture of agricultural products, manufacture of products of bee-farming as well as processing and realization of the indicated products of own production

10% In compliance with a new edition by the Legislation of RK dated 16.11.2009 № 200-IV is enacted from 1 January 2010

Clause 2 Art.147 of the Tax Code

3 CIT withheld at source of payment from residents` income

Clause 3 Art. 147 of the Tax Code

15% Validity of Clause 3 Art, 147 has been suspended till 1 January 2014 in accordance with Art. 5 of the Legislation of RK dated 10 December 2008 № 100-IV.

As per Art. 5 of Legislation of RK «Оn enactment of the Tax Code» dated 10 December 2008 № 100-IV, in compliance with adjustments and additions in accordance with the Legislation of RK dated 16.11.09. № 200-IV, a CIT rate withholding at source of payment at rate of 15% is applicable till 1 January 2014

4 CIT withheld at source of payment from non-residents` income, defined in accordance with Art. 192 of Tax Code not connected with permanent establishment of such non-residents From 5 % to 20 % 1) Incomes, defined in Art.192 of the Tax Code, exclusive below mentioned income at rate of 20% (till 1 January 2013 in accordance with Art. 6 of the Legislation of RK «Оn enactment of the Tax Code» dated 10 December 2008 № 100-IV);

2) Income of the person registered in the country with privileged taxation – 20%;

3) Insurance premiums under risks insurance agreements – 10 % (in accordance with Art. 17 of the Legislation of RK «Оn enactment of the Tax Code» dated 10 December 2008 № 100-IV);

4) Insurance premium under risks reinsurance agreements – 5 %;

5) Income from rendering of transportation services in international transportations- 5%;

6) Income from capital gain, dividends, interest, royalty – 15%

5 In addition to CIT net income of the legal entity – non-resident operating in the Republic of Kazakhstan through permanent establishment 15% Clause 5 Art. 147 of Tax Code
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Personal Income Tax

 

6 Personal Income Tax 10% Art 158 of Tax Code
7 PIT to income in the way of dividends gained from the sources in the Republic of Kazakhstan and outside of Kazakhstan 5% Art. 158 of Tax Code
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Value Added Tax

 

8 Value added tax 12% Art. 268 of Tax Code
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Social Tax

 

9 Social tax for legal entities –residents, for legal entities-non-residents operating through permanent establishment

Art. 358 of the Tax Code

11% Fixed rate
10 Specialized organizations where disabled persons with disorder of supporting-motor apparatus, hearing loss, loss of speech and eyesight are operating 4,5% In case of compliance with terms of Clause 3 Art. 135 of Tax Code
11 Individual entrepreneurs operating in accordance with the standard procedure, private notary, advocates 2 MCI for oneself, 1 MCI for each employee
12 Individual entrepreneurs applying special tax regime for farm enterprise 20 % from 1 MCI Social tax is calculated for each employee as well as the head and full-aged members of farm enterprise on a monthly basis.

Obligations for full-aged members of farm enterprises on calculation and settlement of social tax raises from the beginning of a calendar year, following after the year of their becoming full – age.

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Social contributions

 

13 Calculated amount of social tax is due to be reduced to the amount of social contributions calculated in accordance with the Legislation of RK “On obligatory social insurance”.

In excess of the amount of social contributions over the amount of social tax the amount of social tax will be equal to 0

5% In accordance with Art. 14 of the Legislation of RK dated 25 April 2003 № 405-II «On obligatory social insurance»
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Special tax regime

 

14 For individuals of small business on the basis of simplified Declaration 3% 1) Personal Income Tax – at rate of 1/2 share of patent cost;

2) Social tax – at rate of 1/2 share of patent cost minus social contributions calculated in accordance with the Legislation of RK “On obligatory social insurance”

15 For individuals of small business on the basis of patent 2%
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Nowadays, international collaboration of local businesses with foreign partners has already become an essential component of the country’s economy. Such collaboration results in creation of the new legal entities with foreign participation, rendering different kinds of services, i.e. consulting, management, financial, manpower services, etc. Therefore,a state policy on international taxation has a direct impact on the country’s investment attractiveness index.

Still, the complexity of Kazakh international tax legislation and inconsistent practice on application of the tax legislative norms create the base for the tax complications and problems in the local Kazakh companies in their cooperation with the foreign partners.

Two principles are applied in taxation of incomes earned by foreign legal entities and foreign individuals from their activity in Kazakhstan: residency and territoriality (apportionment). The principle of residency implies that all incomes of Kazakh resident, earned in all countries, are to be taxed by Kazakh income tax. The principle of territoriality (apportionment) implies that all incomes earned on the territory of Kazakhstan as well are taxed by Kazakh income tax.

Other countries can apply these principles as well. Simultaneous application of these principles by two countries towards one tax object leads to the international double taxation. Kazakhstan endeavors to resolve these issues, has been concluding the international double tax treaties (conventions) with other committed foreign countries for avoidance of double tax casesand income and capital gains tax evasions. As of January 1, 2010, Kazakhstan has concluded the treaties with 49 countries, and has ratified 39 treaties.

Despite the separate treaty being concluded with each country, there is a general guidance provided on the application of the international Double Tax Treaty.

Choosing of the country below you can study in details the rates stipulated in conventions concluded between RK and the country concerned.

Came into force: 06.11.2006 (signed)
Taxation at source: did not come into force
Other taxation: did not come into force
Taxation of Republic of Kazakhstan: Corporate Income Tax, Personal Income Tax; Property Tax
Taxation of foreign countries: Corporate Income Tax, Personal Income Tax; Property Tax
Dividends: 10%
Interests: 10%
Royalties: 10%
Taxation of net income of permanent establishment: 5%

Kazakhstan has an additional signed Double Tax Treaties with Spain, Armenia, Luxemburg, Slovakia, Finland and United Arabic Emirates, but not ratified yet.

In case there is no country you are interested in then it means that Kazakhstan has not concluded an agreement with the country concerned.

The Tax calendar is a guide on the main tax obligations for companies and individuals. It provides the information on terms and dates of tax reporting and tax payments. Tax returns can be submitted online, using the government program or by completing a paper form (in Kazakh or Russian languages).

Tax Calendar 2011

Tax Calendar 2012

Regulation of labour relations

Relations between employers and hired workers are regulated by the Labor code.
According to the Labor code the contract where the rights, duties and guarantees of the employee are stipulated should be signed with each employee.
According to the Kazakhstani legislation, the employer is obliged to insure his civil liability for personal injury or danger to the lives of workers while performing their job duties within 10 working days from the date of state registration of the employer (the legal entity).Attraction of foreign labor In accordance with the Rules of the definition of quotas, and permission for employers to hire foreign workers before they enter into an employment contract with a foreign national, the employer must obtain the akimat’s work permit for him.Action of Rules does not extend on:

  • heads of branches and representative offices of the foreign organizations;
  • employers attracting foreign labor as the first heads of the legal bodies of RK whose authorized capital share of foreign legal and physical entities is at least 50 %, members of Board of Joint stock companies of RK where at least 50 % of shares owned by the state or foreign legal or physical entities;
  • persons being in short-term business trip provided that total duration of such business trips within a year does not exceed 60 calendar days.

The government annually establishes a quota on issuance of work permits to foreigners (now the quota is 0,75 % to economically active population). Employers should request quotas on work permits for the next year till the 1st of September of current year, it is desirable to make it beforehand.

Work permits are issued under certain conditions:

    1. training and hiring of citizens of Kazakhstan (for the purpose of creation of new workplaces) which should replace the foreign personnel subsequently;
    2. replacement of the foreign personnel by citizens of Kazakhstan with corresponding qualification;
    3. creation of additional workplaces for citizens of Kazakhstan and etc.

The work permit in most cases is issued for a period of one year. The issued permission is not subject to transfer to other employers, operates only in the territory of a corresponding administrative and territorial unit. The employer can direct the foreign workers who have received the permissions to business trip to the enterprises, organizations which are in the territory of other areas of the country, for no more than 120 calendar days within a year.