Offshore Tax In Kazakhstan: From Calculation To Payment – Tax – Kazakhstan – Mondaq News Alerts

This article provides a brief overview of the essence and thepayment procedure of the so-called offshore tax in Kazakhstan.

First of all, it should be noted that in Kazakhstan, for thetaxation purposes, an offshore is recognised as a foreign state ora territory which answers one of the following criteria:

On the basis of the abovementioned criteria the Ministry offinance of the Republic of Kazakhstan approves the list ofoffshores which as of today includes 79 states andterritories2.

The interaction between the tax residents of Kazakhstan and thepersons registered in the offshores may entail the offshore taxobligation in Kazakhstan.

Thus, if a legal entity registered in one of such offshoresreceives any type of income (fee for the services, dividends etc.)from a legal entity, recognised as the tax resident ofKazakhstan3 , such income will be subject to withholdingtax at the rate of 20%4 . Moreover, it should be notedthat such income will not fall under the tax exemptions which aregenerally available under the Kazakh tax legislation (for instance,a lower withholding tax rate in respect of royalty or a fullwithholding tax exemption in respect of capital gain).

In the abovementioned situation, the obligations on calculation,withholding, transfer to the budget and reporting of withholdingtax rest with the tax resident of Kazakhstan in the capacity of atax agent5 . In particular, withholding tax shall bepaid prior to 25th of the month following the month inwhich income was paid to the person registered in theoffshore6 . And reported in the following order:

However, an opposite situation might occur, if anindividual8 or a legal entity, recognised as the taxresident of Kazakhstan, receives income from a person registered inthe offshore, in particular, in the context of the controlledforeign companies (hereinafter - the'CFC') or the permanent establishment ofthe latter.

Thus, a legal entity registered in the offshore may berecognised as the CFC of the tax resident of Kazakhstan in case thelatter owns9 25% or more of the voting shares(participant interests) in such person or controls10 it.Herewith, in this case, the ownership implies both direct andindirect (for instance, through another company or a closerelative) ownership, while control is determined in accordance withthe IFRS or other international standards recognised by the stockexchanges11 .

The CFC's income is determined on the basis of its auditedconsolidated financial reports and shall be included in the taxableincome of the tax resident of Kazakhstan12.

Thus, in case with the legal entity recognised as the taxresident of Kazakhstan, the CFC's income shall be included insuch resident's aggregate annual income which, in its turn,shall be levied with corporate income tax (hereinafter -'CIT') at the rate of 20%. In general, CITin respect of the CFC's income shall be reported before31st March and paid before 10th April of the calendaryear following the year in which such income wasreceived13.

The similar provisions are envisaged in respect of theindividuals recognised as the tax residents of Kazakhstan. Inparticular, the CFC's income shall be included in theindividual's annual income which, in its turn, shall be leviedwith personal income tax (hereinafter -'PIT') at the rate of 10%. PIT in respectof the CFC's income, in general, shall also be reported before31st March and paid before 10th April of thecalendar year following the year in which such income received14.

In addition, it should be noted that the participation of thetax resident of Kazakhstan in the CFC, apart from theabovementioned obligations, entails the obligation to submit arespective notification to the tax authorities at the place of suchresident's location/residence. In particular, this notificationshall be submitted before 31st March of the yearfollowing the year in which the tax resident of Kazakhstan obtainedvoting shares (participant interests) or control in the CFC.

In view of the above, one might conclude that in Kazakhstan theoffshore tax obligations are triggered in case the tax resident ofKazakhstan pays income to a person registered in the offshore or inthe opposite situation when the tax resident of Kazakhstan receivesincome from the person registered in the offshore. Herewith, inboth cases, the tax obligations in respect of the offshore tax restwith the tax resident of Kazakhstan in capacity of either the taxagent or the taxpayer.

Footnotes

1. Article 294.3 of the Code of the Republic ofKazakhstan dated 25 December 2017 No. 120-VI 'On taxes andother obligatory payments to the budget (Tax Code)'(hereinafter - the 'TaxCode').

2. The Order of the Minister of finance of the Republicof Kazakhstan dated 8 February 2018 No. 142 'On approval of thelist of offshores'.

3. A legal entity registered in accordance with theKazakh legislation as well as the legal entity registered inaccordance with the foreign legislation but with the Kazakh placeof management.

4. Articles 644.1.4 and 646.2 of the TaxCode.

5. Article 645.6 of the Tax Code.

6. Article 647.1.1 of the Tax Code.

7. Article 648 of the Tax Code.

8. An individual with the Kazakh centre of vitalinterests (Kazakh citizenship/residence permit, family and realestate) as well as the individual residing in Kazakhstan for morethan 183 calendar days in any consecutive 12-monthsperiod.

9. Excluding indirect ownership through another taxresident.

10. Article 294.1 of the Tax Code.

11. Article 294.4 of the Tax Code.

12. Article 297.1 of the Tax Code.

13. Articles 363.3 and 315.1 of the Tax Code.

14. Articles 362.1 and 364.1 of the Tax Code.

The content of this article is intended to provide a generalguide to the subject matter. Specialist advice should be soughtabout your specific circumstances.

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Offshore Tax In Kazakhstan: From Calculation To Payment - Tax - Kazakhstan - Mondaq News Alerts