On the amendments to the tax legislation of the Republic of Kazakhstan on international taxation issues from 1 January 2021.

On the amendments to the tax legislation of the Republic of Kazakhstan on international taxation issues from 1 January 2021.

By Decree of the President of the Republic of Kazakhstan No. 304-VI of 20.02.2020, the Republic of Kazakhstan joined the multilateral Convention on the implementation of measures related to tax agreements to counteract the erosion of the tax base and the profit shifting from taxation (hereinafter -the Multilateral Convention), as a result of which all agreements on the avoidance of double taxation concluded and ratified by the Republic of Kazakhstan, which is covered by the Multilateral Convention, are supplemented with new provisions of the Multilateral Convention. The Multilateral Convention applies if the Republic of Kazakhstan and the partner State have ratified the Multilateral Convention and included this partner State in their list of agreements to which the provisions of the Multilateral Convention will apply. The final version of the double taxation agreements, taking into account the provisions of the Multilateral Convention, depends on the choice of each partner State and may differ due to the reservations and notifications provided for in the Multilateral Convention. 

For convenience in use of agreements on the avoidance of double taxation, taking into account the provisions of the Multilateral Convention adopted by the Republic of Kazakhstan, the consolidated texts of these agreements with the provisions of the Multilateral Convention are provided on the Internet resource of the State Revenue Committee of the Ministry of Finance of the Republic of Kazakhstan http://kgd.gov.kz in section «activity» - «tax administration» - « taxation of an non-resident ».

On international taxation, from 1 January 2021, some clarifications and amendments have been made to the Code of the Republic of Kazakhstan No. 121-VI "On Taxes and Other Mandatory Payments to the Budget" (hereinafter the Tax Code) of 25.12.2017, in particular:

- paragraph 7 of Article 74 of the Tax Code is modified with clarifications on registration and IIN for non-resident individuals, if previously the place of residence of a foreigner or a stateless person was the place indicated in the migration card, then from 2021 the place of residence of a foreigner or a stateless person is the place of temporary stay of a foreigner or a stateless person, determined in accordance with the legislation of the Republic of Kazakhstan in the area of migration of the population. The functions of assigning individual identification numbers (hereinafter-IIN) and issuing documents with IIN are transferred to the competence of the internal affairs bodies, that is, from 2021, the state revenue bodies will not issue IIN to non-resident individuals;

- Article 221 of the Tax Code – the procedure for mutual agreement. Previously, if "A resident or a citizen of the Republic of Kazakhstan has the right to submit an application to the authorized body." was replaces with "A person for conducting a procedure of mutual agreement with the competent authority of a foreign state with which the Republic of Kazakhstan has concluded an international agreement". This change was made to bring into line with the Multilateral Convention on the implementation of measures related to tax agreements in order to counteract the erosion of the tax base and the profit shifting from taxation.

- articles 645 and 654 of the Tax Code-The benefit applied in the payment of dividends, have been amended to clarify the provisions of this subparagraph are now applied only to income previously subject to corporate income tax and received from a resident legal entity in the form of:

 income payable on shares, including underlying assets of depositary receipts;

part of the net income distributed by a resident legal entity among its founders, participants;

- income from the distribution of property at liquidation of a resident legal entity …

It follows that the benefit is applied only after taxation of the income of a non-resident with corporate income tax by the person paying the dividends. At the same time, the tax agent has the right to independently apply the provisions of an international agreement regarding the application of a reduced tax rate.

- Article 666 of the Tax Code "Procedure for the application of an international treaty in relation to the full exemption from taxation of non-resident income received from sources in the Republic of Kazakhstan" is conditionally divided into three parts, the first part of Article 666:

Paragraph 1 of this article in the current version introduces the clarification " Unless otherwise established by an international treaty, the procedure for applying the provisions of an international treaty established by this article applies to the income of a non-resident provided for by Article 644  of this Code, except the following income …

This article applies taking into account the provisions of the Multilateral Convention on the Implementation of measures related to tax agreements in order to counteract the erosion of the tax base and shifting from taxation. Justification: if there are restrictions under a Multilateral Convention (hereinafter - the MLI), then the benefit under an international treaty (hereinafter the IT) is not applicable;

Part 2 of  Article 666:

Paragraph 3 of this article in the current version "The tax agent has the right to apply the tax exemption independently when paying income to a non-resident or assigning accrued but not paid income to non-residents for deductions.

In the case of payment of income to a non-resident-an interconnected party who is a resident of a state with which the Republic of Kazakhstan has concluded an international agreement, which has not been amended by a multilateral international agreement, the tax agent has the right to apply the provision of part one of this paragraph, provided that such a non-resident is the final (actual) recipient (owner) of the income. Justification: in the case of payment of income to a non-resident-related party (founder) who is a resident of a State where there is no MLI, the IT benefit is applied if the non-resident is the final recipient of the income;

Part 3 of  Article 666.

In the case of payment of income to a non-resident-related party (the founder), who is a resident of the state where there is an MLI, the IT benefit is applied if:

- the income of a non-resident is subject to inclusion in the taxable income of a non-resident in his state and is not subject to reduction and refund, that is, it must be taxed;

the nominal tax rate on this income in his state is 15% . Justification: in the case of payment of income to a non-resident-an interconnected party (the founder) who is a resident of the State where there is an MLI, the IT benefit applies if: the income of a non-resident is subject to inclusion in the taxable income of a non-resident and is not subject to reduction and refund, that is, must be taxed at the rate of 15%;

Article 667 «The procedure for applying the international treaty with respect to tax exemption or the application of a reduced tax rate to the income of a non-resident in the form of dividends, remuneration and (or) royalties received from sources in the Republic of Kazakhstan»

Paragraph 1 of this article in the current version introduces the clarification " Unless otherwise established by an international agreement, when paying income to a non-resident, the tax agent has the right to independently apply an International Agreement (IA), if the non-resident is:

  1. The final recipient of the income; and
  2. Provide a certificate of residency.

Justification: this article is applied taking into account the provisions of the Multilateral Convention on the Implementation of measures related to tax agreements in order to counteract the erosion of the tax base and profits shifting from taxation (MLI) that is :

-  if there are restrictions under the Multilateral Convention (MLC), then the benefit under the international treaty (hereinafter-MT) is not applicable;

- if the IA is not amended under the Multilateral Convention (MLI), the IA benefit is applicable to the non-resident who is the final recipient of the income;

Article 675 of the Tax Code " Requirements for a document confirming the residence of a non-resident»

If previously the legalization of documents confirming the residence of non-residents was carried out only on paper, then in the current version the signature of the official and the seal of the competent authority confirming the residence of a non-resident must be legalized. At the same time, legalization can be done electronically by placing a document legalizing the signature of an official and the seal of the relevant authority:

- on the internet resource of the state body performing legalization;

-the Internet resource of another state organization or public notary chamber collecting (keeping) electronic documents of a foreign state. Justification many states with which the Republic of Kazakhstan has concluded bilateral conventions have switched to affixing an electronic apostille.

A new section 25 " Peculiarities of taxation of foreign companies in the implementation of electronic trade in goods, provision of services in electronic form to individuals» has been introduced.

In view of the increasing internet trade by foreign Internet companies and the lack of regulations in the Tax Code that allow paying taxes in the Republic of Kazakhstan. All foreign Internet companies selling goods and services to individuals are required to pay VAT in the Republic of Kazakhstan at the rate of 12 % of the proceeds from the sale. The basis for paying VAT for an Internet company will be if the buyer's place of residence and / or the network address of an individual is the Republic of Kazakhstan.The new chapter provides for the following procedure:

- registration (conditional) of foreign internet companies;

- proceeds from the sale taxation ;

- terms of calculation and payment of value-added tax.

 

Executor: сhief specialist of risk department of Analysis and Risk office

of Deparment of State Revenues for East Kazakhstan

region of CSR MF RK Bayirbayeva G. N.