Individuals not resident in Kazakhstan are subject to taxation on certain Kazakhstan-source income. This Insight provides information on what income is taxable, what exemptions apply, and the general taxation procedure, and gives hypotheticals of special cases of nonresident taxation.
General
Individuals resident in Kazakhstan are subject to taxation in relation to income received both in Kazakhstan and abroad (worldwide taxation). An individual is resident in Kazakhstan if[1]
- he or she permanently resides in Kazakhstan, i.e., is present in Kazakhstan not less than 183 calendar days (including days of arrival and departure) in any consecutive 12-month period ending in the current tax period; or
- he or she does not permanently reside in Kazakhstan, but his or her center of vital interests is in Kazakhstan. The center of vital interests of an individual is considered to be in Kazakhstan if all the below conditions are satisfied:
- The individual has Kazakhstan citizenship or a permanent residence permit in Kazakhstan.
- The spouse and/or close relatives of the individual reside in Kazakhstan.
- The individual and/or his or her spouse and/or his or her close relatives have immovable property in Kazakhstan (on the basis of ownership right or another basis), and such immovable property is available for his or her stay or the stay of his or her spouse and/or close relatives.
Nonresident individuals, in turn, are subject to taxation in relation to Kazakhstan-source income, including the following income:
- Income from the provision of services physically in the territory of Kazakhstan
- Income from the following services rendered outside of Kazakhstan: Management, consulting, engineering, marketing, audit, or legal services (except for representation and protection of rights and interest in courts or arbitrations as well as notary services)[2]
- Capital gains received as a result of the disposal of any of the following:
- Certain movable property located in the territory of Kazakhstan the right to which (or transaction with which) is subject to state registration in accordance with Kazakhstan law
- Certain movable property located in the territory of Kazakhstan subject to state registration in accordance with Kazakhstan law[3]
- Securities issued by a resident as well as participatory interest in the charter capital of a resident legal entity or a consortium located in Kazakhstan
- Shares issued by a nonresident as well as participatory interest in the charter capital of a nonresident legal entity or a consortium if 50% or more of the value of such shares, participatory interest, or assets of the nonresident legal entity comprises movable or immovable property located in Kazakhstan
- Dividends received from a resident legal entity
- Income from immovable property located in Kazakhstan
- Income of a nonresident individual as a result of undertaking employment activities in Kazakhstan in respect of an employment contract concluded with a resident or a nonresident employer
- Management fees and/or other payments to members of governing bodies (board of directors or another body) payable in respect of management functions in relation to a resident, irrespective of the actual place of performance of these functions
- Extra payments and reimbursement of certain expenses to a nonresident individual paid to him or her by a resident or a nonresident employer in connection with a stay in Kazakhstan
- Pension payments made by a resident saving pension fund
- Income of an actor of the theatre, movies, radio, television, musicians, artists, sportsman, or other nonresident individual from the activity in Kazakhstan in the sphere of culture, arts, or sports, irrespective of how and to whom the payments are made
- Income from the provision of independent personal (professional) services in Kazakhstan[4]
Exemptions
Certain types of income are tax exempt in Kazakhstan based on the Tax Code, e.g.:
- Dividends and interest on securities that are (on the date of accrual of such dividends or interest) in the official lists of a stock exchange operating in Kazakhstan
- Capital gains as a result of the disposal of securities that are (as of the date of the disposal) in the official lists of such stock exchange
- Income from the provision of works or services outside of Kazakhstan (with a few exceptions)
The Kazakhstan Tax Code also contains special exemptions in relation to certain categories of nonresidents, e.g., employees of Astana Hub.
Certain types of income are tax exempt in Kazakhstan on the basis of tax treaties or other international treaties ratified by Kazakhstan.
Certain types of income are tax exempt in Kazakhstan on the basis of special laws, e.g., in accordance with the Constitutional Law on the International Financial Centre Astana, foreigners who are employees of a participant of the Centre or a body of the Centre are exempt (until January 1, 2066) from the payment of individual income tax in relation to income from the activity in the Centre based on an employment contract concluded with a body of the Centre or a participant of the Centre that is rendering certain services set out in the law (Article 6.6).
General Taxation Procedure
The general principle of taxation of nonresident individuals is the tax withholding by a tax agent. In exceptional cases nonresident individuals are subject to self-assessment and payment of tax.
Tax agents should withhold the tax at source from the gross amount of the relevant payment. Tax agents should also file tax declarations.
The obligation and responsibility for calculation, withholding, and payment of the individual income tax at the source of payment are vested in the following persons who are paying the income to the nonresident and who are considered tax agents:
- An individual entrepreneur
- A nonresident legal entity carrying out activity in Kazakhstan through a presence such as a representative office
- A nonresident legal entity carrying out activity in Kazakhstan through a permanent establishment without opening a structural subdivision
- A resident legal entity, including an issuer of the underlying asset of depositary receipts
- A nonresident legal entity carrying out activity in Kazakhstan through a permanent establishment to which foreign personnel were seconded by a nonresident whose activity does not create a permanent establishment under the Tax Code
- A nonresident legal entity acquiring the property listed in Article 650 of the Tax Code
The general tax rate is 20%. In certain cases a reduced tax rate of 10% applies (salary, management fees, and some others).
Special Cases
Case 1
A nonresident legal entity whose activity does not create a permanent establishment in Kazakhstan seconds to Kazakhstan nonresident individuals, and such individuals receive income (including payments of benefits in connection with the stay in Kazakhstan) from
- activity in Kazakhstan on the basis of an employment contract (or contract of a civil law nature) concluded with such nonresident legal entity employer; and
- activity in Kazakhstan in the form of material benefits received from such nonresident legal entity as a result of activity in Kazakhstan.
In this case:
- The tax agent will be the person (which may be the permanent establishment of another nonresident entity) for whose benefit such works or services are rendered by the nonresident legal entity.
- The nonresident legal entity must provide to the tax agent documents confirming the individuals’ income. If no documents are provided, then individual income tax at source will apply to 80% of the income payable to the nonresident legal entity for the works or services rendered.
Case 2
A nonresident legal entity receives a Kazakhstan-source income from a person who is not a tax agent.
In this case:
- The payment of the individual income tax must be made by the nonresident individual by himself or herself no later than 10 calendar days after the deadline set out for the filing of the individual income tax declaration for the tax period.
- The nonresident individual must file an individual income tax declaration not later than March 31 of the year following the reporting tax period.
- The tax rate is 20%.
Case 3
A nonresident individual receives income set out in Article 650 of the Tax Code. This article applies to capital gains upon the disposal of
- property located in the territory of Kazakhstan the right to which (or transaction with which) is subject to the state registration in accordance with Kazakhstan law;
- property located in the territory of Kazakhstan subject to the state registration in accordance with Kazakhstan law;
- securities issued by a resident as well as participatory interest in the charter capital of a resident legal entity that is a subsoil user or a consortium the participants (members) of which are subsoil users;
- shares issued by a resident legal entity and participatory interest in the charter capital of a resident legal entity or a consortium if the special Tax Code conditions in relation to the three-year holding are not satisfied;[5] and
- shares issued by a nonresident legal entity and participatory interest in the charter capital of a nonresident legal entity or a consortium (provided that 50% or more of the value of such shares, participatory interest, or assets of the nonresident legal entity comprises property located in Kazakhstan) if the special Tax Code conditions in relation to the three-year holding period are not satisfied.
In this case:
- The obligation and responsibility to calculate, withhold, and pay the income tax at source is vested with a tax agent paying the income. Notably, the nonresident legal entity is considered a tax agent irrespective of the availability or nonavailability of a permanent establishment in Kazakhstan, as well as a structural subdivision the activity of which does not create a permanent establishment in accordance with the Tax Code or an international treaty.
- The nonresident tax agent must register with the tax authorities as a taxpayer.
- If there is no tax agent, the calculation and payment of the income tax must be made by the nonresident individual himself or herself.
- The tax rate is 20%.
Contacts
If you have any questions or would like more information on the issues discussed in this Insight, please contact any of the following Morgan Lewis lawyers:
London
Kate Habershon
Almaty
Bakhytzhan Kadyrov
[1] Tax treaties, if applicable, provide for a tie-break test in case an individual is considered a tax resident in both contracting states.
[2] Applies when the services are rendered to a Kazakhstan tax agent, e.g., a Kazakhstan legal entity or a nonresident doing business in Kazakhstan through a permanent establishment.
[3] The property mentioned in this and the preceding bullet item includes, e.g., sea ships and aircraft.
[4] In accordance with the Entrepreneurial Code, “Individual entrepreneurship is an independent and initiative activity of Kazakhstan citizens or oralmans aimed at receiving net income which is based on the property of the said individuals and carried out on their name, at their risk and at their material liability. Other individuals are prohibited from engaging in individual entrepreneurship.” (Article 30.1.)
[5] The special Tax Code conditions in relation to the three-year holding are as follows: (1) The general rule is that any capital gains are subject to taxation (when selling Kazakh companies or foreign companies with predominantly Kazakh assets). (2) There is an exception to the rule in (1) above, whereby holding for more than three years exempt capital gains from taxation. (3) The exception in (2) above does not apply, however, to tax offshore sellers (i.e., a seller in a tax haven or low tax jurisdiction such as BVI, Seychelles, and other jurisdictions approved as tax offshores by the Kazakhstan Ministry of Finance). (4) The exception in (2) above also does not apply if the target is a Kazakh subsoil user (or where a Kazakh subsoil user’s assets compose more than 50% of the target’s assets). (5) A qualifier to rule (4) above is when the subsoil user undertakes processing of minerals at affiliated processing plants located in Kazakhstan, i.e., capital gains will still be exempt if the target is a subsoil user undertaking such processing (this qualifier, however, does not apply if the recipient of the income is a nonresident individual). (6) There is, however, an overarching (the strongest) rule whereby capital gains are exempt if shares are sold via a stock exchange, even if the seller is in a tax offshore jurisdiction.