The Kazakh President, signed a series of laws on 25 December 2017 regarding taxes and other mandatory payments, introduction of tax code, law on amendments to other Acts etc. Most provisions of the new tax code and the tax amendments effects from 1 January 2018. The main changes are includes:

Permanent Establishment

According to the new code, the definition of permanent establishment is expanded to cover commissionaire arrangements and other agency arrangements in line with BEPS Action 7.

Controlled Foreign Corporations (CFC)

Some changes are announced with respect to controlled foreign corporations (CFCs). The direct or indirect ownership threshold for a foreign company is increased to 25% from 10% for considered it as CFC. Controlled jurisdictions will contain any jurisdiction, in which the relevant company is subject to an average effective income tax rate of less than 10% for the reporting period and preceding two tax periods. Again, income tax paid by a CFC in other jurisdictions at the rate lower than 20% will be eligible for offset against Kazakhstani income tax liability. Resident companies that owned no less than 25% in a CFC before 1 January 2018 submit a standard form notification to the tax authorities by 31 December 2018.

Capital Gain and Dividend Tax Exemptions

The new Tax Code preserves the existing capital gains and dividend tax exemptions which are available to shareholders that have held their shares for more than three years. It introduces the exemption in withholding tax in case of capital gains and new threshold as well. Withholding rate exempted for dividends distributed by mining companies which are engaged in subsequent processing of at least 35% of the minerals produced by them. The threshold amount is to be increased to 40% in 2019, 50% in 2020, and 70% in 2022. Taxpayers who have shared total income is less than 50% of the total income, will enjoy the dividend tax exemption.

Tax Incentives for small business

The new tax Code also amended the corporate tax exemption for companies operating in special economic zones. The exemption only applies for income from qualifying transactions, along with the requirement to keep separate tax accounting for exempt and non-exempt income (previously, exemption applied if a certain percentage of total income was from qualifying transactions).

Under the new tax regime based on fixed deductions for small and medium-sized enterprises (SMEs), an SME can also deduct a lump-sum amount of 30% of its proceeds without needing to provide proof of actual expenses. However, the SME may also opt to deduct the actual expenses, for which it is required to keep an accounting.

Transfer Pricing Documentation

New transfer pricing documentation has also been declared through this new tax code. The President, signed Law 122-VI on 25 December 2017 regarding transfer pricing reporting system. Some important requirements will be applicable to submit master file from January 1, 2019. According to this Law 122-VI and in compliance with the recommendations of BEPS Action 13, multinational companies (MNEs) with at least EUR 750 million total revenue have to submit master file. It must be filed within 12 months after getting a request to do so from the tax authorities. As of 2019, a local reporting system will be introduced to give complete information on material intercompany transactions linking local members of the MNE group. It must be filed within 12 months after the end of the financial year.

Effects from 2016, a Kazakh resident, who is the ultimate parent company of a multinational group, will need to file a country-by-country report. This requirement applies only if the MNE group with at least EUR 750 million total revenue. The CbC report must be filed within 12 months after the end of the financial year. But from 2018, an entity which requires to file this CbC reports will need to submit a standard notification by September 1, of the following year regarding participation in the MNE group of companies.

According to the Code of Administrative Offences, penalties will have imposed in case of fail to file documentation or submitting incorrect or incomplete documentation. These penalties will be applicable from January 1, 2019. A fine upto 750 MCI will be applied for small entities; for medium entities, the amount will be 1,000 MCI and for large entities, the fine will be 2,000 MCI.

Social Security Contributions

From 1 January 2018, the rate of social security contributions is decreased from 5% to 3.5%. Again, this 5% rate is to be reinstated from 1 January 2025.

VAT

According to this new code, refund rules of Value Added Tax (VAT) is cancelled. It means that most VAT payers will not be allowed to VAT refund. From January 1, 2019, tax authorities will be responsible for violating the terms for the VAT return amounts and all invoices must be delivered electronically.

Excise Tax

From January 1, 2018 to January 1, 2022, an ongoing increase in excise rates regarding some types of alcohol and tobacco products is set.