Kazakhstan toughens its tax laws from 2023

In brief

Kazakhstan has introduced changes to its Tax Code,1 most of which take effect from 1 January 2023. Below we summarize some of the most important changes.


Contents

1. Deductibility of Payments to Related Parties is Limited. From 2023, Kazakhstani companies will no longer be able to claim a corporate income tax deduction for certain payments (i.e., for management, consulting, auditing, design, legal, accounting,  advertising, marketing, franchising, financing (except for interest on loans), engineering, agency services, and payments for the use of IP rights) made to their related parties. Instead, these payments will only reduce up to 3% of the “taxable income” (i.e., revenues minus allowable deductions). The change is aimed at preventing aggressive intra-group tax planning, but has sparkled a lot of criticism from the investment community.

2. Dividend Exemption is replaced with Preferential Rate. Previously, foreign shareholders were exempt from dividend withholding tax if (subject to certain exceptions) they have owned their shares in local companies for more than three years. From 2023, this exemption will be replaced with a preferential tax rate (10% vs. 15%) if the previous conditions (including the three-year holding period) are satisfied.

3. Income on Listed Securities is Exempt only if Active Trades. Previously, foreign companies owning locally listed securities were exempt from income tax on dividends and interest. From 2023, the exemption will apply only if there are active trades in such securities according to criteria specified by Government regulations. As of the date of this publication, no such regulations had been enacted.

Recommended actions

  • To the extent intra-group services make up a substantial share of income tax deductions of your local subsidiary, going forward you may wish to consider procuring the relevant services from unrelated parties.
  • Given the forthcoming cancellation of the dividend tax exemption, you may wish to maximize eligible distributable reserves and have them paid out yet this year.
  • To the extent you have been relying on the listed securities exemption, please consider whether public trades in them can be commenced or re-activated.

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For further information and to discuss what the above developments might mean for you, please get in touch with your usual Baker McKenzie contact.


1 Law of the Republic of Kazakhstan No. 135-VII ZRK dated 11 July 2022 “On Introducing Changes and Additions to the Code of the Republic of Kazakhstan On Taxes and Other Mandatory Payments to the Budget (Tax Code) and the Law of the Republic of Kazakhstan On Enactment of the Code of the Republic of Kazakhstan On Taxes and Other Mandatory Payments to the Budget (Tax Code)”.

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