The international double taxation agreements (contracts on avoidance of the double taxation), operating between Kazakhstan and foreign states     

(The version was updated on 30/01/2009)

As of December 1, 2008 Kazakhstan had operating agreements (conventions) on avoidance of the double taxation concluded with 38 countries of the world, including China, France, Great Britain, Germany, Italy, Russia, the USA, and others (see the appendix). According to the Kazakhstan Tax Code if the international agreement, ratified by the Republic of Kazakhstan, other rules are established, different from those contained in the Tax Code, rules of the specified international agreement are applied. It means that provisions of the international agreements have a priority before the internal legislation of Kazakhstan.

Application of operating tax agreements essentially reduces tax loading on the foreign companies having business in Kazakhstan. The given conclusion is confirmed by the following examples:

According to the Tax Code incomes of the foreign companies obtained from realization of goods, performance of works and services in Kazakhstan are assessed with the Kazakhstan corporate income tax. Thus if the foreign company has no tax registration in Kazakhstan its income is taxed completely without deduction of the incurred expenses at the rate of 20%. However, if the foreign company is the resident of the state having operating agreement with Kazakhstan on avoidance of the double taxation the income of this company can be completely exempt from the Kazakhstan tax.

According to the Tax Code the taxed income of a foreign branch registered in Kazakhstan is calculated as a difference between the gross annual income and deductible expenses. The income of the foreign company branch received this way is taxed at the general tax rate of 32%. However, if the foreign company is a resident of the state concluded the operating tax agreement with Kazakhstan the income of its branch in Kazakhstan can be taxed at the reduced rate, as a rule, it makes 24%.

Besides under the Tax Code the foreign company branch is not authorized to deduct the amounts of management and general administrative expenses of the foreign company incurred outside Kazakhstan. But in the presence of the operating tax agreement between Kazakhstan and the state of residence of the foreign company, the amounts of such expenses can be deducted from its branch’s income by a direct or proportional method.

Under to the Tax Code the foreign companies' incomes from dividends and interests received from Kazakhstan are taxed at the rate of 15%. At application of operating tax agreements the rate of the tax to such incomes can be reduced to 10% or 5%, and under some agreements dividends are not taxed in Kazakhstan at all.

In Kazakhstan the income of the foreign companies as a royalty is taxed at the rate of 15%. If the foreign company is the resident of the state having the operating tax agreement with Kazakhstan the rate of the tax can be reduced to 10%.

The simplified procedure of applying of tax agreements in Kazakhstan in regard to exemption from taxation or taxation at reduced rate is established for the following incomes of the foreign companies:

1. income from performing work and providing services in Kazakhstan within a period not resulting in creation of permanent establishment of foreign company in Kazakhstan under tax agreements;
2. other incomes earned by foreign company from sources in Kazakhstan that are not related to a permanent establishment activity;
3. income from providing transportation services in international shipments;
4. income of foreign branches located in Kazakhstan;
5. income in the form of dividends.  

For applying of the simplified procedure to exempt from taxation or tax at reduced rate it is not necessary to receive the approval of the Kazakhstan tax office. It is enough to provide the tax agent with the tax certificate (tax note), confirming the tax registration of the foreign company in its country, and other requested documents (tax agent – an entity paying income to foreign company from sources in Kazakhstan). It is advisable to provide the tax certificate in advance before receiving of income payment. Otherwise for exemption from taxation or taxation at reduced rate the tax office sanction shall be obtained as stated below.

More difficult procedure is established for exemption of incomes of the foreign companies (not having tax registration in Kazakhstan) in the form of capital gains resulting from the sale of real estate located in Kazakhstan, securities, share interests related to subsurface use in Kazakhstan. In this case the foreign company should obtain a sanction of the tax office for the application of the tax agreement provisions filing a package of the documents enlisted in the Tax Code and the tax note (tax certificate), confirming the tax registration of the foreign company in its country. Difficulties of the given procedure consist that collecting of all necessary documents and also decision-making by tax office takes long time. However without reception of the tax office approving the foreign company has no right to apply provisions of the tax agreement.

Appendix. The list of countries having operating agreements with Kazakhstan (conventions) on avoidance of the double taxation as of December 1, 2008 (source is www.minfin.kz)