Taxation… The Day to Come, What is it Bearing
Aliya Abdirova, GRATA Law firm
Since January 1st 2007, significant changes directed at the decreasing of taxation on enterprises and organizations in various fields of activity, and also small and middle businesses have been made to the Tax Code. We shall consider the most essential of them.
Taxation of Participants of RFCA
With a view to stimulating the Kazakhstan Stock Exchange (KASE) and the Regional Financial Center of Almaty (RFCA), significant tax benefits have been created for those participating in these organisations.
With regard to corporate income tax on the cumulative revenue of a legal entity, the following exceptions apply:
• Remuneration from debt securities listed on the RFCA;
• Income from an increase in value on maturity of debt securities listed on the RFCA, on the fulfillment of certain civil-legal transactions with them on the RFCA;
• Income of a legal entity rendering financial services within the RFCA;
• Income from an increase in value on the realization by tenders on the stock exchange and bonds which are, at date of maturity, on the official list of the KASE.
Furthermore, withholding tax is not required in regard to debt securities received by legal entities trading on the special platform of the RFCA.
With a view to attracting individual entities to KASE and the trading platform of the RFCA, significant benefits have also been created. Individual entities are not subject to taxation on the following:
• Dividends, remuneration under debt securities acquired on the special trading platform of the RFCA;
• Income from an increase in value of securities admitted on the special trading platform of the RFCA, on fulfillment of civil-legal transactions on the given trading platform.
• Income from the increase in value on realization of the open tenders at stock exchange of actions and bonds which are registered on the date of maturity in official lists of stock exchange on highest and following for highest categories of the listing.
New Taxation Regime for Non residents
With a view to attracting foreign investors, preferential taxation is entered into Kazakhstan and an attractive tax mode for non-residents of participants of KASE and the RFCA has been created.
The following are now not subject to Withholding Tax:
• Dividends, remuneration from debt securities listed on the special trading platform of the RFCA obtained by a non-resident who is not connected with a permanent establishment in Kazakhstan; and
• Income from the increase in value on realization of open tenders at stock exchange of actions and the bonds which are listed on an official stock exchange.
At the same time, income received by both legal and individual entities by the nonresident on the maturity of debt securities, let out by non-residents and admitted on a special trading platform of the RFCA are taxable.
At the same time, income received by an individual non-resident is not assessed with tax at source, in the form of dividends and remuneration under debt securities received on a special trading platform of the RFCA and also from an increase in value on the maturity of the securities.
Open tenders method on the stock exchange and bonds which are at date of maturity on the official lists of stock exchange, admitted on a special trading platform of regional financial city centre Almaty, on the fulfillment of civillegal transactions with them on the given trading platform.
The list of separate kinds of income of a nonresident received from sources in Kazakhstan on which the tax authorities have the right independently to apply a corresponding international contract on the basis of documentation presented by the non-resident confirming residency if such non-resident is the final recipient of the said income and the said international contract provides such a right.
To such kinds of income, the following are related:
Income connected with reduction of the basic means a working condition for its use to destination (including starting-up and adjustment, installation works), except for repair work if such services are carried out within the limits of the foreign trade contract on delivery of the basic means and within the limits of the term which was not leading to the formation of a constant establishment according to the corresponding international contract;
Income received from rendering services in Kazakhstan within the limits of short-term contracts (not exceeding 45 calendar days), and not connected with other contracts in which works are carried out by the same nonresident in Kazakhstan.
At the same time, with a view to controlling the activity of non-residents, regarding their definition of residency and conformity, requirements of the Application for international contracts before returning withholding tax from the budget or from the conditional bank contribution have been toughened. Now the given application is accepted only as well as with the following list of documents:
• list of individual entities, including nonresidents working in Kazakhstan on behalf of the applicant-non-resident (individual or legal entity) with a view to executing obligations of the applicant-non-resident under the concluded contract to render services, with the instruction of nameplate data of such individual entities and terms of their stay in Kazakhstan;
• Representations by the tax agent of copies of applications in order for the non-resident to start work and to terminate the work in the prescribed way (as stipulated by the relevant state bodies, including the tax bodies) in Kazakhstan.
Term of passage of the state registration of non-residents in tax bodies is increased:
The legal and individual non-residents are obliged to complete state registration with the tax bodies within thirty working days from the date of occurrence of the tax obligation or of starting work in Kazakhstan.
When the non-resident starts work in Kazakhstan without establishing permanent residence, the tax agent is obliged to present the tax body with a place of registration of the application for the non-resident to start work and for the non-resident to terminate work in Kazakhstan under the rules established by authorized state body, within ten working days from the date of the conclusion of the contract to work in Kazakhstan and within ten working days from the date of the termination of work by the non-resident.
Corporate Income Tax, Individual Income Tax, VAT
The tax laws update the question of calculation of advance payments of Corporate Income Tax. Previously, tax payers have made many claims concerning the calculation of advance payments of CIT during the current calendar year as they ending up wasting time and money by needing to prove to tax bodies, the necessity of updating the already completed advance payments.
Now the tax payer has the right to provide an additional calculation concerning advance payments without a written substantiation of the reasons of change in these advance payments. The administrative penalty for understating the advance payments has been reduced accordingly. According to article 209 of Administrative Code, any excess of the sum of estimated corporate income tax or individual income tax for the period above the sum of the estimated advance payments during the tax period at a rate of more than twenty percent, will attract a penalty of forty percent of the sum of excess tax. Earlier these figures were 10 % and 70 % respectively.
The tax laws also lower individual income tax rates. If earlier individual entities had significant income, they were compelled to provide an essential sum to the budget. This compelled employers to deliver some wages ‘under the table’ (i.e. black money). Now under income is assessed at source of payment. A uniform rate of 10% of one’s annual income has now been established. This measure should promote a reduction of untaxed payment and as a consequence, should promote an increase in tax receipts in the budget, and also pension deductions.
With a view to decreasing taxation, VAT has been reduced from 15 % to 14% and further its stage-by-stage decrease to 12 % in 2009 is stipulated. This measure will allow tax payers to use their own resources more efficiently.
It is also necessary to note that with a view to decreasing taxation on tax payers concerning the payment of social tax, services rendered by individual entities on contractual punishments have become an object of taxation under this social tax.
Taxation of Small Businesses
Taxation of small businesses has been considerably reduced. Individual businessmen working under a patent will now pay the costs of the patent at a rate of 2 percent to the declared income instead of the earlier established rate of 3 percent. For individual businessmen and legal persons working under a simplified declaration, calculation of taxes is established at 3 percent, instead of the earlier established ascending scale. These measures are directed to encourage the development of small businesses.
For data of tax payers, we can inform you that term to register a complaint by a tax bearer is prolonged for the notice under the certificate of tax check in a higher body of tax service from fifteen about thirty working days from the date of delivery of the notice to the tax bearer.
Tax Reports and Declarations
As is known, in any business, and especially if it seasonal, there are periods of calm. Previously, despite having done little work, small businesses, in order to prevent administrative penalties, were compelled to hand over tax reports with zero parameters to the relevant tax bodies. In order to simplify activity for such organizations, the standard to now be undertaken by individual businessmen, private notaries, lawyers, will mean registering an application for a stay of activity for the forthcoming period with the tax authorities, as long as it is in the prescribed form. Such activity is subject to stop for the term specified in the application, but for no more than twelve months. However, with the presence of tax debts, tax bodies have the right to give up tax reporting in such a stay period.
Such a period of stay is the basis for unrepresented tax reporting for the forthcoming tax periods before the date of renewing the company’s activity. This standard only extends to individual businessmen, private notaries and lawyers.
Tax payers are already likely to have paid attention to the fact that delivery of certain declarations, calculations and payments under some taxes, such as individual tax, value added tax (VAT), social tax and others may be prolonged. At the same time, this standard does not concern declarations which are paid during the tax year, such as corporate income tax, land tax, property tax and transport tax.
Idle and False Enterprises
Along with the indulgence of tax modes, strict measures on the struggle with idle and false enterprises continue to be established. The standard according to which conditional exception of the tax bearer of the State register of tax payers of Kazakhstan is made in cases is entered is entered through:
• Conformity of the tax payer to attributes of the idle legal person and not owing tax debts;
• Recognition of these false businesses by the Tax courts.
This could entail the following consequences: By definition, Corporation tax is not subject to a deduction of:
• Charges on operations where the tax bearer has been recognized by the court as a false business;
• Charges on operations with the idle legal person, who has been conditionally excluded from the State register of tax payers of Kazakhstan from the moment of such exception.
Besides the VAT sum, in case the court recognises that the VAT payer has provided false information, it can cancel the relevant certificate.
Strict measures are accepted by tax payers, not notified tax bodies in target dates about change of the site. Such tax payers under the decision of tax body are struck off the VAT register from this moment, all invoices written out by them are void; this is fraught with negative consequences both for the tax bearer and for its partners.
Information about idle and false enterprises and also legal persons to whom certificates on statement on the account under the VAT have been cancelled is published on www. taxkz.kz. We recommend all tax payers to check this site periodically for any information on business partners.
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