Kazakhstan: Tax Alert - September - October 2015

MAIN CHANGES TO THE TAX CODE OF THE REPUBLIC OF KAZAKHSTAN

The Senate of the Parliament of the Republic of Kazakhstan (further "RoK") in the first reading accepted the draft Law "On amendments and additions to certain legislative acts on tax and customs administration" (further the "Draft Law").

According to the Draft Law, the following amendments are made to the Tax Code of the RoK (further the "Tax Code"):

√ Regarding the obligations of the taxpayer

In order to prevent illegal import of goods to the territory of the RoK and protect the domestic production, new subparagraphs are introduced in the article 14 of the Tax Code, according to which, the taxpayer will be obliged to formalize a way bill on goods in electronic form while importing goods to the territory of the RoK, and also while moving goods within the territory of the RoK.

The rules for formalization and usage of accompanying way bills on goods shall be approved by the authorized body.

Further, with the purpose to introduce an electronic audit which aims at optimization of the audit processes, the taxpayer will be obliged to grant access to software data and information systems used to automate accounting and tax accounting, and also to provide the data specified in soft or in hard copies during the tax review.

The liability to provide soft copies of software data and information systems applies to large taxpayers to be monitored.

The changes become effective from January 1, 2017.

√ Regarding the fulfillment of the tax obligation of a legal entity undergoing liquidation

In accordance with the current edition of the paragraph 2 article 37 of the Tax Code, legal entity undergoing liquidation at its location within 3 working days of approving an interim liquidation balance sheet shall file the following documents:

  1. tax application to conduct a documentary audit;
  2. liquidation tax report;
  3. value added tax (further the "VAT") registration certificate or a note explaining loss or damage;
  4. tax application for VAT deregistration.

However, in compliance with the Draft Law, with the purpose to optimize tax services and switch the VAT template to its electronic form subparagraphs 3) and 4) are excluded from the paragraph 2 article 37 of the Tax Code.

The changes become effective from January 1, 2016.

√ Regarding the approval of tax registration forms

The article 77 of the Tax Code is supplemented with the paragraph 4 2 in compliance with which, authorized body sets the following forms of tax registers for the large taxpayers to be monitored:

  • corporate income tax (further "CIT");
  • excess profit tax;
  • VAT;
  • mineral extraction tax;
  • on the planned indicators of financial and economic activity of the large taxpayer for the current and forthcoming calendar years.

The changes become effective from January 1, 2016.

√ Regarding deductions for CIT purposes

As of today, in compliance with the paragraph 12 article 100 of the Tax Code, VAT not subject to an offset according to the VAT declaration shall be included in the value of goods, work and services purchased.

However, according to the Draft Law, provisions of this paragraph will not be applied to the VAT amount on goods, works and services which is subject to deduction in compliance with the paragraph 1 2 article 111 of the Tax Code.

It shall be noted, that the paragraph 1 2 article 111 of the Tax Code sets the order for expenses deduction for CIT purposes incurred while liquidating the well.

The changes become effective in a retrospective order from January 1, 2009.

√ Regarding deductions for expenses incurred in geological surveying

In compliance with the current edition of the paragraph 1 2 article 111 of the Tax Code, if the well is liquidated in accordance with the provisions of the Law of the RoK on subsoil and subsurface use due to the fact that the inflow of hydro carbonic raw materials were not received during the well's testing, thus actual expenses incurred on production and liquidation of such well shall be deductible for the purpose of CIT.

According to the Draft Law, clarifying amendment is made to this article, which stipulates that actual expenses, including VAT, incurred during the production and liquidation of such wells should be recognized as deductions for CIT purposes.

These changes become effective in a retrospective order from January 1, 2009

√ Regarding the taxation of the taxpayer performing freight transportation on an ocean going vessel registered in an international ship register of the RoK

The Tax Code of the RoK is supplemented with a new article 135 4, according to which the taxpayer performing freight transportation on an ocean going vessel registered in an international ship register of the RoK decreases CIT on income from goods transportation calculated in accordance with article 139 of the Tax Code by 100%.

The following changes become effective from January 1, 2016.

√ Regarding the calculation of advance payments

In compliance with the current version of the paragraph 3 article 141 of the Tax Code advance CIT payments for the period before and after a CIT declaration has been filed for the previous tax period shall be made in equal amounts during the first quarter of the reporting tax period.

However, the changes are made to this paragraph, in compliance with which advance CIT payments for the period before and after a CIT declaration has been filed for the previous tax period, which have been calculated in accordance with the paragraphs 4 and 4 1 article 141 of the Tax Code shall be made in equal amounts for the each month of the first quarter of the reporting tax period within the time specified in the tax legislation.

Further, the paragraph 4 article 141 of the Tax Code is supplemented with the following paragraph:

"In case the sum of advance payments was understated in the statement of advance CIT payments payable for the period before a CIT declaration is filed for the previous tax period, the tax authority is entitled to accrue additional sum of advance payments for the specified period at a rate of a positive difference between the sums of advance payments".

The following changes are made due to the fact that in practice certain taxpayers understate the sum of advance payments.

The changes become effective from January 1, 2016.

√ Regarding the order for the application of international agreement in full tax exemption of nonresident's income acquired from sources in the RoK.

In accordance with the current edition of the article 212 of the Tax Code, with the purpose to apply international agreement on avoidance of double taxation, non resident provides tax agent with a document confirming residency no later than one of the dates stipulated in paragraph 3 article 212 of the Tax Code.

Thus, according to the Draft Law the changes are made in the subparagraph 1 paragraph 3 article 212 of the Tax Code, in compliance with which, with the purpose to apply international agreement on avoidance of double taxation, non resident provides tax agents with a notarized copy of the document confirming residency no later than March 31 of the year following the year during which income was paid to a non resident or a non resident's unpaid income is deducted for the CIT purposes.

It should be noted that the current edition of the subparagraph 1 paragraph 3 article 212 of the Tax Code stipulates filing of the document confirming residency to a tax agent no later than December 31 of the calendar year during which income was paid to a non resident or a non resident's unpaid income is deducted.

The changes provided become effective from January 1, 2015.

Additionally, clarifying amendment was made to the paragraph 6 of this article in accordance with which the copy of the document confirming residency meeting the requirements of the Tax Code should be filed not later than 5 calendar days from the date set to provide tax reports for the 4 th quarter.

The changes become effective from January 1, 2016.

√ Regarding the taxable turnover from the realization of goods, work and services

In compliance with the Draft Law, paragraph 1 article 231 of the Tax Code is supplemented with subparagraph 24 according to which export of goods from the territory of the RoK to the territory of state members of the Custom Union shall not be considered as a taxable realization turnover, since transfer is made within one legal entity.

The changes introduced with the purpose to bring the provisions of the Tax Code of the RoK into line with the Agreement of Eurasian Economic Union (further "EEU") dated May 29, 2014 and become effective from January 1, 2016.

√ Regarding the VAT taken as an offset

The paragraph 3 article 256 of the Tax Code is supplemented with the following:

In compliance with custom legislation of the Custom Union or custom legislation of the RoK while importing goods to the territory of the RoK the tax paid shall be taken as an offset in the same tax period during the tax obligation on VAT payment was fulfilled.

This amendment has a clarifying character, that is, with the purpose to determine the exact period of taxation during which the VAT paid while importing goods from third countries shall be taken as an offset.

The changes become effective from January 1, 2016.

√ Regarding the issuance date of invoice

Amendments were made to clarify the current edition of the paragraph 5 article 256 of the Tax Code according to which the date of turnover realization and the invoice issuance date shall be indicated among others in an invoice issued in a hard copy.

The changes become effective from January 1, 2017.

Further, in accordance with the current edition of the paragraph 7 article 263 of the Tax Code, taxpayer issues invoices within 7 calendar days if the invoice is issued in a hard copy and within 15 calendar days if the invoice is issued in an electronic form.

However, in accordance with the Draft Law, the amendments are made to this article, which as a result clearly define the times frames for issuance of invoices by the taxpayer:

  • in a hard copy not earlier than the date of turnover realization and not later than 7 calendar days after the date of turnover realization
  • in an electronic form not earlier than the date of turnover realization and not later than 15 calendar days after the date of turnover realization

The changes become effective from January 1, 2017.

√ Regarding the issuance of additional invoices

In order to be able to refuse acceptance of an additional invoice, the paragraph 4 of article 256 of the Tax Code is supplemented with a new paragraph which stipulates that if the additional invoice issued in an electronic form, the recipient of the goods, works/services entitled to declare disagreement with the issuance of such invoice within 10 calendar days from the date of receipt of such additional invoice according to the order for invoices workflow, issued in an electronic form.

The changes become effective from January 1, 2017.

√ Regarding the refund of VAT

In compliance with article 272 of the Tax Code, taxpayer is entitled to claim for refund for the VAT accrued as a result of realization turnover taxable at the 0% rate for a tax period in which turnovers taxable at the 0% rate have been concluded, and where excess VAT has been claimed for refund in a declaration, amounted to at least 70% of total taxable realization turnover.

However, according to the changes, the VAT amount shall be refunded if realization turnover taxable at the 0% rate, amounted to at least 70% of total taxable realization turnover and generated constantly within the tax period.

These changes have a clarifying character and are made to specify norms for accumulated VAT refund.

Changes come into force retrospectively, from January 1, 2012.

√ Regarding the definition of the turnover from the realization of goods, work and services and taxable imports in the Customs Union

With the purpose to bring into line the provisions of the Tax Code of the RoK with the Agreement of EEU dated May 29, 2014 which stipulates no indirect tax collection while importing goods into the territory of state members an article 276 4 of the Tax Code is supplemented with the paragraph 5.

Thus, according to the changes indirect taxes will not be collected while importing goods into the territory of the RoK if:

  • goods are imported by individuals with no entrepreneurship purposes;
  • goods are imported from the state member of the Custom Union, since the transfer is made within one legal entity.

It should be noted, that the taxpayer shall be obliged to notify tax authorities while importing or exporting goods in compliance with the form, order and time frames stipulated by the paragraph 4 article 276 4 of the Tax Code.

√ Concerning the objects of the transport taxation

In compliance with current edition of the article 366 of the Tax Code, objects of the taxation shall be any means of transport, except for trailers, subject to state registration and (or) registered in the RoK.

However, according to changes, as objects of the taxation shall be transport, except for trailers, which were registered or consisting on the account in RoK.

These changes are made with the purpose of simplification of tax administration and become effective from January 1, 2016.

√ Concerning the tax rates for land plots occupied with violation of the legislation of the RoK

According to the Draft Law, paragraph 4 is added into the article 386 of the Tax Code, according to which if the land plots allocated to filling stations are used for other purposes or are used with violation of the legislation, then land tax rates established by provisions of the Tax Code increase 10 times from the date of delivery of the written notification by land user from authorized body.

The changes become effective from January 1, 2016.

√ Regarding the definition of the property tax base

With the purpose to switch gradually to the taxation of objects at a market value in compliance with the international practice, article 397 of the Tax Code was supplemented with the paragraph 1 1.

Thus, according to the changes, while evaluation of the object of taxation in compliance with the law of the RoK on appraisal activities, by the taxpayer, the tax base shall be its market value defined in the corresponding evaluation report but not less than its average net asset value identified in compliance with international financial reporting standards and requirements of the law of the RoK on accounting and financial reporting.

√ Regarding the obligatory record of registration for VAT

The current edition of the article 568 of the Tax Code stipulates that the obligatory VAT registration shall be made in case the minimum turnover of the taxpayer equals to 30000 times the monthly calculation index (further the "MCI") set by the law on the State budget and valid on January 1 of the relevant financial year.

However, according to the Draft Law the obligatory VAT registration shall be made in case minimum turnover of the taxpayer amounts to 3234 times the MCI.

Effective date of the amendment is January 1, 2017.

√ Concerning the VAT registration certificate

According to the Draft Law the clarifying amendment is made to the paragraph 1 article 570 of the Tax Code.

In compliance with the changes, the VAT registration certificate that confirms taxpayer's record of registration for VAT is unlimited and is presented in the form of electronic document with an electronic signature of the designated person of registering body. The form of the certificate is established by authorized body.

Additionally, paragraphs 2 4 which set the procedures for getting VAT registration certificate for resident chief executive officers of the legal entity are excluded from this article.

Changes become effective from January 1, 2017.

√ Regarding procedure and deadline for filing monitoring reporting

With the purposes to improve the process of monitoring of large taxpayers, the changes are made to the article 624 of the Tax Code.

In accordance with the changes, large taxpayers to be monitored shall provide monitoring report in the form of tax registers defined in paragraph 4 2 article 77.

Further, large taxpayers to be monitored shall provide monitoring reports within the following time frames:

  • monitoring reports, quarterly no later than the 15th day of the second month following the reporting tax period;
  • monitoring reports in the form of CIT tax registers o and excess profit tax annually no later than March 31 of the year following the reporting tax period;
  • on the planned indicators of financial and economic activity of the large taxpayer for the current and forthcoming calendar years until December 1 of the current calendar year.
  • monitoring reports on the planned indicators of financial and economic activity of the large taxpayer for the current and forthcoming changes no later than April 15, on July 15 and on October 15 such current calendar year.

Large taxpayers, once again included in the list of large taxpayers to be monitored shall file initial monitoring reports on the planned indicators of financial and economic activity for the current year no later than 30 calendar days from a date of introduction of such list.

Subsequent monitoring reports on the planned indicators of financial and economic activity of the large taxpayer for the current year and forthcoming calendar years are submitted in accordance with the provisions of this article.

Effective date of the amendment is January 1, 2017.

√ Regarding the the order for monitoring

With the purposes to improve the process of monitoring of large taxpayers, new article 624 1 is introduced to the Tax Code.

As it was described above, during the tax review the tax authority is entitled to demand from the taxpayer provision of documents, ensuring the correctness of calculation and timely payment of the taxes (withholding and transfer) including financial reports of its subsidiaries.

It should be noted that this requirement shall be executed within 30 calendar days following the date of delivery requirements.

Further, at the identification of violations and discrepancies as a result of monitoring the authorized body informs the large taxpayer who is subject to monitoring.

The taxpayer, in turn, is obliged to submit the written explanation within 15 calendar days from the next day of the notice delivery date.

On the basis of monitoring results, the authorized body shall issue a motivated decision in a written form which is sent within 2 working days from the decision issuance date for the large taxpayers.

Effective date of the amendment is January 1, 2016.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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