The Tax Code of the Republic of Kazakhstan contains the obligation to pay corporate income tax (CIT) and value added tax (VAT) for work and services purchased from a non-resident. Often, taxpayers do not understand in what cases and how much they should pay to the budget, and how the amount of tax is reflected in settlements with a non-resident. The following are general rules that will help you understand when a taxpayer has an obligation to pay each of these types of taxes.
CIT held at source
The income that a non-resident legal entity receives from sources in the Republic of Kazakhstan is subject to CIT at a rate of 20% [1]. However, the tax amount should not be paid to the budget by the non-resident himself, but the source of payment is his counterparty-resident of the Republic of Kazakhstan, by withholding this amount. Consider an example. LLP “from Kazakhstan” acquires services from LLC “from Russia”. The cost of services under the agreement is 10 million tenge, services are provided in the territory of the Republic of Kazakhstan. LLP “from Kazakhstan” should pay CIT in the amount of 2 million tenge, the remaining 8 million - to pay LLC “from Russia”.
In case of disagreement of a foreign counterparty to receive a lower amount than agreed by the parties, LLP from Kazakhstan has the right to pay LLC “from Russia” the relying 10 million tenge, while LLP from Kazakhstan will have to pay an additional 2 million tenge to the budget. This means that the resident has the right to withhold the amount of tax when settling with a non-resident, or to pay the amount of tax without withholding, that is, in excess of the amount paid to the non-resident.
When calculating the CIT, the territorial method is used. This means that a resident of the Republic of Kazakhstan should retain CIT only if the place of sale of goods, performance of work or the provision of services is the Republic of Kazakhstan. The regulation on the place of sale may be contained in an agreement (contract) with a non-resident or may flow from the meaning of the agreement and the substance of the relationship between the parties.
The exception is the income of a person registered in a state with preferential taxation [2], as well as managerial, financial, consulting, engineering, marketing, audit and legal services. Upon the acquisition of such goods, works or services, the resident must withhold the CIT regardless of the place of implementation of the contract, that is, with any purchase of goods, works or services from a non-resident anywhere in the world.
The taxpayer must pay the tax until the 25th day of the month following the month of payment of income to the non-resident and submit a calculation for CIT withheld at the source of payment from the income of the non-resident (form 101.04) until the 15th day of the second month following the quarter in which the payment of income was made to the non-resident. If the income was paid to a non-resident in the 4th quarter of the year and (or) was deducted by the resident, then the deadline for submitting the calculation is set until March 31 of the year following the reporting year. If the non-resident’s income has not yet been paid, but is deductible, then tax is paid no later than April 10 of the year following the reporting year.
If there is an international agreement on avoidance of double taxation between the Republic of Kazakhstan and the country of residence of the counterparty, the resident has the right to apply tax exemption, and the non-resident can count on the return of the paid tax amounts. To do this, it is recommended to attract a tax consultant or lawyer who will help to form a complete package of documents and avoid tax disputes in the future.
VAT turnover on the purchase of works, services from a non-resident
The taxpayer’s turnover on works and services purchased from a non-resident is VAT turnover [3], is accrued only by VAT payers, is taxed at a rate of 12% and is reflected in the VAT tax return (form 300.00). Unlike CIT, withheld at the source of payment, VAT turnover is a tax obligation of the resident taxpayer himself, therefore, is not subject to withholding and does not affect the cost of purchased services / work.
In contrast to the territorial principle under CIT, the principle of determining the place of sale in accordance with the Tax Code of the Republic of Kazakhstan is used for VAT turnover. VAT is accrued only if Kazakhstan is recognized as the place of sale.
The Republic of Kazakhstan is recognized as the place of sale and the acquisition turnover is subject to VAT if:
1.Works and services related to real estate in Kazakhstan: repair, reconstruction of buildings and structures, intermediary and agency services for the selection and acquisition of real estate, etc .;
2.Work and services are provided in Kazakhstan and are associated with movable property: installation, assembly, maintenance, repair;
3.Services in the field of entertainment (in gambling establishments, night clubs, cafe-bars, restaurants, Internet cafes, computer, billiards, bowling clubs and cinemas, etc.), culture, science, art, education, physical education or sports are actually provided in the territory of Kazakhstan;
4) A resident acquires the following services or work: (1) consulting services; (2) audit services; (3) engineering services; (4) design services; (5) marketing services; (6) legal services; (7) accounting services; (8) lawyer services; (9) advertising services; (10) transfer of rights to use intellectual property; (11) maintenance and software updates; (12) providing access to Internet resources; (13) services for the provision and (or) processing of information; (14) provision of staff; (15) lease of any movable property other than vehicles; (16) agent services; (17) communication services; (18) consent to limit or terminate entrepreneurial activity for a fee; (19) radio services; (20) television services; (21) rental and / or use of freight cars and containers; (22) services provided by a non-resident operating in the Republic of Kazakhstan through a permanent establishment without opening a branch / representative office.
In all other cases not listed above, there is no taxable turnover for the purchase of works, services from a non-resident, no VAT is charged. There are also exceptions. If the acquisition of works or services is auxiliary, then the place of their sale is the place of sale of the main goods, works or services. For example, transportation of an acquired car or assembly of purchased equipment. If the cost of the purchased work or service is included in the customs value or the size of the taxable import, and VAT on it has been paid to the budget and is not refundable, then the turnover for the purchase of work or service does not arise.
When purchasing works, services from a resident of a member state of the Eurasian Economic Union, the place of sale of works, services is determined in accordance with paragraph 2 of Art. 441 of the Tax Code of the Republic of Kazakhstan. The rules of this article are similar to those listed above, but have a number of exceptions and additions.
[1] The tax rate is indicated for income from the sale of goods, works and services to a resident of the Republic of Kazakhstan.
[2] In addition to tourist services and services in the implementation of airport activities.
[3] Everything related to the sale of goods is called import turnover and is not considered in this article.