Doing Business in Kazakhstan

“Doing Business in Kazakhstan” is a publication providing some useful practical advice on the legal and tax issues that face investors starting and building a business in Kazakhstan. Kazakhstan can offer many opportunities and encouraging foreign investment in the main sectors of the economy is a key priority for the country.

 

Citizens of most foreign countries will need visas to visit Kazakhstan. Each type of Kazakhstan visa has certain categories (e.g., business visa has categories from D1 to D8 depending on the purpose of the business trip).

 

Passports should be valid for at least three months after the visa expiration date.

 

The most popular visas are investor, business and work visas. These visas are issued for one, two, three or multiple entries depending on their categories and are valid for up to three years.

 

Investor visas are issued to management of foreign companies that carry out investment activities in Kazakhstan, and to participants in the Regional Financial Centre of Almaty City (RFCA) as well as to their family members. Work visas are issued to foreign individuals arriving in Kazakhstan for employment, as well as to non-working members of their families. A work permit should be submitted to obtain a work visa.

 

Business visas are issued to foreign individuals arriving in Kazakhstan for business purposes (e.g., business trip, negotiations, entering into contracts, provision of consultancy or audit services, participation in conferences, symposiums, forums, exhibitions, concerts, cultural, scientific, sport and other events).

 

In the territory of Kazakhstan, visas are issued by the Department of Consular Service of the Kazakhstan Ministry of Foreign Affairs (MFA) and abroad by Kazakhstan consular establishments (e.g., the Consular Department of the Embassy of Kazakhstan). Generally, visas are issued based on a letter of invitation by a local Kazakh company, or a branch or representative office of a foreign company, submitted to the Department of Consular Service of the Kazakhstan MFA. The fee for issuing a visa ranges from US$1 to US$600, depending on the country of residence of the invited person and the type of visa sought. The term for issuance of a visa should not exceed five working days.

 

 

1. Tax laws in Kazakhstan have changed regularly in recent years. It is therefore important that tax planning be robust, can cope with changes in tax law and can be restructured without significant tax costs.

 

2. Corporate and individual income tax rates in Kazakhstan are low by international standards. However, penalties for non-payment and non-reporting, whether intentional or not, are high. The first focus of tax planning in Kazakhstan should be to ensure that all tax that ought to be paid in Kazakhstan is paid and reported. In addition, Kazakhstan is a documentation-driven place. Therefore, keeping documentation in order (including supporting documentation) is of paramount importance.

 

3. The scope of withholding taxes (WHTs) on cross-border payments is wide and rates are high (even sometimes when the recipient has never entered Kazakhstan). However, Kazakhstan has concluded tax treaties with many counties and it is possible therefore that withholding taxes can be reduced or avoided if transactions are arranged with such treaty countries and the payer has all of the necessary documentation in place. Otherwise tax will be withheld, and getting a refund may be an uncertain process. Moreover, Kazakhstan has a unique position in regard to transfer pricing: transfer pricing control potentially applies to all cross-border transactions regardless of whether the parties are in any way related or not.

 

4. There are many downsides to dealing with tax havens when structuring cross-border investments or transactions in Kazakhstan. Thus, tax havens should not usually form part of tax planning in Kazakhstan.

 

5. The rules for determining whether a taxable presence for corporate income tax (CIT) in Kazakhstan (a “permanent establishment”) exists for a business dealing with Kazakhstan are very wide and can apply to whole groups of companies collectively if their total presence exceeds six months in country. Some, but not all, of Kazakhstan’s tax treaties protect against this. Therefore, if using more than one group entity to do business with Kazakhstan, the position of all entities involved must be reviewed collectively.

 

6. The rules for determining whether a taxable presence exists for VAT are independent of the rules for CIT, and the penalties for breaches can be draconian. Never forget to consider VAT separately when thinking about whether you have a taxable presence in Kazakhstan.

 

7. For financing investments, there is a basic 4 to 1 debt equity ratio (7 to 1 for banks). An investor will at best pay 10 percent WHT on cross-border interest (based on a double tax treaty) and get at best a CIT deduction at 20 percent, while accrued interest expense may be deducted only when paid. Furthermore, exchange gains and losses on loans are recognized for tax purposes.

 

8. There is a safe harbour that would avoid a deemed taxable presence for an entity that seconds staff to work in Kazakhstan. Provided the arrangements are properly structured, this is likely to be more tax-efficient than using the same staff to provide consultancy or other services.

 

9. Branch profit tax applies to all permanent establishments of foreign legal entities at a general rate of 15 percent. It is usually reduced by tax treaties. There is an equivalent tax on dividends at the same general rate and also reduced by treaties. In the case of dividends the rate is zero after the investment has been held for three years (except for investments into oil and gas or mining, and except for dividends paid to tax haven registered entities).

 

10. Exemption from capital gains tax on exiting from an investment in Kazakhstan may in many cases be achieved, provided that the correct structuring is used when the investment is first made. How onerous the structuring would be depends on the nature of the asset.