Certain issues of taxation of individuals in Kazakhstan (Galymbek Kereibayev, Counsel LL.M. Freiburg i.Br.; Aizada Mustafina, Junior Associate, LL.M. Integrites Kazakhstan LLP)

Certain issues of taxation of individuals in Kazakhstan

Galymbek Kereibayev

Counsel

LL.M. Freiburg i.Br.

Aizada Mustafina

Junior Associate, LL.M.

Integrites Kazakhstan LLP

Some foreign companies are raising certain questions in regard of the the necessity to provide the tax return of incomes by individuals being residents of Kazakhstan (not having the status of the individual entrepreneur) for the various purposes abroad (i.e., implementation of the Due Diligence etc.).

In this regard we would like to highlight the following.

Due to the requirements of the current Kazakhstani Tax Code, dated 25.12.2017 (hereinafter referred to as the “Tax Code”), income falling under certain criteria stipulated by the Tax Code, is subject to tax return by individual himself, and the submission of the tax return by individual is not mandatory in general.

Because of the peculiarities and different types of taxation regime of individual entrepreneurs, the issues of taxation of individual entrepreneurs will not be considered herein.

In case of taxation of the income of individual in Kazakhstan the tax agent only bears the obligation for taxation of the income of the individual. The tax agent (the person paying out the income of the individual) is obliged to withhold from the amounts payable towards individual and to transfer to the state budget the amounts of the individual income tax.

The tax returns pertaining the amounts of the individual income tax (hereinafter referred to as the “IIT”) should be also submitted by the tax agent and not by the individual himself.

The Kazakhstani tax legislation stipulates that in certain cases the individual may be obliged to calculate and to transfer the IIT to the state budget and to submit the IIT tax return (i.e., income from sources outside of Kazakhstan, income resulting out of selling the immovables, capital gains, cession of claims in individual buildings, renting of immovables etc.).

In the absence of certain types of income which should be declared by the individual himself, the obligation to calculate the individual income tax and submit the declaration of an individual does not arise.

Article 321 of the Tax Code establishes an exhaustive list of the types of income that should be to be included into the total annual income of an individual.

According to the Article 322.2. of the Tax Code, the income of an employee is subject to taxation. Such income is treated as the income accrued by a Kazakhstani legal entity (employer) being a tax agent (i.e.: person paing out the income towards individual and obliged to retain the IIT amounts from the individual’s income).

As an income of the empolyee is recognized any type of income, accrued in the employer’s accounting records as expenses (costs), which consists of the following:

monetary funds to be transferred by the employer to the employee in cash and (or) non-cash forms in connection with labor relations;

income in kind of the employee in accordance with Article 323 of the Tax Code;

income of the employee in the form of material benefit in accordance with Article 324 of the Tax Code.

All the above-mentioned types of income are subject to IIT to the withheld by the tax agent while paying out the income.

According to the Article 350.1. and 2. of the Tax Code, the calculation, withholding and payment of IIT to the state budget shall be made at the source of payment by a tax agent if such income is (to be) paid by the said tax agent (i.e.: legal entity paying out the income).

Article 351.1.4. of the Tax Code stipulates, that the tax agent (legal entity) calculates IIT on income subject to taxation at the source of payment when assessing income subject to taxation.

The amount of IIT is calculated by applying the rates established by Article 320 of the Tax Code (10%) to the amount of income taxable at the source of payment.

A tax agent withholds IIT on the day of payment of income subject to taxation at the source of payment.

A tax agent shall transfer IIT on the paid income within 25 (twenty-five) calendar days after the end of the month in which the income was paid, at the place of its location, unless otherwise provided for by this article.

Furthermore, Article 355.1 of the Tax Code provides, that the IIT social tax return should be submitted to tax authorities at the location of a tax agent on or before the 15th day of the second month following a reporting period (Form 200.00, approved in Annex 16 to the Order of the First Deputy Prime Minister of the Republic of Kazakhstan - Minister of Finance of the Republic of Kazakhstan dated January 20, 2020 No. 39 “On approval of tax reporting forms and rules for their preparation”).

From this provision, expressly follows that an individual basically cannot submit an individual income tax return for himself.

Therefore, the tax returns pertaining the amounts of IIT should be submitted by the tax agent (Kazakhstani legal entity) and not by the individual himself.

The Kazakhstani tax legislation stipulates that in certain cases the individual may be obliged to calculate and to transfer the IIT to the state budget and to submit the IIT tax return (i.e. income from sources outside of Kazakhstan, from selling immovables, capital gains, cession of claims in individual buildings, renting of immovables etc.). In the absence of such certain specified types of income which should be declared by the individual himself the obligation to calculate the individual income tax and submit the declaration of an individual does not arise.

In case of receiving the income from Kazakhstani legal entity being a tax agent paying out the income towards individual these conditions above (for the independently submission of the tax return by the individual) are not met.

Thus, the obligation to calculate the IIT and submit the declaration by the individual himself does not arise.

Considering the aforementioned, in case if an individual person is not required to submit the tax return independently (i.e., in the absence of the taxable type of income which should be taxes by the individual independently), the Kazakhstani tax legislation does not provide for the opportunity of voluntary submission of the IIT tax return.