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Kazakhstan Limits Deductibility for Related Party Services, Replaces Dividends Withholding Tax Exemption with Reduced Rate, and Introduces Other Changes — Orbitax Tax News & Alerts

Kazakhstan has published Law No. 135-VII of 11 July 2022, which contains various tax measures that generally apply from 1 January 2023. The main measures include:

  • The introduction of a new limit on the deduction of costs incurred for acquiring specified services from non-resident related parties equal to 3% of taxable income, including management, consulting, auditing, design, legal, accounting, advertising, marketing, franchising, financial (excluding remuneration costs), engineering, and agency services, as well as costs for royalties and rights to use intellectual property;
  • The amendment of the tax exemption for dividends paid on shares listed on the Kazakhstan stock exchange with the additional condition that shares must be (actively) traded during the relevant tax period in accordance with criteria determined by the Kazakhstan government;
  • The removal of the withholding tax exemption on qualifying dividends paid to non-resident individuals and companies, which is replaced with a reduced withholding tax rate of 10% subject to essentially the same conditions that applied for the exemption, including:
    • the person receiving the dividends is not registered in a jurisdiction with a preferential tax regime (blacklisted jurisdiction);
    • the recipient has held the shares or participation interests on which the dividends are paid for more than three years;
    • the resident legal entity paying the dividends is not a subsoil user during the period for which dividends are paid;
    • no more than 50% of the value of the assets of the entity paying the dividends is derived from the property of subsoil users; and
    • where dividends are paid by a legal entity enjoying corporate income tax exemptions, the reduced 10% rate will not apply where the portion of corporate income tax that is exempted (reduced by 100%) is 50% or more of the corporate income tax calculated in general, with a further restriction providing that the reduced rate does not apply for dividends paid out of income on which tax has not been paid;
  • The introduction of new provisions to provide for a reduced withholding tax rate of 10% on dividends paid to non-residents by legal entities that are subsoil users, with similar conditions regarding blacklisted jurisdiction and three-year shareholding, and the rules regarding exemptions and payment out of taxed income, as well as a separate condition that within the twelve-month period preceding the first day of the month in which the dividends are accrued, the legal entity subsoil user carries out subsequent processing (after primary processing) of at least 70% of the mineral raw materials extracted during the specified period, including coal, on its own and (or) owned by a related legal entity in production facilities located in Kazakhstan;
  • An increase in the mineral extraction tax rates by 50% for stock exchange metals (i.e., gold, silver, copper, zinc, aluminum, and uranium) and by 30% for other metals; and
  • The introduction of a 0% mineral extraction tax rate for a period of 60 months from the commencement of production after 31 December 2022 for the exploration and development of new deposits.

In addition to the above, Law No. 135-VII also establishes a new progressive schedule of rates for the fee for digital mining of cryptocurrencies. The progressive schedule is more specific than the schedule previously reported based on the average electricity price per KWh (price per KWh - fee per KWh):

  • up to KZT 1 - KZT 25 fee
  • over KZT 1 up to 2 - KZT 24 fee
  • over KZT 2 up to 3 - KZT 23 fee
  • over KZT 3 up to 4 - KZT 22 fee
  • over KZT 4 up to 5 - KZT 21 fee
  • over KZT 5 up to 6 - KZT 20 fee
  • over KZT 6 up to 7 - KZT 19 fee
  • over KZT 7 up to 8 - KZT 18 fee
  • over KZT 8 up to 9 - KZT 17 fee
  • over KZT 9 up to 10 - KZT 16 fee
  • over KZT 10 up to 11 - KZT 15 fee
  • over KZT 11 up to 12 - KZT 14 fee
  • over KZT 12 up to 13 - KZT 13 fee
  • over KZT 13 up to 14 - KZT 12 fee
  • over KZT 14 up to 15 - KZT 11 fee
  • over KZT 15 up to 16 - KZT 10 fee
  • over KZT 16 up to 17 - KZT 9 fee
  • over KZT 17 up to 18 - KZT 8 fee
  • over KZT 18 up to 19 - KZT 7 fee
  • over KZT 19 up to 20 - KZT 6 fee
  • over KZT 20 up to 21 - KZT 5 fee
  • over KZT 21 up to 22 - KZT 4 fee
  • over KZT 22 up to 23 - KZT 3 fee
  • over KZT 23 up to 24 - KZT 2 fee
  • over KZT 24 - KZT 1 fee

It is also provided that when using own electricity, the fee rate is equal to KZT 10 per KWh. However, when using own electricity from renewable energy sources, a rate of KZT 1 per KWh applies regardless of the electricity price. Lastly, it is provided that in the absence of control devices for metering the volume of electricity consumption for the purpose of digital mining, the fee is calculated at a rate of KST 25 per KWh.