Changes in Taxation of Non-residents
Vladimir Fesenko, Partner, Tax & Law Services, EY
Almira Abraimova, Senior Manager, Tax & Law Services, EY
Kazakhstan legislation is fairly advanced and recent taxation initiatives for both corporate income and personal income demonstrate that Kazakhstan is in many ways ahead of other post-Soviet countries.
For instance, the concept of taxation of income of foreigners at the level of the host local company acting as a tax agent in relation to income tax even for income paid outside Kazakhstan is widely developed in Kazakhstan.
This concept has a number of advantages in terms of tax administration, as it makes it easier to monitor the fulfilment of tax obligations and the required information can be requested directly from a local tax agent. Meanwhile, this approach places a certain burden on the business in relation to extended administrative procedures and enterprise economics.
Overall, almost any service agreement concluded with a foreign counterparty will above all mean that a Kazakhstani company-buyer shall pay special attention to the following issues:
- Direct and indirect income taxes of a non-resident company;
- Taxation of income of expatriate employees entering to work;
- Immigration compliance in relation to such workers.
In this article we review the purchase of services from foreign non-resident companies in more detail. For a better understanding of the current rules, it is necessary to analyze the amendments over time to the article governing the taxation of expatriate employees of third-party service providers.
Starting from 2009, Kazakhstan tax legislation has provided for two main principles of taxation of income of foreign citizens who are employees of non-resident companies rendering services in Kazakhstan:
- If an individual spends less than 183 days in Kazakhstan, his or her income is exempt from taxation. This provision is consistent with the general rules of international taxation as well as with the general principles of the Model Tax Convention.
- If an individual spends more than 183 days in Kazakhstan (i.e. has acquired tax resident status), his or her income becomes subject to tax in Kazakhstan through the Kazakhstan tax agent (services buyer).
Further, Kazakhstan tax legislation is rapidly changing and adapting to modern realities. A new Tax Code entered into force in Kazakhstan in 2018 — its structure and the content of certain articles were changed.