On 21 December 2022, the Law on Amendments to the Tax Code of the Republic of Kazakhstan was adopted (Tax Code Amendments). 

Below, is a brief overview of several important changes that went into effect on January 1, 2023. They could affect certain aspects of doing business, as well as how entities interact with the tax authorities.

1. New taxation rules for nonresidents’ income

Additional requirements to be satisfied in order to apply a double-taxation treaty in relation to dividends, interest and royalties

Effective January 1, 2023, Article 667.1 of the Tax Code was amended to include several additional requirements that must be satisfied in order to apply a reduced withholding tax (WHT) rate under provisions of an applicable double-taxation treaty (as amended on the basis of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) on dividends, interest, and royalties paid to a related entity.

Namely, in addition to (i) the presence of a valid tax residence certificate and (ii) beneficial ownership requirements, the following new conditions should be met: 
(a) the respective income is included in the taxable income of the recipient (without the right to adjust or exempt this income) and 
(b) the nominal tax rate applicable to that income is not less than 15 percent. 

The term “nominal rate” means the tax rate stipulated in the legislation of a foreign state.

Based on our reading, the Law on Amendments to the Tax Code includes additional restrictions on applying the reduced WHT rate set out in applicable double-taxation treaties. Moreover, in our view these additional requirements conflict with the provisions of the double-taxation treaties themselves.

2. Important changes in remote controlling procedures 

New high-risk category for violation notifications 

Article 96.1 of the Tax Code was amended to include a new category of notification to be issued by the tax authority based on a remote (online) review of the taxpayer’s electronic invoices, if it reveals a “high-risk violation” (“high-risk violation notification”). 

In this case the Tax Code sets out a specific procedure for the (a) taxpayer’s response to such notification; and (b) specific enforcement measures. 

Under the amended version of Article 96.2 of the Tax Code, to dispute a high-risk violation notification, the taxpayer is obliged to provide (within 30 working days) a written explanation and “documents confirming the performance of the operation (transaction)” referred to in the notification. In such case, the notification is deemed to be fulfilled (it loses its legal force).

New measure to enforce high-risk violation notifications—suspension of eVAT invoices

Failure to fulfill the high-risk violation notification within the set deadline (either by remedying the violation or by providing an explanation of the disagreement) will result in the taxpayers having their ability to issue electronic VAT invoices suspended.

In such cases, under Article 120-1 of the Tax Code, the tax authority will within one working day suspend the eVAT invoices and send a notice to the taxpayer within one working day after the suspension. 

During the period of eVAT suspension, the taxpayer is obliged to issue paper-based VAT-invoices and then to issue a corresponding eVAT invoice within 15 calendar days from the lifting of the restriction.

Prior to the effectiveness of the Tax Code Amendments, the Tax Code had nothing like a “suspension of eVAT invoices.” 

Based on our reading, this measure applies only as the result of nonfulfillment of a high-risk violation notification. 

In our view, “suspension of eVAT invoices” will not be used in combination with a “suspension of operations on bank accounts,” which applies in relation to other categories of notifications.

List of grounds for recognition of a notification as unfulfilled is expanded

Before the Tax Code Amendments, tax authorities could only issue a decision stating that a notification was not fulfilled in the following cases: (i) the established deadline of 30 working days was missed; (ii) the explanation of the disagreement did not satisfy Tax Code requirements (e.g. missing supporting documents, etc.); (iii) the explanation of the disagreement was provided in cases where it is expressly prohibited (mainly in respect of sham transactions).

Under the amended version of Article 94.4 of the Tax Code, the tax authority may issue a decision on nonfulfillment of a notification in cases where the alleged violation was not eliminated or partially eliminated. 

In addition, specific requirements were included to clarify the list of compulsory documents that should be attached to an explanation in response to a moderate-risk violation notice (extracts from tax and accounting registers, primary documents).

In consideration of the above changes, it is likely that the tax authorities will tend to recognize notifications as unfulfilled—even when the taxpayers provide an explanation of the disagreement—until the alleged violation is eliminated. 

In our view this approach contradicts the nature of this form of control, which is intended to bring about a voluntary elimination of the mistake without the taxpayer assuming liability.