Introduction
Tax stability of subsoil use contracts
Subsoil use taxes
This update briefly summarises the taxes which specifically apply in Kazakhstan to oil and gas and mining operations. However, a number of additional taxes apply regardless of the nature of operations in the country.
Before January 1 2009 a subsoil user and the state could enter into either a concession-type subsoil use agreement or a production sharing agreement. The tax treatment of these agreements was different. It is generally no longer possible to enter into a production sharing agreement; concession agreements are the only type of subsoil use agreement available. However, earlier production sharing agreements remain in effect.
Before signature, a subsoil use contract must be submitted to the tax authorities for review by their tax specialists.
Tax stability of subsoil use contracts
Before the Tax Code was enacted, all subsoil use contracts were stabilised for tax purposes. Since the enactment of the code, the following subsoil use agreements are stabilised for tax purposes, provided that they contain a tax stabilisation clause:
- production sharing agreements which were entered into before January 1 2009 and which underwent review by the tax authorities; and
- contracts that receive or have received approval from the president.
The code purportedly eliminated the tax stability of all other subsoil use agreements, including almost all concession agreements.
Specific subsoil use taxes in Kazakhstan include the following.
Signature bonus
A signature bonus is a one-time payment to the state for the right to use the subsurface. The initial amounts of this tax are determined in the code based on estimations of reserves, the economic value of the deposit and certain other factors. The final amount of the signature bonus must be set out in the subsoil use contract.
Reimbursement of historical costs
Subsoil users must compensate the state for expenses related to geological exploration and construction of deposits.
Commercial discovery bonus
A commercial discovery bonus is a fixed payment that is payable by subsurface users when a commercial discovery is made in the contract territory. The rate of the bonus is 0.1% of the value of proven extractable reserves.
Minerals extraction tax
A minerals extraction tax is the main tax that is intended to compensate for the reduction in the rate of corporate income tax.
For mining companies, the tax is generally payable on the average exchange price of extracted minerals (as quoted by specified publications). The rates for mining companies range from 0.25% to 22%, depending on the type of mineral.
For oil and gas companies, the taxable base is generally the average world price of produced crude oil and gas condensate (as quoted by specified publications). The rates for oil and gas companies range from 5% to 18%, depending on the amounts of oil produced. If oil is sold in Kazakhstan for specified purposes (eg, to local refineries), the amount of tax will be reduced by 50%.
Excess profits tax
An excess profits tax is payable annually in respect of the net income under a specific subsoil contract exceeding 25% of cumulative deductions (for corporate income tax purposes) and certain other expenses. The tax rates are on a sliding scale from 0% to 60%.
Rent export tax
Rent export tax is payable by exporters of crude oil, gas condensate and coal, except for companies operating under production sharing agreements. Rent export tax ranges from 7% to 32% of the world market price of exported oil (as quoted by specified publications).
For further information on this topic please contact Igor Kolupayev at Baker & McKenzie CIS by telephone (+7 495 787 2700), fax (+7 495 787 2701) or email ([email protected]).