The code includes some key changes in the taxation of dividends, interest, and capital gains.

Kazakhstan adopted a new tax code (Tax Code) on 25 December 2017. Most provisions of the Tax Code came into force on 1 January 2018, with few others taking effect on later dates.

This LawFlash sets out the main provisions of the Tax Code in respect of taxation of dividends, interest, and capital gains.

1. Key Changes

In general, the Tax Code did not significantly change the taxation regime in respect of dividends, interest, and capital gains. Key changes include the following::

  • Previously it was necessary for the shareholder itself to have held the shares for three years to qualify for the exemption from tax on dividends and capital gains, but it is now possible to count the period of ownership of previous owners where there has been a corporate reorganization (the old tax code did not allow counting the period of ownership of previous owners)
  • Some companies are eligible for 100% corporate income tax reduction, e.g., by virtue of a tax incentive. Under the old tax code, the dividend tax exemption (three-year holding) did not apply to such companies. The Tax Code now allows the application of the dividend tax exemption for such companies, provided the share of the exempt corporate income tax in the overall corporate income tax of the company paying dividends is less than 50%
  • Non-Kazakhstan individuals will not be able to apply the capital gains tax exemption when selling shares in a foreign stock exchange (such exemption was available under the old tax code)

2. General Overview of the New Taxation Regime in Respect of Dividends, Interest, and Capital Gains

Taxation of Dividends

The main provisions on taxation of dividends in accordance with the Tax Code are the following:

  • Individuals (Kazakhstan residents):
    • Dividends are subject to taxation at source. If, for example, a Kazakhstan legal entity pays dividends to an individual, then the legal entity should withhold the tax at source (Chapter 36, Paragraph 1; Art. 327)
    • Dividends that are not taxed at source, such as those received from abroad, are subject to self-reporting and self-taxation by the individual (Art. 338)
    • The tax rate on dividends is 5% in relation to dividends received from Kazakhstan sources (Art. 320.2) and 10% in relation to dividends received from abroad (Art. 320.1)
    • There is a tax exemption in relation to dividends on securities that are listed in the official list of a Kazakhstan stock exchange (Art. 341.1(7))
    • There is a three-year tax exemption rule (i.e., exemption from tax once the shares have been owned for more than three years) (Art. 341.1(8))
  • Individuals (non-residents of Kazakhstan. Reference hereinafter to “non-residents” means non-residents that do not carry out activity in Kazakhstan through a permanent establishment):
    • When paying dividends to an individual, the payer (Kazakhstan legal entity) should withhold the tax at source (Arts. 644.1(10), 645.1)
    • The tax rate is 15% (general rate) (Art. 646.1(5)) or 20% if the recipient of the dividends is resident in a black-listed jurisdiction (Art. 646.2); it is also possible to apply a reduced tax rate per the respective double tax treaty (however, under most treaties the reduced tax rate normally applies to legal entities only)
    • There is a tax exemption in relation to dividends on securities that are listed in the official list of a Kazakhstan stock exchange (654(3))
    • There is a three-year tax exemption rule (i.e., dividends are exempt from withholding once the shares have been owned for more than three years) (Art. 654(4))
  • Legal entities (Kazakhstan residents):
    • Dividends received by a legal entity are included in the aggregate annual income (Art. 226.1(16)); however, the aggregate annual income is further reduced by the received dividends (Art. 241.1(1)); therefore, the net effect is neutral
    • Dividends are not subject to taxation at source (when paid to legal entities (Kazakhstan residents)) (Art. 307.1)
  • Legal entities (non-residents of Kazakhstan):
    • When paying dividends to a non-resident legal entity, the payer (Kazakhstan legal entity) should withhold the tax at source (Arts. 644.1(10), 645.1)
    • The tax rate is 15% (general rate) (Art. 646.1(5)) or 20% if the recipient of the dividends is resident in a black-listed jurisdiction (Art. 646.2); it is also possible to apply a reduced tax rate per the respective double tax treaty (normally, to 5% or 10%). The reduced tax rate under the double tax treaty may be applied by the payer automatically
    • Dividends on securities that are listed in the official list of a Kazakhstan stock exchange are exempt from tax at source (Art. 645.9(3))
    • There is a three-year tax exemption rule (i.e., exemption from tax once the shares have been owned for more than three years) (Art. 645.9(4))

Taxation of Interest

The main provisions on taxation of interest are the following:

  • Individuals (Kazakhstan residents):
    • Interest is subject to taxation at source. If, for instance, a Kazakhstan legal entity pays interest to an individual, then the legal entity should withhold the tax at source (Chapter 36, Paragraph 1; Art. 327)
    • Interest not taxed at source, e.g., received from abroad, is subject to self-reporting and self-taxation by the individual (Art. 338)
    • The tax rate for interest is 10% (Art. 320.1) (both withholding and self-assessed)
    • There are various tax exemptions, e.g., in relation to interest on securities that are listed in the official list of a Kazakhstan stock exchange (Art. 341.1(7)); interest on state issued securities and agency bonds (Art. 341.1(4)) (i.e., bonds (notes) issued by finance agencies, e.g., Development Bank of Kazakhstan)
  • Individuals (non-residents of Kazakhstan):
    • When paying interest to a non-resident individual, the legal entity paying the interest should withhold tax at source (Arts. 644.1(11), 644.1(12), 645.1)
    • The tax rate is 15% (general rate) (Art. 646.1(5)) or 20% if the recipient of the dividends is resident in a black-listed jurisdiction (Art. 646.2); it is also possible to apply a reduced tax rate per the respective double tax treaty (normally, to 10%)
    • There are various tax exemptions, e.g., in relation to interest on securities that are listed in the official list of a Kazakhstan stock exchange (Art. 645.9(3)); interest on state issued securities and agency bonds (Art. 645.9(6))
  • Legal entities (Kazakhstan residents):
    • Interest is generally subject to taxation at source (Art. 307.1(4))
    • Certain types of interest are not subject to taxation at source, e.g., interest on state issued securities and agency bonds (Art. 307.2(1)); interest on debt securities that are listed in the official list of a Kazakhstan stock exchange (Art. 307.2(4))
    • The interest received is included in the aggregate annual income (Art. 226.1(17)) and the withheld amount is deducted when calculating the final amount of the corporate income tax (Art. 302.1)
    • The recipient of the interest may reduce its taxable income in respect of certain types of interest, e.g., interest on lease agreements (Art. 288.2(1)), interest on debt securities that are listed in the official list of a Kazakhstan stock exchange (Art. 288.2(2))
  • Legal entities (non-residents of Kazakhstan):
    • When paying interest to non-resident legal entities, the legal entity paying the interest should withhold the tax at source (Arts. 644.1(11), 644.1(12), 645.1)
    • The tax rate is 15% (general rate) (Art. 646.1(5)) or 20% if the recipient of the dividends is resident in a black-listed jurisdiction (Art. 646.2); it is also possible to apply a reduced tax rate per the respective double tax treaty (normally, to 10%)
    • There are various tax exemptions, e.g., in relation to interest on securities that are listed in the official list of a Kazakhstan stock exchange (Art. 645.9(3)); interest on state issued securities and agency bonds (Art. 645.9(6))

Taxation of Capital Gains

The main provisions on taxation of capital gains are the following:

  • Individuals (Kazakhstan residents):
    • Capital gains are not taxed at source; this means that the individual should self-report and pay the tax (Art. 330)
    • The tax rate for capital gains is 10% (Art. 320.1)
    • There are a number of tax exemptions, e.g., in relation to capital gains when selling securities listed on a Kazakhstan stock exchange (the securities must be sold via the so-called “open method” and must be listed in the official list of the stock exchange as of the date of the sale) (Art. 341.1(16))
    • There is a three-year tax exemption rule (i.e., exemption from tax once the shares have been owned for more than three years) (Art. 341.1(15))
  • Individuals (non-residents of Kazakhstan):
    • Capital gains from the sale of certain property (e.g., shares in Kazakhstan legal entities) is considered a Kazakhstan-source income (Art. 644.1(6))
    • The tax agent (normally, the buyer) should withhold and pay the tax to the state budget (Arts. 645.1, 650)
    • The tax rate is 15% (general rate) (Art. 646.1(5)) or 20% of the capital gains if the recipient is resident in a black-listed jurisdiction (Art. 646.2); it is also possible to apply a full exemption from the capital gains per a double tax treaty
    • There are various tax exemptions, e.g., in relation to capital gains when selling securities listed on a Kazakhstan stock exchange (the securities must be sold via the so-called “open method” and must be listed in the official list of the respective stock exchange as of the date of the sale) (Art. 654(6))
    • There is a three-year tax exemption rule (i.e., exemption from tax once the shares have been owned for more than three years) (Art. 654(6))
  • Legal entities (Kazakhstan residents):
    • Capital gains are included in the aggregate annual income (Art. 226.1(3)) and are subject to the general corporate income tax rate of 20%
    • There is a possibility to reduce the taxable income with respect to certain types of capital gains, e.g., capital gains from the sale of shares (participatory interest) in a legal entity or a consortium, provided the following conditions are met: (1) as of the date of the sale, the taxpayer has held the shares (participatory interest) for more than three years; (2) the legal entity (issuer) or the legal entity whose shares are being sold (or a party to the consortium selling its share in the consortium) is not a subsoil user in Kazakhstan; and (3) assets of the target entity (the legal entity (issuer) or the legal entity whose shares are being sold or the aggregate value of the assets of the consortium parties) do not include assets of persons that are subsoil users (for more than 50%) (Art. 288.2(8))
  • Legal entities (non-residents of Kazakhstan):
    • Capital gains from the sale of certain property (e.g., shares in Kazakhstan legal entities) is considered a Kazakhstan-source income (Art. 644.1(6))
    • The tax agent (normally, the buyer) should withhold and pay the tax to the state budget (Arts. 645.1, 650)
    • The tax rate is 15% (general rate) (Art. 646.1(5)) or 20% of the capital gains if the recipient is resident in a black-listed jurisdiction (Art. 646.2); it is also possible to apply a full exemption from the capital gains per a double tax treaty
    • There are various tax exemptions, e.g., in relation to capital gains when selling securities listed on a Kazakhstan stock exchange or a foreign stock exchange (the securities must be sold via the so-called “open method” and must be listed in the official list of the respective stock exchange as of the date of the sale) (Art. 645.9(7))
    • There is a three-year tax exemption rule (i.e., exemption from tax once the shares have been owned for more than three years) (Art. 645.9(8))

Summary Table on Dividends and Capital Gains