In this issue of our newsletter, we offer you an overview of changes to the Tax Code on limitation of deductibility of intragroup expenses and changes in dividend taxation. These changes came into force on 1 January 2023.
This newsletter is issued in continuation to our newsletter with an overview of the main changes in the tax legislation of Kazakhstan dated 28 December 2022.
Please note that there are more tax changes[1] that were not included into this newsletter. We hope that this overview will be useful in planning your business activities. We will be happy to discuss the tax changes upon your request.
Limitation of deductibility of intragroup expenses
Expenses on certain intangible services rendered by non-resident related parties should not be allowed for deduction for corporate income tax (CIT) purposes starting from 2023. This limitation covers the following services:
- Management
- Advisory
- Consulting
- Audit
- Design
- Legal
- Accounting
- Advocacy
- Advertising
- Marketing
- Franchising
- Financial (excluding interest expenses)
- Engineering
- Agency
- Royalty
- Rights to use intellectual property objects
These expenses should be allowed to reduce taxable income in total amount not exceeding 3% of taxable income.
For the purposes of this provision, the term “related parties” includes the following definitions in addition to those listed in Article 1 of the Tax Code:
- a legal entity that together with another legal entity is part of the same group of companies;
- individuals and/or legal entities with relations that have signs of interrelation, regardless of the conditions specified above. The tax authorities will be able to file a lawsuit in case a taxpayer does not accept the interrelation.
Group of companies is a structure of commercial and non-commercial organizations that includes a parent company and other companies. The parent company owns directly or indirectly shares, interests or other equity instruments in such companies.
We recommend to analyze your current service agreements with related non-resident parties for future tax planning.
Changes in dividend taxation
The tax legislation stipulates the following changes in dividend taxation:
Dividends of resident legal entities
- Dividend income should not be excluded from aggregate annual income for dividends received from securities registered in the official lists of stock exchanges in case of absence of active trading during the tax period;
- Aggregate annual income can be adjusted for dividend income paid by a legal entity that reduces CIT by 100% for activities allowed for such reduction.
The Government Decree[2] provides the following criteria for active trading:
- The volume of transactions with securities is at least KZT 25 mln per calendar month. Only executed transactions are considered;
- The number of transactions with securities is at least 50 transactions per calendar month.
Dividends of resident individuals
- Full exemption from personal income tax (PIT) for dividends under fulfilment of the certain conditions was canceled;
- Dividend income for up to 30k MCI (KZT 103.5 mln in 2023) from resident legal entities should be exempt from PIT;
- PIT exemption for dividends on securities registered in the official list of stock exchanges is applicable only for securities that are actively traded during the tax period;
- Tax rate for PIT on dividends was increased from 5% to 10%.
Dividends of non-residents
- Full tax exemption for dividends of non-residents was replaced by reduced tax rate of 10% upon fulfilment of the same conditions;
- Tax exemption for dividends on securities registered in the official list of stock exchanges is applicable only for securities that are actively traded during the tax period.
[1] The Law of Kazakhstan No. 135-VII dated 11 July 2022 “On Amendments and Additions to the Code of Kazakhstan “On Taxes and Other Mandatory Payments to the Budget”
[2] The Decree of the Government of the Republic of Kazakhstan No.911 dated 17 November 2022 «On criteria for trading in securities on the stock exchange»