Simple Tax Guide for Americans in Kazakhstan
At Taxes for Expats we have been preparing U.S. tax returns for U.S. Citizens and green card holders working in Kazakhstan for over 8 years. Our clients hail from all parts of the country - Almaty and Karaganda, Chimkent and Taraz (Dzhambul), Astana and Aqtau.
As a U.S. Citizen or green card holder you are legally required to file a U.S. tax return each year regardless of whether you already pay taxes in your residence country.
We offer professional tax services. That means we figure out the best and most optimal way to file your U.S. tax return and avail you of all possible exclusions and deductions. But just as importantly - avoid the errors that would allow IRS to disallow your return and levy fines & penalties on top. You can also do them yourself - not that we recommend it. For more information please see IRS.
The expatriate Foreign Earned Income Exclusion can only be claimed if you file your tax return on a timely basis. It is not automatic if you fail to file and can even be lost.
We have many clients living in Kazakhstan and know how to integrate your U.S. taxes into the local income taxes you pay. Any Kazakh income tax you already pay can be claimed as against the tax liability on your U.S. return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the calendar year as is standard in Kazakhstan for U.S. tax purposes). You must, however, pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these form or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
We have helped hundreds of expats around the world catch up with their past U.S. taxes because they have failed to file U.S. tax returns for many years. This is, in fact, our specialty and we offer a 10% discount to clients to wish to file multiple tax returns at once and get in full compliance with the IRS.
Work with a recognized expert to help you prepare your American tax return. We can also provide tax planning and advice with other expatriate tax; we look forward to working with you.
Below we include information on the Kazakh Tax System for the American Expatriates.
Employment income is taxed at a flat rate of 10% for residents and nonresidents. Other income is taxed at 10% for residents and 20% for nonresidents.
Dividends and capital gains are taxed at 5% for residents and 15% for nonresidents.
Basis – Resident individuals are taxed on worldwide income. Nonresidents are taxed only on Kazakh-source income.
Residence – An individual is resident if he/she is present in Kazakhstan for 183 days or more in any consecutive 12-month period ending in the reporting tax year.
Tax Filing status – Joint filing is not permitted; each individual must file his/her own return, if required.
Taxable income – Kazakh-source income includes income from employment and other activities in Kazakhstan and any other benefits received in this respect, regardless of where paid. Taxable income is comprised of employment income (including benefits inkind), income from a business and passive income.
Capital gains – Income derived from the sale of property is treated as capital gain subject to taxation unless the individual has held the property for more than 1 year. Subject to certain exceptions, income derived from the sale of shares of a participation and securities is treated as a capital gain subject to taxation.
Tax Deductions and tax allowances – Standard monthly deductions are allowed for tax residents, such as minimum salary deduction (KZT 14,952 per month), obligatory pension fund contributions, medical costs, etc., with certain limitations.
Other taxes on individuals:
Capital duty – No
Stamp duty – No, but the authorities may impose a levy on various legal actions, such as for the issuance of documents by state bodies.
Capital acquisitions tax – No
Real property tax – Property tax is levied on immovable property located in Kazakhstan at progressive rates ranging from 1% to 1.5%, depending on the value of the property. Taxes on land and transport vary depending on specified factors.
Inheritance/estate tax – No
Net wealth/net worth tax – No
Social security – See under "Other taxes on corporations".
Administration and compliance:
Tax year – Calendar year
Filing and payment – Individual income tax on employment income is subject to withholding, payment and reporting by the employer. Payment is due by 25th of the month following the month the income was paid. Income and tax should be reported on a quarterly basis by the 15th of the second month following the reporting quarter.
In certain cases, when individuals receive income not taxed at source, a tax return must be filed by 31 March of the year following the reporting year, with the payment of final tax due by 10 April.
Penalties – Penalties apply for late payment of taxes and administrative fines are imposed for noncompliance.
Kazakhstan Corporate income Tax
The current Corporate Income Tax rate in Kazakhstan is 20%. The main rate of 20% applies to both domestic and foreign companies. Pursuant to the Tax Code before amendment, the Corporate Income Tax rate was to be reduced to 17.5% in 2010 and 15% in 2011. However, the Tax Code Amendments fix the Corporate Income Tax rate in Kazakhstan for 2010-2012 at the level of 2009, i.e. 20% until December 31, 2012. Then, the Corporate Income Tax rate will be reduced to 17.5% in 2013 and 15% in 2014.
Resident companies pay corporate income tax on their worldwide income, whereas non-resident companies pay tax on their income sourced in Kazakhstan.
A company is considered resident if it is established under Kazakhstan law or if it has its governing body or place of actual management in Kazakhstan.
Tax is charged on all business income generated in Kazakhstan and abroad (including capital gains) with relief for tax deductible expenses. The standard rate of corporate income tax for 2009-2012 is 20% and is expected to be reduced to 17.5% in 2013 and 15% in 2014. Companies whose main productive asset is land pay tax at a rate of 10% on profits from the direct utilisation of land.
The tax year is the calendar year. Annual income tax returns must be filed by 31 March following the end of the tax year. Companies are required to make advance payments of tax on a monthly basis.
CAPITAL GAINS TAX
Capital gains are taxed along with ordinary income.
BRANCH PROFITS TAX
Overseas companies with permanent establishments in Kazakhstan are required to pay corporate income tax on the profits generated by their permanent establishments. In addition, the overseas company is subject to a branch profits tax of 15% on its net (after tax) income. This rate may be reduced under the terms of international tax treaties.
OTHER TAXES IN KAZAKHSTAN
REAL ESTATE TAX
Real estate tax is payable by legal entities and individuals who own:
1) buildings and structures regarded as fixed assets or property investments under the international standards of financial reporting and Kazakhstan Law on accounting and financial reporting
2) buildings and structures that are the property of the state but which have been transferred temporarily into private ownership for the purposes of improvement.
The standard rate for legal entities is 1.5%. Individual entrepreneurs and legal entities applying the simplified regime are subject to the rate of 0.5%. Individual persons are subject to a tax of 0.05% to 1% on a progressive scale. The tax is paid on a quarterly basis, with the exception of individuals, who must pay by 1st October of the tax year in which the tax arose.
This is payable by individuals and legal entities owning land. The amount of tax is on a per hectare basis and is based on the quality, location and water supply of the land. A land tax return must be submitted to the local tax office by 31 March of the year following the year to which the return relates and quarterly tax payments are required.
SOCIAL TAX (PAYROLL TAX)
This is payable by all employers at a flat rate of 11%.
SOCIAL SECURITY CONTRIBUTIONS
Social security contributions are payable by the employer on employees' gross salary, subject to a maximum of 10 times the minimum monthly wage. The rates are 4% for 2009 rising to 5% from 2010.
DETERMINATION OF TAXABLE INCOME
Tax deductions are available for depreciation of fixed assets including intangible assets and investment properties.
SHARES / NET COST
Accounting for inventories for the purposes of taxation is performed in accordance with international standards of financial reporting and Kazakhstan Laws on accounting and financial reporting.
Dividends received from resident companies are not subject to corporate income tax (similarly, the payment of dividends is not tax deductible).
There is no withholding tax on dividends paid to non-residents or resident individuals providing that the following conditions are met:
- the shares on which the dividends are paid have been held for a period of not less than three years; and
- 50% or more of the share capital equity of the company paying the dividends is not owned by persons carrying on mineral extraction and other sub-soil mining activities in Kazakhstan.
Interest is generally deductible, although there is a general restriction, where the debt:equity ratio exceeds 9:1 for financial institutions or 6:1 for other entities (until 1 January 2012). This restriction applies to interest payable to related parties and persons incorporated in low-tax countries.
Trading and capital losses may be deferred for a period up to 10 years. Losses from the sale of shares and securities may be utilised against gains arising from the sale of such assets.
FOREIGN SOURCED INCOME
Overseas income and gains are taxable along with domestic income and gains under normal Kazakhstan tax rules. A controlled foreign company regime exists to attribute a proportion of the profits of overseas companies to Kazakhstan companies holding at least a 10% interest in the overseas company. These rules apply where the overseas company pays tax at not more than 10% or where there are confidentiality laws in the relevant foreign jurisdiction.
FOREIGN TAX RELIEF
The income taxes paid overseas by resident taxpayers on foreign-sourced income are creditable against corporate or individual income tax in Kazakhstan if the document certifying the payment of tax overseas is made available.
The amount available for offset is the lower of the following:
1) amount of overseas tax paid on foreign-sourced income overseas
2) amount of tax assessed in Kazakhstan on foreign-sourced income.
There are no special provisions relating to the taxation of groups of companies in Kazakhstan.
RELATED PARTY TRANSACTIONS
Certain transactionsare subject to transfer pricing rules which impose arm's length pricing for tax purposes. These include the following transactions involving a related party where:
1) the other entity is incorporated in a low-tax jurisdiction
2) the transaction is a barter transaction
3) where the other entity has recognised losses according to its tax returns for the two tax periods immediately preceding the year of transaction
4) where the other party benefits from tax incentives or preferential tax rates other than ordinary (if related to cross-border transactions)
5) transactions involving the off-set of debts
6) between related parties.
All income paid from Kazakhstan sources to non-resident persons, other than that attributable to a Kazakhstan permanent establishment, is subject to taxes. The relevant rates are as follows:
Insurance premiums (payable on policies insuring risks in Kazakhstan) 10%(1)
Insurance premiums (payable on policies reinsuring risks in Kazakhstan) 5%
International transport services 5%
All other income 20%(2)
(1) Expected to increase to 15% from 2010
(2) Expected to be reduced to 17.5% in 2013 and 15% in 2014 (this reduction does not apply to incomes of persons incorporated in low-tax jurisdictions).
Kazakhstan VAT Rate
The standard VAT rate in Kazakhstan is 12%. Certain exemptions exist for export, financial and other transactions.
Taxable transactions – VAT is levied on the supply of goods and services and imports. A reverse charge applies in certain cases.
VAT Registration – Registration is compulsory for companies whose turnover exceeds KZT 42,190,000 in a calendar year period. Otherwise, registration is optional.
Filing and VAT payment – Payment is due by the 25th of the month following the reporting quarter. VAT and related turnover should be reported on a quarterly basis by the 15th of the second month following the reporting quarter.