Legislative News. January-February 2018
This Client Update covers the key amendments to the laws of the Republic of Kazakhstan (‘RK’) and various legal developments introduced in January and February 2018.
NOVELTIES IN LEGISLATION
The laws covered by the present Client Update are related to both public and private sectors. Some of them may be of interest to you as they may affect your business in Kazakhstan.
We would like to draw your attention to the following legal acts.
INTERNATIONAL AGREEMENTS
Changes and Amendments to the Convention between the RK and Azerbaijan Republic on Avoidance of the Double Taxation and the Prevention of Fiscal Evasion
On 28 February 2018, the President of the RK signed the Law of the RK “On Ratification of the Protocol between the Republic of Kazakhstan and Azerbaijan Republic on Amendments to the Convention between the Republic of Kazakhstan and Azerbaijan Republic on Avoidance of the Double Taxation and the Prevention of Fiscal Evasion in Respect of Income and Property Tax dated 16 September 1996” (“the Protocol”).
Mainly, the Protocol amends the following articles of the Convention:
Taxes
The names of certain Kazakhstan and Azerbaijan taxes were revised as follows:
•\tIn the RK – income and property taxes of legal entities and individuals have been changed to corporate income tax and individual income tax;
•\tIn Azerbaijan Republic – taxes on profits and certain types of income of legal entities, individual income tax and property tax have been changed to profit tax on legal entities and income tax of individuals.
Residency
•\tThe definition of residency shall no longer include “organization created under the laws of the contracting state and exempt from tax in this state”;
•\tCriteria for attribution of residency status based on mutual agreement between the competent authorities of the RK and Azerbaijan Republic was introduced.
Permanent Establishment
•\tThe period for formation of a permanent establishment when rendering services was changed from «more than a 6-months’ period» to «period or periods over 6 months within any 12-months’ period»;
•\tAn insurance organization of one contracting state, save for reinsurance, shall be considered as having formed a permanent establishment in another contracting state, if it is engaged in collection of premium in another contracting state or insures risks in that state through a person other than an independent agent.
Interest
The Protocol sets out the list of the state representing persons – beneficial owners of interest, which are exempt from tax.
Income from Alienation of Property
The Protocol introduces taxation of income derived from alienation of shares, participation interests and other rights in the capital of a company which value of more than 50% is directly or indirectly connected with immovable property located in the other contracting state, in this other state.
Independent Personal Services
With respect to taxation of independent personal services in the country of residence, the article envisages one more exception. The income derived by the resident of one contracting state from independent personal services, must be taxed only in this contracting state save for the case when the resident is present in the other contracting state for a period or periods exceeding 183 days in aggregate within any period of 12 months.
Limitation of Benefits
A new article “Limitation of Benefits” was introduced, which provides for application of domestic laws of the parties upon detection of fiscal evasion or violations of the statutory rules.
The Protocol will come into effect on the 30th day from the date of receipt through diplomatic channels of the final written notification on execution by the parties of the enactment procedures as set out by the respective national laws of the RK and Azerbaijan Republic.
Convention between the RK and the Republic of India on Avoidance of Double Taxation and Fiscal Evasion in Respect of the Income and Capital Taxes
On 6 February 2018, the President of the RK signed the Law of the RK “On Ratification of the Protocol between the Republic of Kazakhstan and the Republic of India on Amendments to the Convention between the RK and Republic of India on Avoidance of Double Taxation and Fiscal Evasion in Respect of the Income and Capital Taxes dated 9 December 1996” (“the Protocol”).
The Protocol focuses on clarification and revision of taxation considering economic interest of the countries and provides for the following amendments to the Convention:
Taxes
“Income tax and property tax on legal entities and individuals” previously defined as Kazakhstan taxes to which the Convention applies, were changed to “corporate income tax” and “individual income tax”.
Permanent Establishment
•\tThe period for formation of a permanent establishment in case of availability of an installation or a structure used for exploration of natural resources or supervisory services connected therewith, or a drilling rig or ship used for exploration of natural resources, was changed from 12 months to 6 months;
•\tA permanent establishment will also be deemed to be formed upon furnishing services, including consulting services, through employees or other personnel engaged by the enterprise for such purpose, but only where activities of that nature continue (for the same or a related project) within the contracting state for a period or periods aggregating more than 90 days within any 12-months’ period.
Limitation of Benefits
A new article “Limitation of benefits” was introduced, which provides for application of domestic laws of the parties upon detection of fiscal evasion or violations of the statutory rules.
Assistance in Tax Collection
•\tThe Protocol provides for a detailed definition of the term “revenue claim” and sets out principles of enforcement and securing a revenue claim;
•\tCourt claims relating to existence, legality or amount of a revenue claim of the contracting state, shall not be initiated in a court or other administrative bodies of the other contracting state.
The Protocol will come into force from the date of receipt through diplomatic channels of the final written notification confirming execution by the contracting states of internal state procedures necessary for enactment of the Protocol.
Convention between the RK and Ireland on Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Income Taxes
On 29 December 2017, the President of the RK signed the Law No.130-VI ratifying the Convention between the Government of the RK and the Government of Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Income Taxes.
The Law came into force on 11 January 2018.
LAWS
Republican Budget
On 30 November 2017, the President of the RK signed the Law No.113-VI “On Republican Budget for 2018-2020”.
The Law sets out the following rates:
•\tMinimum wage rate – KZT 28,284;
•\tBasic state pension – KZT 15,274;
•\tMinimum pension – KZT 33,745;
•\tMonthly calculation index for calculation of allowances, other social payments, fines, taxes and other payments in accordance with Kazakhstan laws – KZT 2,405;
•\tLiving minimum wage for calculation of basic social payments – KZT 28,284.
As of 1 January 2018, age retirement and long service pension payments were increased for up to 8%.
The Law came into force on 1 January 2018.
Information and Communication
On 28 December 2017, the President of the RK signed the Law No.128-VI introducing amendments to the legal acts of the RK on information and communication (“the Law No. 128-VI”). The Law No. 128-VI envisages amendments to a number of statutory acts, namely:
1. The Administrative Code, among others, was amended as follows:
•\tAn authorized agency for information security was introduced (the Information Security Committee of the Ministry of Defense and Aerospace Industry of the RK), which considers administrative cases;
•\tLiability was introduced for dissemination of personal data and biometrics and other information which allows to identify the personality of a minor injured as a result of unlawful acts (failure to act) and also a suspect and (or) an accused of committing an administrative and (or) criminal offence, including the information about his/her parents and other legal representatives in mass media or telecommunication networks.
2. The Law of the RK “On Mass Media”, among others, was amended as follows:
•\tRegistration of an internet resource as online media is carried out on a voluntary basis;
•\tIssuance or distribution of a product of mass media registered by the authorized body can be suspended or terminated only by the decision of an owner or by the ruling of a court. The General Prosecutor is no longer entitled to suspend the access to an internet resource;
•\tMass media, when preparing, publishing, reproducing and distributing the product, is not required to obtain the consent of a person for the use of his/her image in the following cases:
•\tIf this person attends or takes part in cultural entertainment events, cultural events and sports events of public importance, rallies, processions or demonstrations and other public events;
•\tIf the distributed information contains an image of a person or information related to service and (or) public activities of this person or if the image was published by such person, his/her legal representative or an authorized person in public sources;
•\tIf the image of a person is used for protection of the constitutional system, the public order, the human rights and freedoms, health and public morals.
•\tA national or a legal entity is entitled to require mass media to refute false and damaging information.
3. The Law of the RK “On Communication”, among others, was amended as follows:
•\tIndividuals and legal entities are entitled to assign the right for temporary or permanent use of granted frequency bands, radio frequencies (radio frequency channels) to other individuals and legal entities in the following cases:
•\tJoint use of radio frequencies for production activities subject to the consent of the main user of radio frequency spectrum. A separate permission for use of radio frequencies spectrum is issued to each user;
•\tJoint use of radio frequencies allocated for organization of cellular network. A contract is executed for joint use of radio frequencies.
•\tCommunication services in Kazakhstan can be rendered by residents of the RK.
•\tOrganization of cellular network that requires use of spacecraft, appropriation (appointment) of frequency bands, radio frequencies (radio frequencies channels) is carried out only if such spacecraft is owned by residents of the RK and (or) foreign legal entities and service is delivered through branches and (or) representative offices of legal entities registered in the RK.
4. The Law of the RK “On Radio and Television”, among others, was amended as follows:
•\tOwners of foreign television and radio channels must register a legal entity or a branch (a representative office) of foreign legal entities;
•\tA certificate on state registration (re-registration) of a branch (representative office) of foreign legal entities in the RK is now among other application documents for registration of a foreign television, radio channel.
5. The Law of the RK “On Permits and Notifications”, among others, was amended as follows:
•\tThe operation of a radio electronic device and (or) a high-frequency device no longer requires special category 2 permit. Commencement or termination of the operation of the radio electronic means and (or) high-frequency devices is subject to notification.
The Law No. 128-VI came into force on 8 January 2018.
ORDERS
Preliminary Tax Audit Reports
On 12 January 2018, the Minister of Finance of the RK signed the Order No. 20 concerning the rules and terms for delivering a preliminary tax audit report to a taxpayer.
In addition to the taxpayers subject to monitoring and the taxpayers who concluded investment contracts, the rules for preliminary tax audit report now apply to taxpayers who, according to the preliminary tax audit report act, were assessed additional taxes and other obligatory payments to the budget, obligatory pension contributions, obligatory professional pension contributions, social deductions and (or) contributions to compulsory social health insurance for the amount exceeding 50,000-fold monthly calculation index.
The Order came into force on 19 February 2018.
Greenhouse Gas Emissions
On 28 June 2016, the Minister of Energy of the RK signed the Order No. 292 “On Approval of Rules on Issuance, Modification and Use of Quotes on Greenhouse Gas Emissions” (“the Rules”).
The Rules apply to operators of installations, emissions from which exceed 20 thousand tons of carbon oxide gas under the National Plan for Greenhouse Gas Emissions Quotes for 2018-2020.
According to the Rules, greenhouse gas emission trading previously suspended till 1 January 2018, will be resumed. The Rules also apply to natural resource users in oil and gas, electricity energy, mining, metallurgic, chemical and processing industries.
The Rules came into force on 1 January 2018.
State Registration of Legal Entities, Branches and Representative Offices
On 5 January 2018, acting Minister of Justice of the RK signed the Order No. 2 introducing amendments to the standards of state services for registration of legal entities, branches and representative offices (“the Order #2”).
The updated standards, in particular, provide for the following changes and amendments:
•\tThe state fee for registration of legal entities, branches and representative offices is cancelled. Previously, the amount of the state fee was 6.5 MCI[1];
•\tThe state fee for registration and re-registration, state de-registration of legal entities, including reorganization, account registration (re-registration), de-registration of branch and representative offices of small business entities was also cancelled. Previously, the amount of the state fee was 2 MCI.
The Order #2 came into force on 3 March 2018.
State Procurement
On 22 December 2017, the Minister of Finance of the RK signed the Order No 739
amending the state procurement rules (“the Order # 739”).
The Order #739 mainly provides for the following amendments to the procedure for state procurement in the sphere of construction:
Prohibition on making changes to the annual plan of state procurement for more than once a month does not apply to:
•\tState procurement by state enterprises, legal entities where 50% or more of voting shares (participation interests) belong to the state and its affiliates;
•\tExecution of prescriptions, notifications on elimination of violations detected as a result of controlling measures, including desk-top audits;
•\tState procurement resulting from adjustment of the respective budget under the laws of the RK.
The customers must design technical specifications in accordance with the national standards of the RK;
Minimum threshold for final assessment of technical specifications reduced from 11 to 8 points;
Minimum threshold for contingent reduction of bid proposals applicable to potential suppliers admitted to participate in the bid based on review for compliance with bid documentation requirements and assessment of technical specifications:
•\tIf final assessment of technical specification of the potential supplier makes from 10 to 15 points inclusive, the bid proposal of the potential supplier is conditionally reduced by 10%;
•\tIf final assessment of technical specification of the potential supplier makes from 16 to 20 points inclusive, the bid proposal of the potential supplier is conditionally reduced by 20%;
•\tIf final assessment of technical specification of the potential supplier makes more than 20 points, the bid proposal of the potential supplier is conditionally reduced by 30%.
Please note that construction activity in Kazakhstan is subject to licensing, and only companies with relevant licenses are allowed to participate in bids. Previous rules required an inadequate number of supporting documents, whereas currently a duly granted construction license serves as a document confirming human and material resources for state procurement in the construction sector.
The Order #739 came into force on 1 January 2018.
Transfer Pricing
On 15 December 2017, the Minister of Finance of the RK signed the Order “On Amendments to the Order of the Minister of Finance of the Republic of Kazakhstan № 176 dated 16 March 2015 “On Approval of Rules for Transactions Monitoring (“the Order #176”)”.
Amendments mainly concern the reporting forms for monitoring of transactions on export and import of goods (works, services). The given reporting forms are filed by the participants of international transactions on goods (works, services) which are subject to monitoring, with the State Revenue Committee of the Ministry of Finance of the RK no later than 15 May of the year following the reporting year. Completed forms on monitoring of transactions are filed electronically in the central tax reporting acceptance and processing system of the state revenue authorities.
Reporting forms on monitoring of transactions are certified by an electronic digital signature.
The submission date of electronic reporting on monitoring of transactions to the State Revenue Committee would be the date of its receipt by the central server of the tax reporting acceptance and processing system of the state revenue authorities indicated in the notification.
The Order #176 came into force on 4 February 2018.
DRAFT LAWS
Natural Monopolies
In January 2018, Dossier for the Draft Law of the RK “On Natural Monopolies (“the Draft Law”)” was presented.
The Draft Law, among others, proposes the following amendments:
•\tIntroduction of the concept of ‘stimulating method of tariff regulation’, which means the formation of tariffs depending on KPIs of a natural monopoly and compliance by such natural monopoly of quality and regulated service credibility indicators;
•\tIntroduction of the Tariff Policy Council, an advisory board for the authorized body aimed at discussing and making recommendations on major state policy directions in the sphere of natural monopolies;
•\tIntroduction of quality and regulated service credibility indicators, which means aggregate criteria for evaluation of regulated services of a natural monopoly, including quality and other features of the regulated service delivery to consumers.
Improvement of Entrepreneurial Activities Regulations
Majilis of the Parliament of the RK approved in its first reading the draft law “On Amendments to Certain Legislative Acts of the Republic of Kazakhstan on Improvement of Regulation of Entrepreneurial Activities” (“the Draft Law”). The Draft Law is aimed at reducing controlled areas and eliminating significant number of controlling functions of the government agencies. As such, the Draft Law envisages the following novelties:
•\tReducing the tax audit term (from 30 days to 15 days in relation to special procedure and preventive monitoring tax audits and from 30 days to 10 days in relation to unscheduled tax audits);
•\tIntroduction of preventive monitoring that does not imply initiation of administrative case as opposed to the current “detection and punishment policy”;
•\tRegulation of mandatory services rendered by natural monopolies and quasi-state entities to legal entities and individuals;
•\tChanges to the reporting procedure and avoiding double reporting and reducing administrative burden on business.
In addition to the foregoing, respective amendments are envisaged to the Business Code, the Environmental Code, the Budget Code, the Water Code, the Forest Code, the Code on Public Health and Health Care System, the Code on Administrative Violations, and many other current laws.
[1] As from 1 January 2018, the monthly calculation index (“MCI”) is KZT 2,405.
