Legal Alert: January-March 2020

SIGNUM regularly provides Legislative/Regulatory Alerts to keep Clients informed about important laws and regulatory changes in the Republic of Kazakhstan (“RK”). This Alert includes recent developments introduced in January-March 2020 related to:

1. COVID-19 Response in Kazakhstan

• Tax Benefits and Relieves

• Support Measures for Business and Citizens

• Changes in Government Procurement Procedure

• Import/Export Restrictions

• Price Caps for Food Supplies and Essentials

2.\tChanges in Procurement Procedure for Subsoil Users and their Subcontractors

3.\tDouble Taxation Treaty with the Cypress Republic
4.\tAmendments to the Tax Code
5.\tThe Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting

1. COVID-19 Response in Kazakhstan

Due to the COVID-19 pandemic, in March 2020 Kazakh Government has passed a series of legislative acts concerning all spheres of life in the country. The state of emergency was declared starting on March 16^[1]. Major cities like Nur-Sultan, Almaty, and Shymkent were put in quarantine, which subsequently spread to other regions. The activities of all organizations, with the exception of medical institutions, food and essential goods suppliers, drugstores, as well as state authorities, were suspended until April 30. The Government of Kazakhstan has taken measures supporting the private business that suffers significant losses due to restrictions imposed.

Tax Benefits and Relieves

• Reduced 8% VAT on essential food supplies until October 1, 2020;

• The producers of gasoline (except for aviation fuel), diesel to be exported are exempted from excise taxes until December 31, 2020;

• 0% Property Tax to companies and individual entrepreneurs on real estate used for tourism, catering, and hospitality services for the year 2020.

Micro, small and medium businesses defined in accordance with the Entrepreneurial Code were granted the following benefits until June 1, 2020:

• Deadlines for the payment of all taxes including social payments were extended;

• Collection of the overdue taxes and customs duties as well as social payments was suspended except for the high risk tax payers;

• Deadlines on tax violations notices received during the state of emergency (from March 15 through April 15 of 2020) were extended except for the high-risk taxpayers;

• All tax audits are suspended for the duration of the state of emergency (the suspension period is not included in the term of audit)^[2].

In addition, 0-rates will be applied to the following taxes and taxpayers until December 31 of 2020:

1)\tProperty tax for legal entities and private entrepreneurs on major shopping malls, movie theaters, exhibitions, sports and wellness facilities;

2)\tLand tax for agricultural lands for agricultural producers;

3)\tIndividual income tax for private entrepreneurs operating under the general tax regime.

For taxpayers specified in clauses 1) and 2), penalties for all overdue taxes are postponed until August 15 of 2020. The deadlines on tax reports are moved to Quarter 3 of 2020^[3].

Support Measures for Business and Citizens

During the emergency, all banks, organizations performing some banking operations, and micro-financial organizations:

1)\tDo not accrue any interest under agreements of bank loans and (or) microcredits to individuals for which payment of the principal or interest is overdue for 90 (ninety) calendar or longer. The requirement of this subclause does not apply to bank loans and (or) microcredits agreements, if at the moment of their signing the principal was fully secured by a pledge of the property subject to registration and (or) pledge of money.

2)\tDo not accrue any penalties for any overdue payments of principal and (or) interest under agreements of bank loans and (or) microcredits for:

• Individuals;

• Legal entities which financial condition was jeopardized by the state of emergency;

3)\tProvide deferral of payments under bank loan and (or) microcredit agreements, including payments on principal and (or) interest, for up to 90 (ninety) calendar days to individual entrepreneurs and small and medium-sized enterprises, whose financial condition has jeopardized by the state of emergency;

4)\tAnalyze the financial condition of individuals and make decisions on additional support measures, including deferred payments under bank loan and (or) microcredit agreements such as payments on principal and (or) interest including individuals, who lost their jobs or other sources of income, as well as experiencing other financial difficulties. The requirement of this subclause applies to bank loan and (or) microcredit agreements signed before March 18 of 2020^[4].

Changes in Government Procurement Procedure

During the state of emergency, government procurement is subject to special procedures applied to:

1)\tTo purchases of the goods, works, and services, including goods of the state material reserve, determined by the Interdepartmental Commission on Government Procurement, created by order of the Prime Minister (hereinafter - the Commission);

2)\tTo purchases of the goods, works, and services, determined by the Commission, including purchases for investment projects financed by the state budget

Special procedures for these purchases are carried out in one of the following ways:

• request for price offers;

• from single-source.

The purchaser has a right to choose the method of government procurement in accordance with this Procedure^[5].

Import/Export Restrictions

The Minister of Energy banned the import of gasoline, aviation and diesel fuel (HS codes 2710 12 41 - 2710 12 590 0, 2710 19 210 0 - 2710 19 290 0) from the Russian Federation by the railroad for 3 months.

Price Caps for Food Supplies and Essentials

Retail price caps are imposed by the administrations of the capital, cities of republican significance, and regions.

Retail price caps for goods are determined, taking into account the following criteria:

1)\tthe total projected increase in prices for goods for 2020 should not exceed 10%;

2)\tan increase in the price of goods for the period preceding the state of emergency from the beginning of the current year;

3)\tprices of Kazakhstani producers of the same goods.

The authorized body of state statistics carries out weekly monitoring of prices for goods.

2. Changes in Procurement Procedure for Subsoil Users and their Subcontractors

The Procurement Rules for subsoil users and their contractors of the goods, works, and services in the exploration or production of hydrocarbons and uranium mining were amended.
The procedure for acquiring from a single-source now also applies to goods of Kazakh origin, which is confirmed by a certificate of origin of goods of the CT-KZ form or an industrial certificate issued by Atameken, the National Chamber of Entrepreneurs of the Republic of Kazakhstan.

1. Double Taxation Treaty with the Republic of Cyprus

Kazakhstan has ratified the Convention with the Republic of Cyprus on the Avoidance of Double Taxation and the Prevention of Tax Evasion in Respect of Income taxes, including taxes on transactions with movable and immovable property, taxes on the total amount of salaries or wages, as well as capital gains. Taxes paid in the resident state could be credited against the taxed levied in the counterpart state.

4. Amendments to the Tax Code

According to the latest amendments to the Tax Code, any amendment providing for new taxes and (or) any other payments to the budget, increasing of the tax rates, changing the object of taxation and (or) the tax base, expanding the categories of taxpayers (tax agents), canceling or decreasing the deduction or benefit for paying any taxes and payments to the budget, shall be adopted no more than once a year and no later than July 1 of the current year and entered into force no earlier than January 1 of the year following the year of their adoption.

5. The Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting

Kazakhstan has ratified the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting. This Convention will help reduce budget losses associated with aggressive tax planning and transferring profits to the jurisdictions where it is not taxed or taxed at a reduced rate. According to the principles of the Convention, profits should be taxed at the place of the main economic activity, as a result of which profit is generated, and additional value is created.  

1. President Decree No.285 dated March 15, 2020, On the State of Emergency in the Republic of Kazakhstan.
2. Decree of the Government of the Republic of Kazakhstan No. 141 dated March 27, 2020, On Measures for Realization of the President Decree No.287 dated March 15, 2020, On the Further Measures for Stabilizing of the Economy Related to the Tax Policy.
3. Decree of the Government of the Republic of Kazakhstan No. 126 dated March 20, 2020, On Measures for Realization of the President Decree No.287 dated March 15, 2020, On the Further Measures for Stabilizing of the Economy.
4. Executive Board Decree of the Agency of the Republic of Kazakhstan On Regulation and Development of the Financial Market No.17 dated March 22, 2020, On Supoort Measures to Citizens and Business Entities During the State of Emergency.
5. Decree of the Government of the Republic of Kazakhstan No. 127 dated March 20, 2020, On Special Procedures for the Government Procurement.