Monthly Legal Alert: March-April-May 2024
SIGNUM regularly publishes reviews to inform Clients about important regulatory changes in the Republic of Kazakhstan (hereinafter – RK). This review includes the latest developments adopted in March 2024 on the following issues:
• Medicine
• Tax administration for individuals providing services using internet platforms
• Transfer pricing
• Gambling business
• Standard contracts for subsoil use
• Kazakhstan-Egypt Double Taxation Convention
• Digital asset valuation
• Qualification requirements for managing an apartment building
1. Medicine
Registration of Medical Devices
On March 18, 2024, an amendment to the "Agreement on Unified Principles and Rules for the Circulation of Medical Devices within the Eurasian Economic Union" was ratified:1
Extension of the application period for the examination or registration of medical devices
The document allows applications for the examination or registration of medical devices to be submitted until December 31, 2025, in accordance with the Union’s regulatory acts or the legislation of the member states of the Eurasian Economic Union. Previously, this deadline was set to December 31, 2022, and from the beginning of 2023, it was assumed that the registration of medical devices would be carried out only according to the unified Union legislation. The extension provided by this act gives member states time to improve the system necessary for the transition to the unified registration of medical devices.
Professional Liability Insurance for Medical Workers
Amendments2 have been made to legislative acts related to medical activities. Specifically, professional liability insurance for medical workers is being introduced, as well as measures aimed at supporting medical workers. Professional liability insurance for medical workers is carried out on the basis of a co-insurance agreement concluded between the healthcare entity and the participants of a single insurance (reinsurance) pool. Healthcare entities are required to conclude a professional liability insurance co-insurance agreement before medical workers engage in medical activities. Minimum insurance premiums and insurance payments under the professional liability insurance co-insurance agreement are established. Professional liability insurance for medical workers is provided at the expense of the healthcare entity.
2. Tax Administration for Individuals Providing Services Using Internet Platforms
Amendments were made to the Rules3 and terms for implementing the pilot project on applying a different tax administration procedure for individuals providing services using internet platforms, defining the implementation of the pilot project.
What are these Rules?
The pilot project provides for the registration and administration of individuals providing services using an internet platform.
The tax agent, in terms of fulfilling obligations for withholding and remitting individual income tax (hereinafter - IIT), mandatory pension contributions (hereinafter - MPC), mandatory employer pension contributions (hereinafter - MEPC), social contributions (hereinafter - SC), and contributions for mandatory social health insurance (hereinafter - MSHIC), is the internet platform operator - an individual entrepreneur or a legal entity providing technical, organizational, informational, and other opportunities using information technologies and systems for establishing contacts for providing services between performers and customers registered on the internet platform.
The operator is not required to submit the corresponding tax reporting forms (Form 200.00) to reflect the obligations of performers for IIT and social payments.
The amount of IIT is calculated at 1% of the performer’s income (without considering expenses).
If the performer’s income for the month is below the minimum wage (85,000 tenge in 2024), a deferral for the payment of IIT for that month is provided for one calendar month without considering the provisions of Article 51 of the Tax Code. The deferral can be granted up to four times within one calendar year.
For registration as a performer, an individual undergoes an online registration procedure on the internet platform.
Extension of the pilot project
The pilot project period was extended by 1 year. The new deadline is December 31, 2024.
Transition to Special Tax Regime (STR) using a mobile application
According to the new edition, individuals who apply other special tax regimes (hereinafter - STR) and conduct only activities falling under STR using a mobile application have the right to submit a notification of transition to STR using a mobile application, notwithstanding paragraph 2 of Article 679 of the RK Tax Code.
3. Transfer Pricing
In accordance with the new law, amendments and additions were made to the Entrepreneurial Code and the RK Law "On Transfer Pricing" aimed at improving transfer pricing in international business transactions.4
The law provides the following additions and changes:
Definitions
Price Range - a range of market prices determined in accordance with the arm's length principle under comparable economic conditions, established in the manner provided by the RK Law "On Transfer Pricing."
Arm's Length Principle - a principle used to determine the market price considering the price range (margin, profitability) based on comparing the conditions of transactions between related parties with those between independent parties conducting transactions at market prices.
Median Value - the value located in the middle of an odd number set or the arithmetic average of two middle numbers in an even number set.
Market Profitability - profitability achieved under comparable economic conditions, determined in accordance with the arm's length principle.
Profitability - a financial indicator used for applying methods specified in the RK Law "On Transfer Pricing," determined based on accounting and/or financial reporting data.
General Regulation
The state regulates prices in international business transactions and deals associated with international business transactions arising from transfer pricing.
Control over transfer pricing is carried out on transactions between parties with different corporate income tax rates.
For transactions with related parties, adjustments to taxable items and/or tax-related items when the transaction price deviates from the market price, determined as the median value from the price range indicated in the information source, are made by the authorized body based on the results of a tax audit.
The choice of an appropriate method must be justified, considering the degree of comparability of controlled and uncontrolled operations, including the reliability of adjustments to achieve comparability.
Related Parties
Related parties are individuals and/or legal entities with special relationships influencing the economic outcomes of transactions (operations) between them. Such special relationships include the following conditions:
A person manufactures or trades products using intangible assets and/or intellectual property rights of another person and its related party, for which it must make payments totaling more than fifty percent of the initial cost (or cost) of such products.
A person and/or its related party supply more than fifty percent of the total cost of raw materials, materials, or initial products (excluding depreciation costs of fixed assets) used by another person to produce finished products.
A person and/or its related party generate more than fifty percent of another person’s revenue for the reporting calendar year from transactions that are international business operations.
A person's total debt to another person at the time of the transaction or revision of the transaction’s main conditions exceeds fifty percent of its own capital, or at least ten percent of the total debt at the end of the reporting calendar year is guaranteed by another person, except in cases where one of the persons is an independent international financial organization or a state institution of a foreign state, as well as cases where one of the persons has a license to conduct banking and other operations issued in the Republic of Kazakhstan or a foreign state.
A person granted rights for the reporting calendar year as an agent, distributor, or dealer of a company for purchasing or selling goods (works, services) under a written agreement.
Price Range and Profitability Range (Margin) Determination Procedure
Price and profitability (margin) ranges are determined as follows:
When the number of market price and/or market profitability (margin) values used to apply the specified methods equals one value, the range is equal to that market price or profitability (margin) value.
When the number of market price and/or market profitability (margin) values used to apply the specified methods does not exceed three values, the range is determined as the range from the minimum value to the maximum value inclusive of such market prices and/or market profitability (margin).
When the number of market price and/or market profitability (margin) values used to apply the specified methods equals four or more values, the range is determined as the range between the twenty-fifth and seventy-fifth percentiles inclusive, calculated based on the used market price or profitability (margin) values.
Market price values are calculated using the same information source.
Financial data for three consecutive calendar years preceding the calendar year in which the analyzed transaction was conducted are used for calculating the profitability (margin) range.
Profitability Determination Procedure
Gross Profitability of Costs - the ratio of gross profit from the sale of goods (works, services) to the cost of goods sold (works, services).
Gross Profitability of Sales - the ratio of gross profit from the sale of goods (works, services) to the revenue from the sale of goods (works, services), excluding excise and value-added taxes.
Operating Profitability of Costs - the ratio of operating profit from the sale of goods (works, services) to the sum of the cost of goods sold (works, services) and commercial and administrative expenses related to the sale of goods (works, services).
Operating Profitability of Sales - the ratio of operating profit from the sale of goods (works, services) to the revenue from the sale of goods (works, services), excluding excise and value-added taxes.
Operating Profitability of Assets - the ratio of operating profit from the sale of goods (works, services) to the current market value of the used assets or, in the absence of current market value information, to the value of the assets according to accounting (financial) reporting data.
The main goal of these amendments is to ensure fair market pricing and prevent revenue loss to the state budget, as well as to reduce administrative costs for both the controlling authorities and taxpayers in transfer pricing control.
4. Gambling Business
The Minister of Finance of the RK approved:5
Rules for the transmission of information through the integration of hardware and software systems of gambling business organizers operating betting offices and/or totalizators with the information systems of state revenue authorities;
Procedures for the transmission of information to be transmitted through the integration of hardware and software systems of gambling business organizers operating betting offices and/or totalizators with the information systems of state revenue authorities;
Form of information to be transmitted through the integration of hardware and software systems of gambling business organizers operating betting offices and/or totalizators with the information systems of state revenue authorities.
These rules are developed in accordance with paragraph 28 of Article 26 of the Tax Code and define the procedure for integrating hardware and software systems of gambling business organizers operating betting offices and/or totalizators with the information system of state revenue authorities to ensure automated interaction for information transmission.
5. Standard Contracts for Subsoil Use
The Minister of Energy of the RK issued amendments to the following standard contracts:6
1) For exploration and production of hydrocarbons;
2) For production of hydrocarbons;
3) For production of uranium;
4) For exploration and production of hydrocarbons in complex projects;
5) For production of hydrocarbons in complex projects.
General changes for all contracts:
Clarified contract terms and extension procedures, registration procedures for contract amendments.
Clarified spatial boundaries of subsoil plots and procedures for their modification and return.
Expanded the rights of the Competent Authority for early termination, modification of terms, and compliance monitoring of contracts.
Clarified the Competent Authority's obligations for extending contract terms and transforming subsoil plots.
Clarified subsoil users' rights to use subsoil, construct facilities, appoint operators, and attract foreign labor.
Introduced obligations for annual funding of Kazakhstani personnel training, regional socio-economic development, and research.
Introduced obligations to develop and agree on a program for replacing foreign personnel with Kazakhstani personnel within 12 months.
Clarified requirements for subsoil and environmental protection, including monitoring subsoil conditions and controlling field development.
Clarified tax obligations and exemptions from export customs duties.
Clarified procedures for procuring goods, works, and services, with a mandatory focus on developing local suppliers.
Introduced obligations for the share of local content in works and services.
Clarified procedures for liquidation of subsoil use consequences, securing obligations with a bank deposit pledge, and conservation of subsoil plots.
Clarified accounting and reporting requirements for various aspects of subsoil use.
Clarified conditions for transfer and encumbrance of subsoil use rights, including the state's priority right to acquire subsoil use rights.
Clarified rights to ownership of extracted hydrocarbons and property, as well as geological information.
Clarified notification procedures and actions in case of force majeure.
Clarified confidentiality conditions, disclosure exceptions, and protection of confidential data.
Clarified dispute resolution procedures, including arbitration agreements and arbitration venues.
Clarified procedures for contract amendments and termination, early termination consequences, and contract termination outcomes.
Additional contract-specific changes:
Contract for Hydrocarbon Production:
Introduced additional obligations for supplying oil for processing within Kazakhstan.
Introduced obligations for developing local suppliers and regional socio-economic development.
Contract for Exploration and Production of Solid Minerals:
Introduced changes to the monitoring and reporting procedure for environmental and social obligations.
Clarified subsoil protection conditions and obligations for restoring disturbed lands.
Contract for Uranium Production:
Clarified radiation safety and environmental protection requirements.
Introduced obligations for disposal of radioactive waste and restoration of territories.
6. Kazakhstan-Egypt Double Taxation Convention
A draft Convention7 between the Government of the RK and the Government of the Arab Republic of Egypt on the elimination of double taxation and the prevention of tax evasion and avoidance regarding income taxes has been approved.
According to the draft Convention, income taxes include all taxes levied on total income or elements of income, including taxes on income from the disposal of movable or immovable property, taxes on the total amount of salaries or wages paid by enterprises, and taxes on capital gains. The Convention applies to persons who are residents of one or both contracting states. The existing taxes to which this Convention applies are:
In the Republic of Kazakhstan:
Corporate income tax;
Individual income tax;
In the Arab Republic of Egypt:
Personal income tax, including:
Income from salaries and wages;
Income from commercial and industrial activities;
Income from professional activities (independent personal services);
Income from real estate;
Corporate profit tax;
Withholding tax at source;
Additional taxes levied as a percentage of the above-mentioned taxes or otherwise.
7. Digital Asset Valuation
Rules8 for determining, publishing the value of digital assets, and the list of their types have been approved. According to the rules, the value of digital assets is determined by the Committee of State Revenues of the Ministry of Finance of the RK daily on a business day when CoinMarketCup conducts digital asset trading. For the value of digital assets specified in the list of digital asset types whose value is subject to publication, the Committee takes the weighted average value of digital assets formed based on the daily results on CoinMarketCup. On non-business days, the value of digital assets determined on the business day preceding the non-business day applies. The value of digital assets for the purpose of determining the income of a person from digital mining, digital mining pool, and digital asset exchange activities is determined on the date the digital assets are received. Digital assets with a fixed value in foreign currency are converted into the national currency of the RK using the exchange rate determined by the National Bank of the RK on the date the digital assets are received.
8. Qualification Requirements for Managing an Apartment Building
The Minister of Industry and Construction of the RK approved the qualification requirements[9] for managing an apartment building. Qualification requirements include the following:
Secondary professional, higher, or postgraduate education in specialties: law, social sciences, economics and business, humanities, technical sciences and technologies;
Knowledge of the current legislation of the Republic of Kazakhstan (Civil Code of the Republic of Kazakhstan, Code of Administrative Offenses of the Republic of Kazakhstan, Labor Code of the Republic of Kazakhstan, laws of the Republic of Kazakhstan "On Housing Relations," "On Natural Monopolies," "On Architectural, Urban Planning, and Construction Activities in the Republic of Kazakhstan" and other regulatory legal acts of the Republic of Kazakhstan and acts of state bodies regulating production and economic, financial and economic, and housing and communal activities);
Skills in making and implementing management decisions, planning work and control, conducting business negotiations, public speaking, analyzing and forecasting the consequences of management decisions, organizing work with government bodies and utility service providers, practical application of regulatory legal acts, developing organizational and administrative documents, working with official documents, and proficiency in computer and other office equipment, as well as meeting the requirements of the professional standard "Management of Residential and Non-Residential Buildings";
Completion of training or self-preparation and obtaining a document confirming the qualification for performing condominium management functions, issued by an accredited organization in the field of conformity assessment or centers conducting independent certification of specialists’ qualifications.
- Law of the Republic of Kazakhstan dated 18 March 2024 No. 66-VIII “On Ratification of the Protocol on Amendments to the Agreement on Unified Principles and Rules for the Circulation of Medical Devices (Medical Products and Medical Equipment) within the Eurasian Economic Union dated 23 December 2014.” Entered into force on 18 March 2024.
- Law of the Republic of Kazakhstan dated 19 April 2024 No. 74-VIII “On Introducing Amendments and Additions to Certain Legislative Acts of the Republic of Kazakhstan on Healthcare Issues.” Will be entered into force on 23 October 2024.
- Order of the Minister of Finance of the Republic of Kazakhstan dated 14 March 2024 No. 141 on Amendments to the Order of the Deputy Prime Minister - Minister of Finance of the Republic of Kazakhstan dated 17 January 2023 No. 33 “On Approval of the Rules and Terms for the Implementation of the Pilot Project on the Application of an Alternative Tax Administration Procedure for Individuals Providing Services Using Internet Platforms.”. Entered into force on 16 March 2024.
- Law of the Republic of Kazakhstan dated 25 March 2024 No. 68-VIII “On Introducing Amendments and Additions to Certain Legislative Acts of the Republic of Kazakhstan on Transfer Pricing Issues.” Entered into force 28 May 2024.
- Order of the Minister of Finance of the Republic of Kazakhstan dated 19 March 2024 No. 160 on Approval of the Rules, List, and Form of Information to be Transmitted through the Integration of Hardware and Software Systems of Gambling Business Organizers Operating Betting Offices and/or Totalizators with the Information Systems of State Revenue Authorities. Entered into force 29 May 2024.
- Order of the Minister of Energy of the Republic of Kazakhstan dated 19 March 2024 No. 121 on Amendments and Additions to the Order of the Minister of Energy of the Republic of Kazakhstan dated 11 June 2018 No. 233 “On Approval of Standard Contracts for Subsoil Use.” Entered into force on 7 April 2024.
- Resolution of the Government of the Republic of Kazakhstan dated 24 April 2024 No. 333. Entered into force on 24 April 2024.
- Order of the Minister of Finance of the Republic of Kazakhstan dated 29 March 2024 No. 172 “On Approval of the Rules for Determining and Publishing the Value of Digital Assets and the List of Their Types.” Entered into force on 15 April 2024.
- Order of the Minister of Industry and Construction of the Republic of Kazakhstan dated 19 January 2024 No. 24 “On Approval of the List of Certain Orders of the Ministry of Industry and Infrastructure Development of the Republic of Kazakhstan Subject to Amendments and Additions.” Entered into force on 13 April 2024.
