Presentations and publications
Another Round of Changes in Kazakhstan VAT Legislation in 2015
Reproduced with permission from Tax Planning International Indirect Taxes, Vol. 13, No. 8, (August 2015). Copyright © 2015The Bureau of National Affairs, Inc. (800-372-1033) www.bna.com.
Several important changes to VAT in Kazakhstan have taken place in 2015. This article covers a number of the recent changes, including those relating to registration as a VAT payer, rules regarding vatable turnover of branches and representative offices of foreign legal entities, VAT-exempt imports, and requirements as to the form and date of VAT invoices. Also considered are a recent statement by the Kazakhstani President concerning the possibility of the abolition of VAT and its replacement with a sales tax, and the debate which has ensued.
I. Changes to Kazakhstan VAT Legislation
A. Registration for VAT
The tax authorities will not accept applications for VAT registration of an entity if its director does not have an individual identification number in Kazakhstan. Failure to register as a taxpayer by the heads of both resident and nonresident legal entities (including heads of the branches or representative offices) will prompt tax authorities to annul, if applicable, the existing VAT registration. It is important to note that tax authorities will also refuse VAT registration if heads of legal entities do not have a Kazakhstan tax identification number.
In addition, Article 570 of the Tax Code now requires that a CEO or a director of a resident legal entity or an individual entrepreneur appear to receive the certificate of registration for VAT in person and sign on receipt of such certificate in a special register. Moreover, a photograph of the CEO or director of a resident legal entity or an individual entrepreneur will be taken upon issuance of the VAT registration certificate for tax authority records.
B. Removal from the VAT Register
Effective from July 1, 2015 taxpayers will be removed from the VAT register without notification if:
• the taxpayer does not report any sales or purchases of goods, work and services in two consecutive VAT returns;
• the taxpayer's annual minimum turnover does not exceed the threshold for VAT registration in the tax year in which the taxpayer registered for VAT;
• the head or founder/participant of the legal entity, or the individual entrepreneur:
• is deemed to be incapable or with limited capacity, or a missing person, deceased or declared dead after six month of such declaration;
• has outstanding convictions for creating financial pyramid schemes, issuing invoices without actually providing any work, services or shipment of goods, illegal use of trademarks, deliberate and false bankruptcy and tax evasion;
- is wanted by the police;
- is a foreigner who breached the allowed period of stay in Kazakhstan and whose purpose of stay is not employment-related.
C. Sales by Kazakhstan Branches and Representative Offices of Foreign Legal Entities for VAT Purposes
An amendment introduced to the Tax Code establishes the rules under which a Kazakhstan branch or a representative office should recognize VAT. Specifically, the Kazakhstan branch or representative office should recognize VAT if one of the following conditions is met:
• existence of a contract concluded with the branch or representative office of a foreign legal entity;
• existence of invoices for works and services issued by the branch or representative office of a foreign legal entity;
• existence of certificates of completion of works or services signed by the branch or representative office of a foreign legal entity;
• existence of a contract concluded with a foreign legal entity which provides that works and services are carried out by the branch or representative office of the foreign legal entity;
• certificates of completion of work or services signed by a foreign legal entity, which indicate that the works were performed or services were rendered by the branch or representative office of the foreign legal entity; or
• income for the work performed is paid to a branch or representative office of a foreign legal entity.
A new provision has been introduced establishing that if the work or services, the place of sale of which is the Republic of Kazakhstan, are the turnover of a branch or representative office of a foreign legal entity, such turnover is not deemed to be the turnover of a resident taxpayer receiving such works or services.
D. Imports Exempt from VAT
As of January 2, 2015, imports of medicines, medical goods and equipment:
• which are registered with the State Register of Medicines, Medical Goods and Equipment;
• which are not registered with the State Register of Medicines, Medical Goods and Equipment, on the basis of a decision (an authorization document) issued by the authorized public health body;
• are exempt from VAT.
The list of goods subject to VAT exemption is approved by the Government of the Republic of Kazakhstan.
In addition, the list of VAT-exempt imports was expanded by the addition of: the import of medicines used in veterinary practice; veterinary items and veterinary equipment; equipment for the deaf and blind, including prosthetic and orthopedic appliances and the like.
Similarly the list of VAT-exempt services has been expanded by including the sale of services in the area of sanitary and epidemiological welfare of the population and services in the area of veterinary practice.
E. Place of Sale
Tourism services have been excluded from activities the place of sale of which is established with reference to the place of operation of the buyer of services.
F. Date of Sale
Effective from January 1, 2015 upon lease (transfer) of property into temporary use, if by the end of the calendar month a certificate of completion of work or services for such month has not been executed, but the payment for such month has been made, the last day of such calendar month will be deemed to be the date of sale.
Until January 1, 2016, by the application of the rule establishing that in absence of documents during the calendar year, the date of sale will be the date, whichever occurs earlier, of:
• the date of issue of the invoice showing VAT;
• the date of receipt of each payment (regardless of the form of settlement).
G. Claiming Input VAT Credit
The new amendments have aligned the terminology of the Tax Code with the Criminal Code, stating that input VAT credit cannot be claimed if the court recognizes that the VAT invoice was issued ''without actual performance of work or provision of services or shipment of goods''. However, input VAT credit can be claimed on a transaction with a false entity, if the court ruling does not specifically mention the transaction or if the court recognizes the transaction as valid. Previously, any credit of input VAT attributable to transactions with companies which were recognized false entities was disallowed.
An addition has also been introduced with regard to railway e-tickets, specifying that the amount of VAT that can be credited is the amount of tax which is specified separately on the e-ticket, which must also show the identification number and VAT registration number of the transport company, provided the following documents are available:
• a boarding ticket issued by the transport company; and
• a document evidencing the payment of the cost of the e-ticket.
It has also been further clarified that as far as the loan provision or provision of property for hire is concerned, input VAT credit can be claimed only in the period for which a taxpayer issues a VAT invoice.
It has been established that where there are several grounds for claiming VAT credit, VAT credit can be claimed only once on the earliest one.
H. Requirements as to the Form and Timing of a VAT Invoice; Amended VAT Invoices
An electronic VAT invoice should be signed by a digital signature and should indicate the date of the sales turnover for VAT to be available for credit.
Further, the Tax Code provides that invoices issued in hard copy should indicate all amounts in Kazakh- stani Tenge. With regard to foreign trade transactions, it is permitted to specify the amounts in a foreign currency in addition to Kazakhstani Tenge.
Electronic invoices should be issued in Kazakhstani Tenge, except for the following transactions where a foreign currency can be used:
• transactions under product sharing agreements;
• export of zero-rated goods;
• provision of international transportation services taxable at zero-rate VAT; and
• other zero-rated sales.
If an electronic VAT invoice is issued in a foreign currency, it should specify;
• a letter code of the currency as per the classifier of currencies approved by the Customs Union Commission; and
• an exchange rate applied to convert the amounts of taxable (non-taxable) turnover as at the date of the sales turnover.
The amended Tax Code now establishes the new timing for the issue of VAT invoices, requiring that VAT invoices should be issued not earlier than the date of the sales turnover but not later than:
• for hard copy VAT invoices, seven calendar days following the date of the turnover;
• for electronic VAT invoices , 15 calendar days following the date of the sales turnover.
The Tax Code now provides that the same rules that apply to the issue of VAT invoices are also applicable to the issue of amended VAT invoices. An amended invoice should expressly indicate that it is an amended invoice, as well as information on the date and number of both the amended and the annulled invoices.
The date of the VAT sales turnover indicated in the annulled invoice is deemed to be the date of the turnover in the amended invoice.
I. VAT Refund from the State
A taxpayer may claim a refund of excess VAT relating to the construction of newly-commissioned industrial buildings and structures if the following conditions are met:
• the taxpayer is operating in a special economic zone;
• the construction is performed under a long-term contract;
• buildings and structures are recognized as fixed assets; and
• buildings and structures have been commissioned by the State Acceptance Commission or an Acceptance Commission appointed by the customer.
VAT is refundable within 20 tax periods by equal installments starting from the period in which the validity of the refund claim has been confirmed by the tax authorities.
The timing of refund of VAT with respect to refunds relating to zero-rated sales which account for at least 70% of the total sales has been amended to 60 business days from the deadline for submission of the VAT return in which the claim for the VAT refund has been made. (Previously, such refunds were to be made within 60 business days from the date of submission of the VAT return.)
A simplified procedure for VAT refund will no longer be available for entities with respect to which the tax authorities did not find any discrepancies during "off-site" control of their VAT records and the records of their direct suppliers and buyers.
J. VAT in the Customs Union
Effective January 1, 2015, the following transactions are not subject to import VAT:
1. The temporary import of goods into the territory of the Republic of Kazakhstan from the territory of the member states of the Customs Union, if the goods are subsequently removed from the territory of the Republic of Kazakhstan without any changes in the properties and characteristics of such imported goods.
2. The import of goods into the territory of the Republic of Kazakhstan from the territory of the member states of the Customs Union if the goods were earlier temporarily exported to any member state of the Customs Union and now re-imported without changes in the properties and characteristics.
The above provisions are only applicable for the temporary import of goods that are: a) under the lease (rent) agreement of movable property and vehicles; b) are transferred within the same legal entity. This provision does not apply to vehicles used in the international transportation.
When the temporary import of goods into the territory of the Republic of Kazakhstan from the territory of the member states of the Customs Union is carried out by a nonresident legal entity without a permanent establishment in the Republic of Kazakhstan, a taxpayer in Kazakhstan that receives such goods for temporary use should submit relevant notification to the tax authorities.
Where temporarily imported goods are sold, the import of such goods is subject to VAT from the date of registering such goods in the manner and the amount prescribed by the Tax Code.
If the price of the imported goods increases, the VAT should be paid not later than the 20th day of the month following the date when the parties to the agreement for the sale of goods changed the price.
K. Other Significant VAT Developments
Other important VAT developments include:
• clarification to the effect that sales also include shipment of goods, including on condition of payment by instalments;
• clarification of what should not be deemed as sales for the purpose of VAT;
• clarification as to which date will be the date of sale in case of revised invoices;
• a new provision that the turnover relating to outbound tourism is determined as a difference between the cost of the tourist product and the cost of insurance, transportation, and accommodation, including meals if the cost of accommodation covers meals;
• determination of the date of turnover for additional VAT invoices, etc.
II. Debate Concerning Abolition of VAT
The statement by President Nursultan Nazarbayev at a government meeting in Akorda which took place on May 5, 2015, concerning the need to substitute VAT with a sales tax has stirred disquiet and much debate in Kazakhstan. While some experts believe that abolition of VAT may mark a breakthrough in the improvement of the business environment in Kazakhstan, others are skeptical about the advantages of the sales tax in comparison to VAT.
For example, the deputy chairman of the National Chamber of Entrepreneurs, Rahim Oshakbayev, believes that the reform could be a real breakthrough in improving the business climate and the fight against the shadow economy in Kazakhstan. He argued that: ''In order to understand the general concept of reform it is important to clarify whether the newly introduced tax is on sales or is it a tax on turnover. Current position of VAT is a split between VAT on internal turnover and import VAT. Therefore it makes sense to completely give up or reset the rate of VAT on domestic sales, leaving import VAT, as VAT on imports is still a considerable source of revenue to the state budget.''
Mr. Oshakbayev also emphasised the fact that new mechanisms need to be added to the Tax Code, in the form of tax returns, as well as adapting to the use of software. He added that the abolition of VAT would significantly reduce the legal and tax risks for businesses and simplify tax administration.
However, an opposing argument was provided by Nurzhan Bulegenov, general director of Sev-Evrodrive LLP, who argued that: ''The sales tax reform sounds very attractive and promises to consumers low prices on goods and services. Is it really the case?'' He continued by arguing that if sales tax is indeed preferable, what is the reason the majority of developed countries employ VAT?
It appears that this topic will continue to cause serious debate.