This Client Update covers the key amendments to the laws of the Republic of Kazakhstan ('RK') and various legal developments introduced in July-August 2017.
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.
On 30 June 2017, the President of the RK signed the Law No.80-VI 'On Amendments to the Legislative Acts of the Republic of Kazakhstan on Healthcare' ('the Law').
The Law introduces the following key amendments:
1. Temporary restrictions on disposal of property, restrictions to conduct transactions with property as well as seizure of assets are not permitted in relations to assets of social health insurance fund held in bank accounts.
2. Foreclosure on the assets of social health insurance fund held in bank accounts is not permitted.
3. Foreigners and members of their families temporarily staying in the RK enjoy the rights and bear obligations in the mandatory social health insurance system on an equal footing with citizens of the RK under the international treaty ratified by the RK, unless otherwise provided for by laws and international treaties.
- Employer contributions payable to the fund are the following:
- From 1 July 2017 – 1% of the object of calculation of contributions;
- From 1 January 2018 – 1.5% of the object of calculation of contributions;
- From 1 January 2020 – 2% of the object of calculation of contributions;
- From 1 January 2022 – 3% of the object of calculation of contributions.
4. When determining an employee's income withheld at the source for each month during a calendar year regardless of periodicity of payments, tax deductions are applied for the amount of contributions to obligatory social health insurance.
5. The amount of administrative fine imposed for violation of social health insurance laws which cannot be paid due to the expired statute of limitations must be written off by the tax authority from a taxpayer's personal account (tax agent).
6. The payers of contributions are as follows:
- the government;
- employees, including government and civil officials, save for military personnel, law enforcement and special government officials;
- individual entrepreneurs;
- private notaries;
- private bailiffs;
- professional mediators;
The Law came into force on 14 July 2017.
On 30 November 2016, the President of the RK signed the Law No.26-VI 'On Amendments to the Legislative Acts of the Republic of Kazakhstan on Taxation and Customs Administration' ('the Law').
According to the Law, the following key amendments were introduced from 1 July 2017:
1) The concept of 'preliminary audit report'.
- Preliminary audit report is a document outlining preliminary results of the tax audit conducted by an inspector.
- Prior to the tax audit report, the tax official hands to the taxpayer a preliminary tax audit report, whereas previously a tax audit act was executed upon completion of a tax audit.
- Preliminary tax audit report rules are applicable to large taxpayers subject to monitoring, as well as to taxpayers who entered into investment contracts.
Preliminary tax audit report procedure is outlined in Order No. 334 of the Minister of Finance of the RK On rules and Timelines for Furnishing Preliminary Tax Audit Reports, Providing Written Objections and Review of Written Objections (more details are set out further).
2) Changing the order for appeal of notification of the audit results
The taxpayer now appeals to the competent body as opposed to the superior body as it was before to the competent body. The competent body is the Ministry of Finance of the RK.
- The appeal must be accompanied by copies of the report and the appealed notification.
- For appeal review the competent body sets up an appeals commission.
- The appeals commission operates pursuant to the Regulation on the appeals commission for consideration of appeals of notification of the audit results and/or elimination of violations dated 19 May 2017.
- The tax authorities taxpayer's data (tax agent), which are tax secret, to the appeals commission for consideration of the taxpayer's (tax agent's) appeal without the taxpayer's (tax agent's) written consent.
3) Amendments to the taxpayer's rights
A taxpayer now has the right to:
- file a written objection to the preliminary tax audit report pursuant to the Tax laws;
- appeal the notification of the audit results to the competent body or to the court, as well as the actions/failure to act of the tax officials – to the superior tax body or to the court.
Tax authorities must consider the taxpayer's (tax agent's, operator's) written objection to the preliminary tax audit report.
Trade and Economic Cooperation
On 11 July 2017, the Prime-Minister of the RK signed Decree No. 418 'On Signing the Agreement on Trade and Economic Cooperation between the Government of the Republic of Kazakhstan and the Government of the Republic of Moldova' ('the Decree').
According to the Decree, the parties create favorable conditions for cooperation on elements of social-economic development, improvement of legal framework in the field of trade economic relations, and setting up joint production structures.
The Decree came into force on 11 July 2017.
Banking Services and Consideration of Customers' Applications
On 28 July 2017, the Chairman of the National Bank of the RK signed the Decree No. 136 'On Approval of the Rules for Delivery of Banking Services and Consideration of Related Customer's Applications by Banks and Banking Organizations' ('the Decree').
The Decree provides for the following:
- Procedure for disclosing information on provided banking services and counseling of customers consulting;
- Bank lending and insolvent customers service;
- Conclusion of bank deposit agreements;
- Procedure for considering customers' applications in banking services.
The Decree came into force on 18 September 2017.
Cooperation on Mining and Metallurgical Industry
On 29 August 2017, the Prime-Minister of the RK signed the Decree No. 515 'On Approval of the Agreement on Cooperation of the Member States of the Commonwealth of Independent States on the Mining and Metallurgical Industry' ('the Agreement').
The Agreement provides for the following:
- Increase of economic efficiency, technological and innovative reform of the mining and metallurgical industry;
- Resources and energy conservation, as well as environmental safety of the industry;
- Determination of barriers in promoting the products of the mining and metallurgical industry of the member states in member states of the Commonwealth of Independent States and developing solutions for overcoming of such barriers;
- Cooperation in the field of training, professional retraining and advanced training of personnel for the mining and metallurgical industry.
The Decree came into force on 29 August 2017.
Regulations on the Acquisition of Goods, Works and Services in Subsoil Use Operations
The Minister of Investment and Development of the RK on 28 March 2017 No.168 and the Minister of Energy signed the joint Order 'On Amendments to the Joint Order of the Minister of Investments and Development of the RK No.253 dated 27 February 2015 and the Minister of Energy of the RK dated 27 March 2015 No.241 'On Approval of the Regulations on Acquisition of Goods, Works and Services for Subsoil Use Operations' ('the Order').
The Order introduces, among others, the following amendments:
1. For acquisition of works and (or services) with the annual volume that exceeds 14,000 MCI in value for the relevant financial year, as well as for acquisition of hazardous, or extremely hazardous works requiring licenses for such activities, a potential supplier is required to have the experience in the market of the acquired works or services for the contract value of not less than 14,000 MCI for the respective fiscal year;
2. Change in tender timelines: among others, the timeline for formation and placement of an application in the system and in the open part of the register by a customer is increased to 5 (instead of 3) business days following the opening of bids;
3. An option is now available for applicants to provide scanned copies of documents provided that they have hardcopies of such documents;
4. Security deposit is returned by the customer to a potential supplier also in the following cases:
- In case of expiration of the competitive bid created by a potential supplier;
- In case of exclusion of one or more lots of GWS being procured through an open tender in connection with the refusal of the customer to purchase the GWS;
5. Submission of the notarized translation of application and/or its supporting documents to the language of the tender documentation, if the documents were in a different language, is mandatory for all (not only for non-residents);
6. Procurement of GWS from a single source by a person holding a dominant (monopoly) position in a certain market of acquired GWSs is excluded;
7. The size of the GWS MCI was changed when procuring a GWS by a single-source method: the annual volume of which in value terms does not exceed 200 MCI (instead of 100 MCI) set for the respective financial year;
8. Procurement of GWSs by a single source method is supplemented with procurement of goods produced under the off-take contracts and technology agreements concluded within State Program for Industrial and Innovative Development of the President of the Republic of Kazakhstan for 2015-2019 approved by the Decree of the President of the Republic of Kazakhstan dated 1 August 2014 No. 874 supplemented;
9. The list of mandatory contract terms for procurement of GWS under the raw hydrocarbons contracts was supplemented as follows:
- The delivery term is not less than 60 calendar days from the date of conclusion of the contract;
- The payment for the delivered goods, works performed (services rendered), including for the actual delivery of goods and works performed (services rendered), must be made no later than 60 calendar days from the date of acceptance acts, works performed, services rendered (acceptance of the facility for exploitation).
The Order came into force on 14 August 2017.
Rules and Terms for Preliminary Tax Audit Reports
On 24 May 2017, the Minister of Finance of the RK signed Order No. 334 concerning the rules and terms for providing a preliminary tax audit report, for submitting written objections against a preliminary tax audit report, as well as considering such objections.
The Decree sets forth the following provisions:
- The rules for preliminary tax audit report are applied to large taxpayers, subject to monitoring, as well as taxpayers who entered into investment contracts.
- A preliminary tax audit report is delivered personally to the taxpayer (tax agent) at least 5 business days prior to the expiration of the tax audit deadline.
- A written objection to the preliminary tax audit report is filed with the tax authority in person within 15 business days from delivery of the preliminary tax audit report.
- A written objection is considered within 5 business days from the date of its receipt.
- Following consideration of the written objection, the respective tax authority completes the tax audit in accordance with the Tax Code by furnishing the following:
1) A notice on renewal of tax audit timeline;
2) A tax audit report with the substantiated response to questions set out in the written objection;
3) A notification on tax audit results (if there are any violations).
The Rules do not apply to the following;
- Thematic audits on confirmation of VAT amount claimed for refund;
- Audits upon the claim of a non-resident for refund of paid income tax from the budget or conditional bank deposit in accordance with an international treaty for the avoidance of double taxation.
The Order came into force on 1 July 2017.
Contract for the International Sale of Goods
On 31 August 2017, a dossier for the Draft Law of the RK 'On Ratification of the UN Convention on Contracts for the International Sale of Goods' (the Draft Law) was submitted for review of the Majilis of the Parliament of the RK.
The draft law provides for ratification of the Vienna Convention on the Contracts for the International Sale of Goods dated 11 April 1980 that governs terms and conditions for concluding contracts for the international sale of goods between commercial enterprises located in the member-states of the Convention.
On 31 August 2017, a dossier for the Draft Law of the RK 'On the Amendments to Certain Legislative Acts of the RK on Tax Matters' (the Draft Law) was submitted for review of the Majilis of Parliament of the RK.
According to the Draft Law the following changes and amendments are proposed:
To the Administrative Offenses Code:
1. No administrative liability for failure to submit tax reports and documents related to conditional bank deposits repeatedly within a year after the imposition of an administrative fine;
2. Administrative fine of up to 1,000 MCI for failure to submit, inaccurate or incomplete submission, refusal to submit reports on transfer pricing to tax authorities by the taxpayer within the terms established by the Kazakhstan laws on transfer pricing;
3. Reduction of administrative fine from 40% to 20% out of the amount of excess of the actual tax for exceeding the amount of actually calculated corporate income tax for the tax period over the amount of estimated advance payments;
4. Exclusion of liability for violation of the conditions of production and (or) turnover of certain types of petroleum products and excisable goods, excluding biofuels, ethyl alcohol and alcohol products, committed in the form of turnover of certain types of petroleum products without accompanying invoices;
5. In connection with introduction of accompanying invoices on goods, exclusion of liability for violation of the rules for execution and use of accompanying invoices for ethyl alcohol, the failure to provide accompanying invoices for ethyl alcohol and alcohol products, committed in the form of turnover and transition of ethyl alcohol and (or) alcohol products without the presence of accompanying invoices, for failure to timely pay an annual license fee and in the amounts established by the Tax Code for the non-elimination of violations during the period of suspension of license.
6. Introduction of an administrative fine of up to 30 MCI for failure to submit or for untimely, inaccurate or incomplete submission of information on assignment for contract by collection agencies;
7. Introduction of an administrative fine of up to 1,000 MCI for failure to submit or for untimely, inaccurate or incomplete submission of tax registers within the tax monitoring;
8. In connection with introduction of the horizontal monitoring (one of the stages of the tax monitoring which provides for exchange of information and documents between the competent body and the taxpayer in accordance with the draft Tax code of the RK dated 16 August 2017), a decision on termination of the proceedings may be issued if the following conditions are simultaneously met:
- The consent of a person subject to horizontal monitoring in accordance with the tax laws of the RK, with the notification on the results of the horizontal monitoring;
- Absence of the court appeal of the notice on the results of the horizontal monitoring.
To the Business Code:
- It is proposed to exclude from the list of matters subject to tax audits waybills for the imported goods and the conformity of the name of the goods with the information in the waybills at transport control or traffic police check points;
- It is proposed that no additional agreement to the investment contract concluded with the authorized investment governmental body before 1 January 2015 is required for granting investment preferences for corporate income tax provided for investment strategic projects.
Special Economic and Industrial Zones
On 31 August 2017, a dossier for the Draft Law of the RK 'On Amendments to Certain Legislative Acts of the RK on Special Economic and Industrial Zones' (the Draft Law) was submitted for review of the Majilis of the Parliament of the RK. Draft law is conditioned by the need for the Law of the RK 'On Special Economic and Industrial Zones' to implement new approaches to the operation of special economic zones (SEZs), as well as to regulate activities of industrial zones (IZs). The Draft Law provides for the following amendments to Kazakhstan laws:
- The Tax Сode – extend land tax benefits in addition to the existing SEZs facilities, also to unfinished construction objects which are planned for the use in priority activities1, expansion of customs privileges when exporting goods from SEZ2.
- The Land Сode – land plots in SEZ will be reserved (transferred to the balance sheet) to the management company immediately at the stage of creating SEZ; moreover, management companies will be entitled to independently segment the land plots on their balance sheet for further granting to SEZ participants;
- The Business Сode – it is proposed to expand the authority of the United Coordination Center in terms of ensuring infrastructure planning, evaluation and monitoring of the project implementation in SEZ, as well as training and retraining of qualified personnel of management companies.
1 In this edition, tax advantages are applied to the completed objects of the SEZ
2 According to the tax laws, there is no obligation to pay customs duties when selling goods to the territory of the Union for SEZ participants registered before 1 January 2012. This regulation ceased to be effective from 1 January 2017. The Draft Law provides the possibility of exemption from payment of customs payments by SEZ participants registered after 2012.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.