Roza Kinchinbayeva, Managing Partner of MinTax Group, Certified Auditor, considered issues of charging VAT, in accordance with the applicable norms of RoK Tax Code, in cases when a Kazakhstan’s company obtains rail cars for temporary use from non-resident legal entities, taking a Russian supplier as an example, as well as the procedure for issuing invoices by forwarders to their clients on the basis of invoices issued by carriers and other suppliers.
To provide transportation services, Kazakhstan forwarding companies purchase rail cars from non-residents of the Republic of Kazakhstan (RoK) both from the countries of the Customs Union and from third countries. At that, cargoes may be transported both within the RoK and outside its boundaries. This article refers to the norms of the RoK Tax Code applicable when a Kazakhstan resident legal entity uses rail cars obtained from a legal entity resident of the Russian Federation (RF) or third countries, as well as the procedure for issuing invoices by freight forwarders to their customer on the basis of invoices issued by carriers and other suppliers.
Pursuant to sub-paragraph 2) of paragraph 1 of Article 230 of Tax code, turnover committed by a VAT payer when purchasing work, services from non-residents in the case envisaged by Article 241 of Tax code, is deemed to be a taxable turnover.
According to paragraph 1 of Article 241 of Tax code, work or services provided by a RoK non-resident shall be the turnover of a taxpayer of the RoK who receives the work or services, if the location of their sale is the RoK, and they shall be subject to VAT in accordance with Tax Code.
- sub-paragraph 4) of paragraph 2 of Article 236 of the Tax code, the place of selling services related to lease and (or) charter of cargo railcars and containers shall be the place where the buyer of the services is engaged in entrepreneurial or any other activity (for non-residents from Baltic countries).
- sub-paragraph 5) of paragraph 2 of Article 276-5 of Tax code, the territory of the member state of the Customs Union shall be recognized as the place of sale of services related to lease, rent and charter on other grounds of vehicles, if works are performed, services are rendered by the taxpayer of that state (for RF residents).
In accordance with sub-paragraph 4) of paragraph 1 of Article 256 of Tax code, for the purpose of determination of the tax amount to be paid to the budget, the recipient of works, services, being a VAT payer, shall have the right to offset VAT amounts to be paid for work and services, provided that they are used or will be used for the purpose of taxable turnover, if in cases stipulated by Article 241 of Tax code, an obligation to pay non-resident VAT has been fulfilled.
The mentioned amounts of non-resident VAT are to be shown in Appendix 5 to a VAT declaration, the totals whereof must be carried over to line 300.00.015 of Form 300.00
According to paragraph 1 of Article 241 of Tax code, work or services provided by a non-resident shall be the turnover of a taxpayer of the RoK who receives the work or services, if the location of their sale is the RoK, and they shall be subject to VAT. However, pursuant to paragraph 6 of Article 241 of Tax code, non-resident VAT shall not be charged if work, services provided are work or services specified in Article 248 of the Tax code.
According to sub-paragraph 1) of paragraph 1 of Article 230 of Tax code, a turnover from sales of work, services in RoK committed by a VAT payer shall be deemed to be a taxable turnover for VAT purposes.
According to paragraph 2 of Article 231 of Tax code, turnovers from sales of goods, work mean any performance of work or rendering of services, in particular free of charge, and also any activity against remuneration which is different from sales of goods.
According to paragraph 12 of Article 238 of Tax code, in the event that services are provided under the freight forwarding agreement, the amount of the forwarder’s taxable turnover shall be determined on the basis of its fees under the freight forwarding agreement.
In the meantime, in accordance with Article 708 of RoK Civil Code, under the contract of freight forwarding, one party (freight forwarder) agrees for a fee and at the expense of the other party (the client-the shipper, the consignee or any other interested persons in the services of the freight forwarder) perform or arrange for the performance of services specified in the forwarding contract related to the carriage of cargo, in particular – to sign on behalf of the client, or on his (her) own behalf the contract (contracts) of carriage.
According to paragraph 1 of Article 264 of Tax code, invoices shall be issued by the forwarder on the basis of invoices issued by the carriers and other suppliers of works and services, who are VAT payers. In the meantime, if the carrier (supplier) is not a VAT payer, invoices shall be issued by the forwarder on the basis of a document confirming the cost of the works and services.
Considering that a contract for provision of railcars for temporary paid use concluded between a non-resident and the Kazakhstan’s forwarding company is a contract concluded on one’s own behalf but within the framework of fulfilment of a freight forwarding agreement, then, for VAT purposes, these services are classified as services under a freight forwarding agreement.
Therefore, these amounts re-invoiced to a client (compensation of costs related to the use of railcars) must be included in the total sales turnover to be reflected in invoices issued by a forwarder as a turnover of the supplier who is not VAT payer in the RoK.
Based on the foregoing, in cases when:
- a third country’s non-resident provides rail cars to a legal entity RoK resident for temporary paid use, and such non-resident is neither a VAT payer in RoK nor performs any activity in RoK through a branch, representative office, then the RoK resident legal entity, being a buyer of those services, will be liable to assess and pay VAT for non-residents;
- RoK resident legal entity obtains rail cars provided by an RF resident for temporary paid use, then the Kazakhstan’s company will not be liable to assess and pay VAT for non-residents.
Compensation of costs incurred by an RoK resident legal entity in the form of fees paid to RoK non-residents for using rail cars obtained for temporary paid use which the RoK resident receives from his client as part of payments for providing freight forwarding services under a freight forwarding agreement shall not be included in the taxable turnover of the company (forwarder) and shall not be subject to 12% VAT.
However, a turnover related to such compensation must be shown in the forwarder’s invoice as a turnover of the supplier who is not a VAT payer. That is, in respect of transportation services rendered in the territory of RoK, a turnover from sales of services to be reflected in the invoice shall be:
- cost of services provided by suppliers who are VAT payers;
- cost of services provided by suppliers who are not VAT payers;
- commission reward for the organization of transportation, according to the freight forwarding agreement.
The cost of services related to temporary paid use of rail cars, reinvoiced by the company, is included in the cost of services provided by suppliers who are not VAT payers.