Yerlan Galiev, Independent Partner of MinTax Group, Advocate, Member of Almaty Municipal College of Advocates, Ph.D., considers issues that most often arise on the threshold of introducing a general declaration system in the RoK, in particular – what income and property must be declared by RoK resident individuals independently.

In what cases a resident individual is obliged to submit a Personal Income Tax (PIT) declaration independently?

At present, presentation of tax reporting on PIT is not a universal duty of citizens, but is prescribed only for a limited circle of cases and taxpayers.

The following resident individuals are obliged to submit a PIT Declaration (paragraph 1 Article 185 of Tax code):

 

1) individual entrepreneurs;
2) private notaries, private bailiffs, lawyers, professional mediators;
3) natural persons who received capital gain;
4) natural persons who earned other types of income, in particular income beyond the boundaries of the Republic of Kazakhstan;
5) natural persons who have money on bank accounts in foreign banks situated beyond the boundaries of the Republic of Kazakhstan;
6) from year 2017 being the tax period, – if there are immovable property and other types of property outside the Republic of Kazakhstan referred to in sub-paragraph 6) of paragraph 1 of Article 185 of Tax code.

Which form of PIT declaration a resident individual should submit by himself?

Based on paragraph 6 of Article 67 of Tax code, Personal income tax declaration (Form 240.00) shall be submitted by natural persons including those who received capital gain and other income, and also by natural persons who have funds in accounts in foreign banks which are outside the boundaries of the Republic of Kazakhstan.

The taxpayer’s income is taxed at a rate of 10 percent, except for income in the form of dividends received from sources in the Republic of Kazakhstan and beyond, which are taxed at a rate of 5 percent.

PIT declaration is submitted to the tax authority at the place of location (residence) not later than 31 March of the year following the reporting tax period, with the exception of cases stipulated by the Constitutional Law of the Republic of Kazakhstan “On Elections in the Republic of Kazakhstan”, the Criminal Executive Code of the Republic of Kazakhstan and the Law of the Republic of Kazakhstan “On Fighting Corruption”.

What is capital gain?

According to Article 180 of Tax code, the following shall be recognised as the individual’s capital gain subject to taxation:

1) capital gains when an individual and an individual entrepreneur applying the special tax treatment for small business entities sell property referred to in Article 180-1 of Tax Code;
2) capital gains from increment in value in cases when an individual and an individual entrepreneur which applies the special tax treatment for small business entities, transfer property (other than money) as a contribution to the charter capital referred to in Article 180-2 of Tax Code;
3) income received by an individual who is not an individual entrepreneur from renting-out of property to persons who are not tax agents;
4) capital gains from increment in value in the sale of other assets of an individual entrepreneur which applies the special tax treatment for small businesses referred to in Article 180-3 of this Code.

In practice, it occurs most often when capital gains arise as an increment in value when an individual and an individual entrepreneur applying the special tax treatment for small business entities sell property referred to in Article 180-1 of Tax Code. An individual is considered to have capital gain subject to PIT when he/she sells the following assets located in the territory of the Republic of Kazakhstan:

1) dwellings, summer buildings, garages, subsistence farms held in ownership for less than one year from the date of registration of title;
2) land plots and (or) an interest in land the designated purpose of which from the date of commencement of title to the date of sale shall be individual housing construction, country house construction, keeping a subsistence farm, for a garage, in the territory of which the facilities specified in sub-par. 1) of par. 1 of Article 180-1 of Tax code are located, held in ownership for less than one year from the date of registration of title;
3) land plots and (or) interests in land, the designated purpose of which from the date of commencement of title to the date of sale shall be individual housing construction, country house construction, keeping a subsistence farm, gardening, garage construction, in the territory of which there are no facilities specified in sub-par.1) of par. 1 of Article 180-1 of Tax code in the event that the period between the dates of preparation of title documents for the acquisition and disposition of a land plot and (or) an interest in land is less than one year;
4) land plots and (or) an interest in land with the designated purpose not specified in sub-paragraphs 2) and 3) of paragraph 1 of Article 180-1 of Tax code;
5) investment gold;
6) real estate except as provided in sub-paragraphs 1) – 4) of paragraph 1 of Article 180-1 of Tax code;
7) motor transport vehicles and trailers subject to state registration which are held on the right of ownership for less than twelve months;
8) securities, participation interests and derivative financial instruments (except for the derivative financial instruments which are executed through the purchase or sale of an underlying asset).

The income from increment in value in the sale of property referred to in sub-paragraphs 1) – 7) of paragraph 1 of Article 180-1 of Tax code shall be the positive difference between the selling price (value) of property and the price (value) of its purchase, unless otherwise provided by paragraphs 3 – 7 of Article 180-1 of Tax code.

Is it necessary to submit PIT declaration if there are assets located outside Kazakhstan?

The grounds for an individual’s obligation to submit a PIT declaration for a relevant year shall be availability of funds held by that individual on bank accounts in foreign banks located outside the Republic of Kazakhstan.

When there are funds available on bank accounts in foreign banks, individuals must specify the following data in the PIT declaration:

• names of foreign banks outside the Republic of Kazakhstan, in which the individuals’ funds are held, indicating the code of country of residence of foreign banks;
• amounts of money on bank accounts with foreign banks outside the Republic of Kazakhstan, indicating the currency code.

With effect from 1 January 2017, paragraph 1 of Article 185 of Tax code was supplemented by sub-paragraph 6), which states that PIT declaration shall be submitted by individuals who have on the right of ownership:

• real property, which (or related rights and (or) transactions) is subject to state or other registration (recording) in the competent authority of a foreign state in accordance with the legislation of that foreign state;
• securities whose issuers are registered outside the Republic of Kazakhstan;
• share in the authorized capital of a legal entity registered outside the Republic of Kazakhstan.

Thus, in the presence of immovable property and other property specified in sub-paragraph 6) of paragraph 1 of Article 185 of Tax Code as of December 31, 2017, a resident individual must submit a PIT declaration not later than 31 March 2018.

In accordance with Part 3 of Article 275 of the CoAO[1] in the wording effective from 1 January 2017, the person’s concealment of information on the availability of property held on the right of ownership outside the Republic of Kazakhstan, as well as money in bank accounts with foreign banks outside the Republic of Kazakhstan which must be reported in the PIT declaration in accordance with the tax legislation of the Republic of Kazakhstan, committed by failure to report them in the PIT declaration, – entails a fine at the rate of two hundred and fifty times the Monthly reference index (in 2017: 2,269 KZT х 250 = 567,250 KZT). Administrative liability under part three of CoAO Article 275 was put into effect from 1 January 2017. Therefore, if the mentioned administrative offence was committed before 2017, administrative liability under part three of CoAO Article 275 will not be applied.

What is “other revenues”?

In view of the ‘certainty’ principle contained in the tax legislation, the scope of so-called “other revenues” is also strictly defined therein. For example, other revenues of taxpayers that are subject to taxation include such items as income derived from sources outside the Republic of Kazakhstan, income of citizens of the Republic of Kazakhstan under employment agreements (contracts) and (or) civil-legal contracts concluded with international and governmental organizations, foreign and Kazakhstan’s non-governmental public organizations and funds exempt from the obligation to calculate, withhold and transfer PIT at the source of payment in accordance with the international treaties ratified by the Republic of Kazakhstan, income of mediators earned in accordance with the Law of the Republic of Kazakhstan “On Mediation” from persons who are not tax agents, as well as other types of revenue that are exhaustively defined in paragraph 1 of Article 184 of the Tax Code.

Are there any specific features of taxation of residents’ income, earned from sources outside the Republic of Kazakhstan?

Whenever a resident individual receives any types of income outside the Republic of Kazakhstan that is not deemed as income from sources in the Republic of Kazakhstan, regardless of the place of payment, that individual must submit a PIT declaration.

In such case, amounts of income taxes or taxes similar to income tax paid beyond the boundaries of the Republic of Kazakhstan, from income received by the resident taxpayer from sources outside Kazakhstan, shall be set off towards the payment of PIT in Kazakhstan, provided that a document confirming the payment of such tax is available.

A certificate of amounts of income received from sources in a foreign state and amounts of paid taxes, issued and (or) confirmed by the tax authority of the foreign state shall be recognised as such document.

In the event that a certificate of income received from sources in a foreign state and taxes paid issued and/or confirmed by the tax authority of the foreign state is executed in a foreign language it must be translated into the Kazakh or Russian language and the translation thereof must be certified by a notary in accordance with the procedure established by the legislation of the Republic of Kazakhstan.

If the taxes paid in a foreign state are set off against the payment of PIT, the taxpayer shall have the right to present the statement at the request of the tax authority for the purpose of in-house control.

[1]Code of the Republic of Kazakhstan “On Administrative Offences” No 235-V ZRK dated 5 July 2014.