Article: Tax Refund in Kazakhstan for Non-residents

Daniyar Kairbekov

Kazakh companies often buy goods and services from foreign suppliers. These transactions are subject to withholding tax in Kazakhstan (WHT). A Kazakh company should, as a tax agent, (1) impose WHT on income of a non-resident, or (2) apply a reduced WHT rate for non-residents (e.g. 10% instead of 20%), or (3) provide WHT exemption on the basis of a tax convention that provides for the avoidance of double taxation. The last option provides tax benefits to non-residents in cases where these non-residents are resident of a country that has a tax treaty with Kazakhstan on avoidance of double taxation (i.e. a so-called double tax treaty). All double tax treaties with Kazakhstan provide for exemption from Kazakhstan withholding tax or allow for the reduction of WHT rates to 5–10%.

Tax agents tend to charge WHT in full to non-residents without application of a relevant double tax treaty. Unfortunately, there are many possible justifications. However, we are particularly interested in cases where the refund of WHT is requested for a non-resident who may benefit from a particular double tax treaty. Kazakhstan tax legislation generally allows for a tax refund. Tax legislation applies also to WHT refund to a non-resident. 

In cases where WHT was already imposed and paid, a non-resident may receive a refund of WHT during the period of five years following its payment date, on the condition that it is subject to a particular double tax treaty.

Our practice shows that WHT refund is a highly bureaucratic procedure. The procedure starts with an application, in which the applicant files papers with the tax authorities for a WHT refund. The tax authority conducts a tax audit to verify the legitimacy and accuracy of the amounts to be refunded. It also communicates with other authorities about the branch office or agency of a non-resident. Then the authority conducts a cross-examination with the Kazakh company (i.e. tax agent) that withheld the taxes. It also studies and reviews the documentary evidence, to establish that it is sufficient. Then the tax authority decides whether to refund the tax or to reject the application. The average tax refund procedure for non-residents takes from five to nine months.

It should be noted that the tax refund procedure for non-residents, in terms of tax administration, is quite difficult and often requires the involvement of qualified tax lawyers. These lawyers should study the changes for the WHT refund. When there is the opportunity to refund, they must verify and prepare all necessary documents to accompany the application for an income tax refund. 

There are numerous reasons for such caution. For example, very often the tax authorities reasonably deny a withholding income tax refund because of mistakes and shortcomings in the documents. Among the list of documents required for submission to the tax authorities for the tax refund procedure is a document confirming the residency of a non-resident company (a certificate of residency), which must be duly legalized or apostilled to validate the signature and stamp of a government agency of a foreign state. In practice, quite often there are cases where tax authorities conclude that signatures and stamps were provided by an unauthorized foreign tax authority. 

Also, before applying to the tax authority with a request for a refund, non-residents must consider the presence or absence of other circumstances that could make it impossible to refund WHT. In particular, the presence of interrelated or interdependent transactions with a non-resident may lead to the formation of a permanent establishment in Kazakhstan. For example, a non-resident files an application to refund WHT for 2011. In their application, they mention that they provided services to a Kazakh company for a period of less than 12 months in 2011. The tax authorities then find out that this foreign supplier also provided services to a Kazakh company in 2010. The tax authorities also established that these services were interrelated and conducted under the auspices of one project. Therefore, the tax authorities refuse the refund on the grounds that these services were conducted for more than 12 months, i.e. from 2010 to 2011, and created the permanent establishment of a foreign supplier in Kazakhstan.  

In conclusion, it can be noted that the rules for tax refunds have very specific documentary requirements. The issues of income tax refund must be examined well in advance, taking into account a number of legal factors, details, and features that could affect a WHT refund.