On taxes and other obligatory payments to the budget (Tax Code)

Article 250. Deduction of contributions to reserve funds21

1. Banks, with the exception of a bank that is a national development institution, the controlling stake of which belongs to the national management holding, shall have the right to deduct the amount of expenses on provisions (reserves) created in accordance with international financial reporting standards and the requirements of the legislation of the Republic of Kazakhstan on accounting and financial reporting and in the manner determined by the authorized body for regulation, control and supervision of the financial market and financial organizations in agreement with the authorized body.

The value of the pledge and other collateral shall be taken into account when determining the amount of provisions (reserves) in the cases and in the manner determined by the rules for creating provisions (reserves).

The provisions of this paragraph shall be applied for provisions (reserves) against the following assets, contingent liabilities, with the exception of assets and contingent liabilities provided in favor of related parties or to third parties for the obligations of related parties:

1) deposits, including balances on correspondent accounts placed with other banks, as well as interest on such deposits accrued after December 31, 2012;

2) loans (except for financial leasing) provided to other banks and customers, as well as interest on such loans accrued after December 31, 2012;

3) accounts receivable for documentary settlements, guarantees and factoring operations;

4) contingent liabilities for uncovered letters of credit, issued or confirmed guarantees.

Paragraph 2 is in effect until 01.01.2027 according to Law of the Republic of Kazakhstan № 121-VI as of 25.12.2017.

2. Banks shall have the right to deduct the amount of expenses for the creation of provisions (reserves) against doubtful and bad assets provided to the bank's subsidiary for the acquisition of doubtful and bad assets of the parent bank.

The list of permits issued for the creation or acquisition of a subsidiary that acquires doubtful and bad assets of the parent bank shall be determined by the regulatory legal act of the authorized body for regulation, control and supervision of the financial market and financial organizations.

At the same time, the amount of expenses shall be subject to deduction in accordance with international financial reporting standards and the requirements of the legislation of the Republic of Kazakhstan on accounting and financial reporting for the creation of provisions (reserves) against doubtful or bad assets provided by the parent bank of a subsidiary for the acquisition of doubtful and hopeless assets of such parent bank.

The procedure for classifying assets provided by banks to subsidiaries for the acquisition of doubtful and hopeless assets of the parent bank, to the category of doubtful and hopeless, as well as the procedure for the formation of provisions (reserves) against assets provided by parent banks to subsidiaries, shall be determined by the authorized body for regulation, control and supervision of financial market and financial organizations in agreement with the authorized body.

Banks shall not be entitled to deduct the amount of expenses for creating provisions (reserves) against assets purchased from an organization specializing in improving the quality of loan portfolios of second-tier banks, the sole shareholder of which is the Government of the Republic of Kazakhstan.

3. Organizations carrying out certain types of banking operations on the basis of a license to conduct banking lending operations shall have the right to deduct the amount of expenses on provisions (reserves) created in accordance with international financial reporting standards and the requirements of the legislation of the Republic of Kazakhstan on accounting and financial reporting, and in the manner determined by the authorized body for regulation, control and supervision of the financial market and financial organizations in agreement with the authorized body, against credits (loans), except for:

1) financial lease;

2) credits (loans) granted to the benefit of related parties or to third parties for liabilities of related parties.

The value of collateral and other security is taken into account when determining the amount of provisions (reserves) in the cases and in the manner determined by the rules for creating provisions (reserves).

Paragraph 3-1 shall be valid from 01.01.2020 to 01.01.2027 in accordance with the Law of the Republic of Kazakhstan dated 10.12.2020 No. 382-VI.

3-1. Provisions of paragraph 1 of this article shall apply to a legal entity that was previously a subsidiary bank, restructured by a court resolution, whose more than 90 percent of the voting shares as of December 31, 2013 belong to the national managing holding.

4. Was valid until 01.01.2020 in accordance with Law of the Republic of Kazakhstan No. 121-VI dated 25.12.2017.

5. Insurance, reinsurance companies shall have the right to deduct the amount of expenses on the calculated insurance reserves for unearned premiums, avoided losses, reported but unsettled losses, incurred but undeclared losses in the amount determined as a positive difference between the amount of insurance reserves calculated in accordance with the legislation of the Republic of Kazakhstan on insurance and insurance activities on unearned premiums, avoided losses, reported but unsettled losses, incurred but undeclared losses at the end of the reporting tax period and the amount of such reserves at the end of the previous tax period.

The provisions of this paragraph shall not apply to insurance, reinsurance contracts, under which income in the form of insurance premiums in accordance with international financial reporting standards and the requirements of the legislation of the Republic of Kazakhstan on accounting and financial reporting is recognized in full before January 1, 2012.

6. Organizations engaged in microfinance activities (with the exception of a pawnshop) are entitled to deduct the amount of expenses for creation of provisions (reserves) against dubious and hopeless assets for the micro-credits provided, as well as remuneration on them, with the exception of assets provided to the interconnected party or third parties on obligations of the interconnected party.

The procedure for classifying assets on provided microloans as doubtful and hopeless, as well as the procedure for creating provisions (reserves) against them, shall be determined by the authorized body for regulation, control and supervision of the financial market and financial organizations in agreement with the authorized body.

7. A national management holding and also legal entities, whose main activity is performance of loan operations or purchase of rights of claim and whose 100 percent of voting shares (participatory interests) belong to a national management holding, are entitled to deduct the amount of expenses for creating provisions (reserves) against doubtful and bad assets, contingent liabilities, except for assets and contingent liabilities granted to related parties or third parties for liabilities of related parties (except for assets and contingent liabilities of credit partnerships) such as:

deposits, including balances of correspondent accounts with banks;

loans (except for financial lease) granted to banks and clients;

receivables for documentary settlements and guarantees;

contingent liabilities for unsecured letters of credit, issued or confirmed guarantees.

The amount of expenses for creating provisions (reserves) is deducted up to the amount of provisions (reserves) created in the manner determined by the Government of the Republic of Kazakhstan.

The list of legal entities specified in this paragraph and the procedure for compiling such a list are approved by the Government of the Republic of Kazakhstan.

The provisions of this paragraph shall not apply to taxpayers specified in paragraphs 1, 5 and 6 of this article.

8. Remained in force before 01.01.2019 in accordance with the Law of the Republic of Kazakhstan dated 25.12.2017 No. 121-VI.

Footnote. Article 250 as amended by Law of the Republic of Kazakhstan No. 262-VI dated 03.07.2019 (shall be enforced since 01.01.2020); dated 10.12.2020 No. 382-VI (enforcement, Article 2); dated 20.12.2021 No. 85-VII (shall be enforced from 01.01.2022); dated 21.12.2022 No. 165-VII (shall be enforced from 01.01.2023).