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

Article 274. Investment tax preferences

1. Investment tax preferences (hereinafter referred to as preferences) shall be applied at the choice of a taxpayer in accordance with this article and Articles 275 and 276 of this Code and consist in allocating values of objects of preferences and (or) subsequent expenses for reconstruction and modernization to deductibles.

The right to apply preferences is granted to legal entities of the Republic of Kazakhstan, except for those specified in paragraph 6 of this article.

2. Objects of preferences include buildings and production structures put into operation in the Republic of Kazakhstan for the first time, machinery and equipment that, for at least three taxable periods following the taxable period of their putting into operation, simultaneously meet the following requirements:

1) they are assets with a service life of more than one year, transferred by a concession grantor into possession and use of a concessionaire (successor or a legal entity set up by the concessionaire exclusively for implementation of a concession agreement) under a concession agreement, or fixed assets;

2) they are used by a taxpayer who applied preferences to profit-oriented activities;

3) they are not assets that, due to specific nature of their use, have a direct causal link to implementation of activities under a subsoil use contract (contracts);

4) in tax accounting, subsequent expenses incurred by a subsoil user for these assets are not subject to distribution between activity under a subsoil use contract (contracts) and non-contract activity;

5) they are not assets put into operation within an investment project under contracts concluded before January 1, 2009 in accordance with the legislation of the Republic of Kazakhstan in the field of entrepreneurship;

6) they are not assets put into operation as part of a priority investment project under an investment contract concluded after December 31, 2014 in accordance with the legislation of the Republic of Kazakhstan in the field of entrepreneurship;

7) are not assets for which taxable income was reduced in accordance with subparagraph 7) of part one of paragraph 1 of Article 288 of this Code.

For the purposes of this paragraph, a contract for groundwater extraction is not recognized as a subsurface use contract, provided that the subsurface user engaged in the groundwater extraction is a subsurface user solely because of the possession of such a right to extract groundwater and uses the extracted groundwater for soft drinks production.

3. Subsequent expenses for reconstruction, modernization of buildings and structures for production purposes, machinery and equipment shall be deductible in the taxable period in which they are actually incurred, provided that such buildings and structures, machinery and equipment meet all of the following requirements:

1) are recorded in the taxpayer's accounting as fixed assets in accordance with international financial reporting standards and (or) the requirements of the legislation of the Republic of Kazakhstan on accounting and financial reporting;

2) they are intended for use in profit-oriented activities for at least three taxable periods following the taxable period of their putting into operation after reconstruction, modernization;

3) temporarily taken out of service for the period of reconstruction and modernization;

4) they are not assets that, due to specific nature of their use, have a direct causal link to implementation of activities under a subsoil use contract (contracts);

5) in tax accounting, subsequent expenses incurred by a subsoil user on these assets are not subject to distribution between activity under a subsoil use contract (contracts) and non-contract activity.

For the purposes of applying preferences, the reconstruction, modernization of a fixed asset is a type of subsequent expense, simultaneously resulting in:

alteration, and also renewal, of the design of a fixed asset;

increase in the service life of the fixed asset by more than three years;

improvement of technical characteristics of the fixed asset compared to its technical characteristics at the beginning of a calendar month, in which the fixed asset is temporarily taken out of service for reconstruction and modernization.

4. For the purposes of this article, industrial buildings include non-residential buildings (parts of non-residential buildings), except:

commercial buildings (parts of such buildings);

buildings for cultural and entertainment purposes (parts of such buildings);

buildings of hotels, restaurants and other buildings for short-term accommodation, catering (parts of such buildings);

office buildings (parts of such buildings);

garages for cars (parts of such buildings);

parking lots (parts of such buildings).

For the purposes of this article, industrial buildings include structures, except facilities for sports and recreation, cultural and entertainment facilities, hotel, restaurant facilities, facilities for administrative purposes, for car parking.

5. For the purposes of applying preferences, a newbuilding (part of a building) constructed in the territory of the Republic of Kazakhstan is deemed as one put into operation for the first time:

1) when a construction object is transferred by a developer to a customer after signing the certificate of commissioning of a building (part of a building) in accordance with the legislation of the Republic of Kazakhstan on architectural, town-planning and construction activities - during construction by concluding a construction contract;

2) when acertificate of commissioning of a building (part of a building) is signed in accordance with the legislation of the Republic of Kazakhstan on architectural, town-planning and construction activities- in other cases.

6. Taxpayers meeting one or more of the following conditions are not eligible to apply preferences:

1) taxation of the taxpayer is carried out in accordance with Section 21 of this Code;

2) the taxpayer produces and (or) sells all types of spirit, alcohol products, tobacco products;

3) the taxpayer applies special tax regime provided for by Chapter 78 of this Code.

Footnote. Article 274 as amended by the Law of the Republic of Kazakhstan dated December 10, 2020 No. 382-VI (enforcement, Article 2); dated 24.06. 2021 No. 53-VII (effective from 01.01.2022).