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

Article 303. Offset of a foreign tax

1. Unless otherwise provided for by this article, the amounts of taxes, paid outside the Republic of Kazakhstan, on income or profit or another foreign tax similar to the corporate or individual income tax (hereinafter referred to as the foreign income tax, for the purposes of this article) on income received by a resident taxpayer from sources outside the Republic of Kazakhstan are subject to offset against corporate or individual income tax in the Republic of Kazakhstan given a document confirming the payment of such a foreign income tax.

Such a document is a statement of the amounts of income received from sources in a foreign country and taxes paid, which is issued and (or) certified by a tax authority of a foreign state.

If a statement of the amounts of income received from sources in a foreign country and taxes paid, which is issued and (or) certified by a tax authority of a foreign state, is drawn up in a foreign language, it is mandatory to provide its translation into Kazakh or Russian certified by a notary in accordance with the procedure established by the Republic of Kazakhstan.

When applying the amounts of foreign income tax paid in a foreign country against a corporate or individual income tax, a taxpayer may submit the statement specified in this paragraph at the request of a tax authority with a view to conducting an in-house audit.

2. Foreign income tax is not offset in the Republic of Kazakhstan, which is calculated on the income of a resident taxpayer from sources outside the Republic of Kazakhstan that are:

exempt from taxation in accordance with the provisions of this Code;

subject to adjustment in accordance with Article 241 of this Code;

taxable in the Republic of Kazakhstan in accordance with the provisions of an international treaty, regardless of the fact of payment and (or) withholding of a foreign income tax on such income in a foreign country within the amount of tax paid in excess in a foreign country. In this case, the tax amount paid in excess is defined as the difference between the actually paid amount of the foreign income tax and the amount of the foreign income tax payable in a foreign country in accordance with the provisions of the international treaty.

3. The size of offset amounts provided for by this article shall be determined for each foreign country separately.

In this case, the size of the offset amount of the foreign income tax is the smallest amount from the below ones:

1) the amount of foreign income tax actually paid in a foreign state on income received by a resident taxpayer from sources outside the Republic of Kazakhstan;

2) the amount of foreign income tax on income from sources outside the Republic of Kazakhstan that is payable in a foreign country in accordance with the provisions of an international treaty of the Republic of Kazakhstan;

3) the amount of a corporate or individual income tax on income from sources outside the Republic of Kazakhstan, calculated in the Republic of Kazakhstan at the rate established by this Code.

During the period of limitation of actions established by Article 48 of this Code, a taxpayer shall offset the foreign income tax on income from sources outside the Republic of Kazakhstan in the taxable period in which the specified income is (to be) received.

In case of income recognition in a foreign country in a taxable period, other than the taxable period in which the specified income is recognized in accordance with this Code, a resident taxpayer has the right to offset the foreign income tax on income from sources outside the Republic of Kazakhstan in the taxable period in which such income is assessed in accordance with the tax legislation of the Republic of Kazakhstan.

The provision of this paragraph does not apply to the provisions of paragraph 4 of this article.

4. The amount of income tax on the financial profit of a controlled foreign company or the financial profit of a permanent establishment of a controlled foreign company, calculated according to the following formula, shall be offset against the payment of corporate income tax in the Republic of Kazakhstan:

To = P × D × Re / 100%, where:

To - the amount of income tax subject to offset;

P - positive amount of financial profit of a controlled foreign company or positive amount of financial profit of a permanent establishment of a controlled foreign company, included in the object of taxation of a resident in accordance with Article 223 of this Code;

D - coefficient of direct or indirect or constructive participation or direct or indirect or constructive control of a resident in a controlled foreign company, determined in accordance with Article 297 of this Code;

Re - effective rate determined in accordance with subparagraph 12) of paragraph 4 of Article 294 of this Code, excluding income tax, including withheld at the source of payment in the Republic of Kazakhstan from the income specified in subparagraphs 1) - 10) of part one of paragraph 4 of Article 297 of this Code.

The provisions of part one of this paragraph shall not be applied to a controlled foreign company and (or) a permanent establishment of a controlled foreign company that is registered in states with preferential taxation and (or) a resident, when calculating the total profit of a controlled foreign company and (or) a permanent establishment of a controlled foreign company, uses the formula with the share of passive incomes in the current tax period.

If financial profit of a controlled foreign company or financial profit of a permanent establishment of a controlled foreign company was subject to foreign income tax in two or more foreign countries, then only that foreign income tax for which the effective rate is the maximum of the effective foreign income tax rates shall be taken into account, paid in such foreign countries. The provisions of this part shall be applied:

1) in case of indirect ownership of participation interests (voting shares) or indirect control in a controlled foreign company and payment of foreign income tax in two or more foreign states (in which the controlled person (controlled persons) is (are) registered, through which such indirect ownership or such indirect control is carried out from the financial profit of a controlled foreign company or the financial profit of a permanent establishment of a controlled foreign company, or

2) in case of direct ownership of participation interests (voting shares) or direct control in a controlled foreign company and payment of foreign income tax on the financial profit of a permanent establishment of a controlled foreign company in foreign states in which are registered:

a permanent establishment of a controlled foreign company;

a controlled foreign company that has created a permanent establishment.

In case of direct and indirect ownership of participation interests (voting shares) by a resident or if a resident has direct and indirect control in a controlled foreign company, the amount of foreign income tax on the financial profit of a controlled foreign company or the financial profit of a permanent establishment of a controlled foreign company, which is subject to offset in accordance with this paragraph shall be calculated separately for each direct and indirect ownership of participation interests (voting shares) or direct and indirect control in a controlled foreign company. At the same time, the amount of such foreign income tax calculated separately for direct and indirect ownership of participation interests (voting shares) or direct and indirect control in a controlled foreign company shall be subject to offset in accordance with this paragraph.

For the application of this paragraph, the resident must have available (with mandatory translation into Kazakh or Russian) the following documents:

a copy of the approved separate financial statements of a controlled foreign company and/or a permanent establishment of a controlled foreign company;

a document certified by the signature of the first head (or a person authorized to sign the financial statements) of the resident, disclosing the unified organizational structure of a consolidated group, of which the resident is a participant (shareholder), reflecting the names of all participants in such a consolidated group and their geographical location (names of states (territories) where the participants of a consolidated group are created (established), the size of participation interests and the numbers of state and tax registration of all participants in the consolidated group (if there is a tax registration);

a copy of a document (documents) drawn up in a foreign language confirming the payment in a foreign state in which a controlled foreign company is registered or a permanent establishment of a controlled foreign company is registered, foreign income tax on the financial profit of a controlled foreign company and (or) permanent establishment of a controlled foreign company;

a copy of a document (documents) drawn up in a foreign language confirming the withholding and transfer to the budget of a foreign state (foreign states) of tax at the source of payment from income (incomes) included in financial profit before taxation;

a document certified by the signature of the first head (or a person authorized to sign the financial statements) of a controlled foreign company and (or) a permanent establishment of a controlled foreign company, disclosing information on inclusion in financial profit before taxation of income (incomes) subject to withholding tax, or an explanatory note to the audited financial statements, certified by the person who audited the financial statements of a controlled foreign company and (or) a permanent establishment of a controlled foreign company, disclosing information on inclusion in financial profit before taxation of income (incomes) subject to withholding tax payments.

Footnote. Article 303 as amended by the Law of the Republic of Kazakhstan dated 02.04.2019 № 241-VI (shall be enforced from 01.01.2018); dated 10.12.2020 No. 382-VI (shall be enforced from 01.01.2020).