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

Article 196. Financial lease

1. Financial lease is the transfer of property under a lease agreement concluded in accordance with the legislation of the Republic of Kazakhstan and also the provision of a leased asset for secondary lease or sublease.

2. If a lessee may extend the term of financial lease under a lease agreement, the term of financial lease is determined with account of actual period of extension.

3. Property transferred for financial lease is leased assets to be received by a lessee under a lease agreement.

For tax accounting purposes, the lessee is treated as the buyer of a leased asset.

The value at which a leased asset is transferred (received) is the value of the leased asset determined on the basis of a lease agreement. If the lease agreement does not specify the value at which the leased asset is transferred (to be received), then the said value is determined as the sum of all the lease payments payable for the entire lease period, exclusive of VAT.

For tax accounting purposes, the transfer of property under a property lease agreement, which is at variance with a lease agreement concluded in accordance with the legislation of the Republic of Kazakhstan, is treated as rendering of services, and lease payments payable, exclusive of VAT, - as a payment for services rendered, respectively.
Article 197. Requirements to the transfer of property into financial lease for the purposes of applying tax reliefs

1. For the purposes of applying subparagraph 1) of paragraph 2 of Article 288, Article 398, paragraph 6 of Article 427 and paragraph 6 of Article 428 of this Code, the transfer of property into financial lease shall meet the requirements provided for in this article.

2. Unless otherwise established by this paragraph and paragraph 3 of this article, financial lease is the transfer of property under a lease agreement concluded in accordance with the legislation of the Republic of Kazakhstan for a period over three years if it meets one of the following requirements:

1) transfer of property into the ownership of a lessee and (or) granting of the right to purchase the property at a fixed price to a lessee are specified in a lease agreement;

2) the financial lease term exceeds 75 percent of the useful life of the property transferred into financial lease;

3) current (discounted) value of lease payments for the entire term of financial lease exceeds 90 percent of the value of property transferred into financial lease.

Secondary lease is the provision of leased assets left in the ownership of a lessor to another lessee (lessees) in case of termination, cancellation of a lease agreement or its modification caused by a change in the number of leased assets (for the purposes of this article, hereinafter referred to as a primary lease agreement), provided all of the following requirements are met:

a primary lease agreement is canceled, terminated or modified and a secondary lease agreement (agreements) is (are) concluded within one taxable period established by Article 423 of this Code;

conditions provided for in a primary lease agreement remain in a secondary lease agreement (agreements), except for those concerning the number of leased assets, lease payments and a lease term;

the number of leased assets provided for secondary lease shall not exceed their total number under a primary lease agreement;

the value of the leased asset transferred to secondary lease does not exceed the value of the leased asset under the primary lease agreement, reduced by the amount of lease payments, except for the lease interest paid as of the date of the lease agreement termination, the interest rate amount under the secondary lease agreement (s) does not exceed the size of the interest rate under the primary leasing agreement;

leased assets are provided for secondary lease for at least three years.

3. For the purposes of applying subparagraph 1) of paragraph 2 of Article 288, Article 398, paragraph 6 of Article 427 and paragraph 6 of Article 428 of this Code, none of the following is financial lease:

1) leasing transactions in case of cancellation of lease agreements on them (termination of obligations under a lease agreement) prior to expiration of three years from the conclusion of such agreements, except for the case of:

declaring a lessee bankrupt in accordance with the legislation of the Republic of Kazakhstan on rehabilitation and bankruptcy and its removal from the National Register of Business Identification Numbers;

declaring a lessee, that is an individual, missing or deceased, incapacitated or partially incapacitated by a final and binding court judgment, categorizing him/her as a I, II disability group member, and also in case of death of a lessee that is an individual;

entry into legal force of a law enforcement officer’s decision to return a writ of execution to a lessor becausea lessee has no property, including money, securities or income, which can be seized and sold, and (or) in case of unsuccessful measures taken by the law enforcement officer to identify his/her property, including money, securities or income as provided for by the legislation of the Republic of Kazakhstan on enforcement proceedings and the status of law enforcement agents;

entry into legal force of a court judgment to reject the lessor’s claim for foreclosing on the lessee’s property, including money, securities or income;

provision of leased assets for secondary lease;

2) leasing transactions for which the amount of lease payments (that under an agreement and (or) actual one) exclusive of remuneration for the first year of the lease agreement is more than 50 percent of the leased asset’s value;

3) leasing transactions with respect to which, prior to expiration of three years from the conclusion of the lease agreement, the lessee changed due to the change of persons in the liability, except for its reorganization;

4) leasing transactions with respect to which the lessor changed due to the change of persons in the liability, except for its reorganization through transformation;

5) transactions for the transfer of property into sublease.

Footnote. Article 197 as amended by the Law of the Republic of Kazakhstan dated 10.12.2020 No. 382-VI (effective from 01.01.2018).