The origin of the talk:
I along with some of my friends, citizens from different countries and not from Kazakhstan, wondered one fine day if we could start some business in Astana, Kazakhstan. We had questions in mind about the legal and tax implications of doing business on a "freelance" basis, or through formal partnership.
Since we are not the high net worth individuals and have thin pockets, we were thinking of opening something small. A small enterprise which mostly works on teaching, tutoring, selling of travel and tour packages and visa and documentations like notary, and legalisation and so on. The business which mainly focusses on the service aspect.
Then, we wondered what would be our tax liability as an individual, and the tax liability of our small firm (Partnership Firm or Limited Liability Partnership - LLP).
We did bit of internet research. We downloaded "Doing business in Kazakhstan" document prepared by almost all of the Big4s. Some of our doubts were answered and some remained unanswered. The target of the Big4s (if you do not know who they are, they are the world famous big accounting and consulting firms namely EY (Ernst & Young), KPMG, Deloitte, and PwC) was obviously the deep pocketed multinationals and their heavily paid "expatriates". For poor "migrants" like us, they offered too little and in any case, we could not afford their services.
Hence, we started using our local contacts - wonderful Kazakh people - who are working in different companies and firms. They were kind and listened to our problems and offered their gratuitous advice and knowledge over a cup of coffee. Based on our conversations with few of those accountants, we have prepared this small "note". The focus of this "note" is mainly the freelancers - both local and immigrants and should be read in that context.
So, the main takeaways are:
1. The good news is that Kazakhstan's tax rate in general is flat 10%. I would say that the rate is pretty low and favourable for entrepreneurs.
2. For freelancers and for service providers, you have the option of selecting "simplified tax regime". That gives you even better deal where you have to pay tax at 3% rate. The downside of this scheme is that you can not deduct any expenses from your total income while computing taxable income. That means whatever you have earned/collected, you must pay tax on that entire amount. The rent amount , the salaries of the employees to name a few are nondeductible.
3. In both the above schemes of 1 & 2, if you have employees and if you pay salary to them (of course!, you will have to pay), then, you have to deduct income tax on their salary at 10% rate and deposit to tax office. This is a worldwide concept known as TDS (tax deduction at source).
4. In both the schemes of 1 & 2 above, in addition to TDS of 10% (that you deduct from the salary to be paid to employees), you should also pay pension contributions at 10% rate and the social contributions at 5% rate. The computations can be pretty tedious to explain on this post.
5. In Scheme 1 explained above and in the scenario of TDS on the employee's' salary, there is an exemption on minimum monthly wages. That is no tax has to be paid on Minimum Wage Amount which is 22,859 KZT for 2016. To make it simple, If you pay salary of 60,000 KZT per month to your employee, you have to deduct income tax amount of 3,115 KZT from his salary and deposit it to tax office. This amount of 3,115 KZT is calculated as follows:
TDS = (Total salary - Minimum Wages stipulated by government - Pension Contributions at 10%)* 10%
= (60,000-22,859-6,000)*10% =3,115 KZT
6. The most scariest part of Kazakh Tax system is that if you earn (as a freelancer) more than 22,859 KZT per month (i.e. more than 68 USD per month, or 807 USD per year), you have to pay tax at 10% with permissible business deductions or at 3% without any deductions in your total earnings. IS NOT THAT SCARY?
Let me give little perspectives from India as I come from there. In India, you have to pay your income tax only if you earn more than 3,732 USD. Therefore, I feel that paltry exemption of 274,308 KZT is in effect an incentive for many not to complete the tax laws. I think Kazakh government should look into it on the light of inflation and currency devaluation of last year.
For a rough calculation of how Income tax is computed in India, you can follow this link:
https://cleartax.in/guide/income-tax-slabs
7. Now, who can resort to "simplified tax regime" of 3%? I understand that only the Kazakh Citizens and the foreigners having Kazakh residence permit can open such venture opting for 3% tax regime.
One of my accountant friends has to say this:
"According to Article 6 of the Law of the Republic of Kazakhstan "On legal status of foreigners temporarily staying in the Republic of Kazakhstan", foreigners are not entitled to carry out entrepreneurial activity as subjects of small and medium entrepreneurship without forming a legal entity. Individual entrepreneurs can only be the subjects of small or average business, and can not be in accordance with paragraph 8 of Article 6 of the Law "On private entrepreneurship entities of a large enterprise. Therefore, the registration as the individual businessman of an alien not having a residence permit belonging to any state, is impossible.
I have copied the response without making any grammatical or other changes and I am not very sure of everything but I understood that foreigners can not opt for 3% tax regime unless they have permanent residence from Ministry of Internal Affairs after approval from National Security Council (NSC).
8. With respect to minimum Wages, I understand that it is 22,859 KZT per month for 2016. This is based on the information received from my accountant friend but I am not sure about the source of the information. I think the Kazakh government announces minimum salary/wage level every year by notification.
By the way, I found KPMG Tax Alert "Doing Business in Kazakhstan" and it confirms the above view.
A little longer post on this can be accessed from my blog: http://astana-almaty.blogspot.com/2016/09/kazakhstan-taxation-some-questions-and.html
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