Allowable deductions generally include expenses associated with activities designed to generate income, unless specifically restricted for deduction by the tax legislation. All expenses require supporting documentation.
Recognition of expenses is performed in accordance with IFRS and Kazakhstan accounting and financial reporting legislation, unless otherwise stated in new Tax Code. If recognition of expenses as per IFRS differs from the new Tax Code, the latter should prevail.
Depreciation and depletion
Tax depreciation is calculated using the declining-balance method at depreciation rates ranging from 10% to 40%, applied to the balances of four basic categories of assets:
- Buildings and facilities (except for oil and gas wells and transmission facilities): 10%.
- Machinery and equipment (except for machines and equipment for oil and gas production, computers, and equipment for information processing): 25%.
- Computers and equipment for information processing: 40%.
- Fixed assets not included in other groups, including oil and gas wells, transmission equipment, oil and gas machinery and equipment: 15%.
There are no special provisions in the Kazakhstan Tax Code with respect to deductibility of goodwill expenses.
In general, assets not subject to amortisation per financial accounting are not regarded as fixed assets and are not subject to deduction.
The Kazakhstan Tax Code does not specifically address deductibility of start-up expenses, but, generally, expenses incurred in relation to business activities and aimed at earning revenue occurring at start-up should be deductible.
Interest payable to unrelated third parties is deducted in full, except for interest payable to banks and micro-financial institutions, which are deducted within the amounts of actually paid interest. For information about taxation of interest paid to related parties, please refer to Thin capitalisation in the Group taxation section.
Receivables that were not paid within three years are to be recognised as bad debt expenses. Such expenses can be deducted in full by a taxpayer, provided that (i) these receivables are reflected in books of the taxpayer and (ii) proper supporting documents are in place.
Charitable contributions are entitled to decrease the taxable base but are capped at 4% of a company’s annual taxable income (the rate for the large taxpayers subject to monitoring is 3%).
Foreign exchange loss
Foreign exchange loss should be determined in accordance with IFRS and Kazakhstan financial accounting legislation. The excess of foreign exchange loss over foreign exchange gain is allowed for deduction.
Fines and penalties
Generally, deductions are available for forfeits, fines, and penalties that are not payable to the state budget.
Taxes remitted to the state budget of Kazakhstan are deductible within accrued amounts, except for the following:
- Taxes excluded prior to calculation of aggregate annual income.
- Income taxes paid in Kazakhstan and other countries.
- Taxes paid in ‘black-listed’ jurisdictions.
- Alternative tax.
Net operating losses
Net operating losses may be carried forward for up to ten years. Loss carryback is not permitted under the Kazakhstan tax legislation.
Payments to foreign affiliates
Payments to foreign affiliates are deductible for CIT purposes if the payments are intended to generate income, supported by documentation, and comply with the Kazakhstan transfer pricing law.