Tax Guide for US Expats Living and Working in Kazakhstan
Who Is Liable For Income Taxes in Kazakhstan
Residents are taxed on their worldwide income. Nonresidents are taxed on Kazakhstan-source income only, regardless of where it is paid. Income is deemed to be from a Kazakhstan source if it is paid for work performed in Kazakhstan. Kazakhstan-source income also includes, but is not limited to, interest income from residents and nonresidents having a permanent establishment in Kazakhstan and dividends from resident legal entities.
For tax purposes, individuals are considered residents if they are present in the country for more than 183 days in any consecutive 12-month period ending in that year. Kazakhstan citizens are always considered residents of Kazakhstan if their center of vital interests is located in Kazakhstan. The center of vital interests is deemed to be located in Kazakhstan if all of the following conditions are fulfilled simultaneously:
- The individual is a Kazakhstan citizen or has permission to live in Kazakhstan.
- The family or close relatives of the individual reside in Kazakhstan.
- The individual or members of the family of the individual own, or otherwise have at their disposal, immovable property in Kazakhstan permanently available for residence.
Double tax treaties may provide different rules to determine residency.
Income subject to tax. The taxation of various types of income is described below.
Employment income. Income from employment consists of all compensation, whether received in cash or in kind, subject to minor exceptions, regardless of the place of payment of such income. For a table outlining the taxability of employment income items.
Self-employment and business income. The income of individuals engaged in self-employment activities (individual entrepreneurs) is subject to income tax.
Tax is levied on an individual’s annual business income, which consists of gross income less expenses incurred in obtaining such income. However, to deduct expenses, individual entrepreneurs must be specially registered with the tax authorities and provide supporting documentation for such expenses. The tax rates for self-employment income are the same as those applicable to employment income as set forth in Rates, with the exception of individual entrepreneurs using a simplified taxation regime, advocates and private notaries.
Losses from entrepreneurial activities may be carried forward for up to 10 years to offset taxable income. Losses may not be carried back.
Investment income. In general, investment income is included in taxable income. The tax rates are set forth in Rates.
Certain investment is exempt from tax (see Exempt income).
Exempt income. Certain items are exempt from tax, including but not limited to, the following:
- Business trip per diems within established norms and reimbursement of certain business trip expenses.
- Accommodation and meal expenses within established norms for rotators while they are at the work site.
- The excess of the market value of shares covered by a stock option at the time of the exercise over the exercise price of the option. The exercise price of the stock option is the price fixed in the relevant document based on which the stock option is granted to an employee.
- Alimony.
- Medical expenses within established norms.
- Dividends and interest on securities if, at the time of the accrual of such dividends and interest, the securities are on the official list of a stock exchange operating in Kazakhstan.
- Dividends received from a resident legal entity if the shares or participating interests have been held for more than three years and if at least 50% of the value of the charter (equity) capital or of shares (participating interests) in the legal entity at the date of payment of the dividends is attributable to the assets of a company that is not a subsurface user.
- Interest income on deposits paid to individuals by licensed organizations in Kazakhstan.
- Income from Kazakhstan state securities.
Capital gains. Capital gains are subject to tax at the rates set forth in Rates. Capital gains derived from the securities that are listed on the stock exchange operating in Kazakhstan at the date of realization are exempt from tax.
Capital gains derived from the sale of securities or participation interests in legal entities or consortiums is exempt from tax if at least 50% of the value of the charter (equity) capital or of the shares (participating interests) in the legal entity or consortium on the date of sale is attributable to the assets of a company that is not a subsurface user.
The capital gain derived from the disposal of shares acquired through the exercise of a stock option equals the positive difference between the sales price and the acquisition price. The acquisition price includes the exercise price of the option and expenses incurred on the acquisition of the option.
Deductions.
The minimum monthly salary (MMS), which amounts to KZT 15,999 (approximately US$110) per month for 2011, for an employee, is deductible from an employee’s monthly salary.
Other deductions include, but are not limited to, the following:
- Obligatory pension fund contributions
- Voluntary pension fund contributions
- Insurance premiums for the individual’s own benefit under accumulative insurance agreements
If the amount of the MMS exceeds the amount of the employee’s monthly taxable income, reduced by the amount of obligatory pension contributions, the excess can be carried over to subsequent months within the calendar year to reduce the employee’s taxable income.
If an individual’s workplace changes during the tax period, the above does not apply to the individual’s new workplace. As a result, the employee may not use the excess amount referred to in the preceding paragraph to offset income earned at his or her new workplace.
Rates. The following withholding tax rates apply to resident and nonresident individuals for various types of income.
B. Other taxes
Property tax. Individuals are subject to property tax at rates ranging from 0.05% to 1% of the residual value of the property owned by them.
Vehicle tax. Individuals are subject to vehicle tax on vehicles owned by them, up to a maximum annual tax of approximately US$1,220 per vehicle.
C. Social security
Social tax. Kazakhstan does not have a social security tax as it is known in other countries. A social tax is payable by employers. However, this tax is an additional direct tax imposed on employers that is not earmarked for the social benefit of employees.
The tax base for social tax equals the employer’s expenses related to employees’ income.
Exemptions from social tax include, but are not limited to, the following:
- Compensation resulting from the liquidation of an organization or termination of the employer’s activities, a call to military service or personnel reductions
- Compensation paid by an employer to employees for unused vacation
- Obligatory pension fund contributions
Employers must pay social tax at a flat rate of 11% of gross income, less the obligatory pension fund contributions for Kazakhstan citizens. The minimum tax base for social tax per employee is the MS.
Social tax must be remitted to the state budget on a monthly basis. Monthly social tax liability is reduced by the monthly amount of obligatory social insurance contributions (see Obligatory social insurance contributions).
For individual entrepreneurs (excluding entrepreneurs working under special tax regimes), private notaries and advocates (attorneys), the rate of social tax is 2 times the minimum calculated index (MCI; approximately US$20) for themselves and one MCI (approximately US$10) for each employee, if any.
Pension fund contributions. Obligatory pension fund contributions of 10% of the gross salaries of local employees must be withheld and remitted to pension funds by the employer on a monthly basis. For 2011, income received in excess of KZT 1,199,925 (approximately US$8,275) per month is not subject to obligatory pension fund contributions. Obligatory pension fund contributions are deductible for personal income tax and social tax purposes.
Obligatory social insurance contributions. Obligatory social insurance contributions at a rate of 5% are payable by employers on income paid to employees. They are capped at KZT 7,999 (approximately US$55) per month.
Individual entrepreneurs are also subject to obligatory social insurance contributions. The rate of the obligatory social insurance contributions for individual entrepreneurs is also 5%. This rate is applied to the MMS.
To learn more about the history, culture, economy and other information about Kazakhstan
We have been preparing US income tax returns for US Citizens and permanent residents living in Kazakhstan for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in Kazakhstan and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Kazakhstan.
We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire or request a request a consultation by phone, skype or email