Tax risks in international business
What Kazakhstani businesses need to consider when working with foreign counterparties
Entering international markets opens up new opportunities for Kazakhstani businesses, but at the same time it multiplies their tax risks. In recent years, the tax authorities of Kazakhstan have been tightening control over cross-border operations, paying particular attention to transactions with non-residents, transfer pricing and the application of international treaties.
In this environment, sound tax planning becomes an essential part of the strategy of any business that works with foreign partners.
In this environment, sound tax planning becomes an essential part of the strategy of any business that works with foreign partners.
On transfer pricing
Transfer pricing and control over international transactions
Under the Law of the Republic of Kazakhstan “On Transfer Pricing”, the state controls transactions that may affect the amount of taxable income in the country. This primarily concerns transactions between related companies, intra-group financing, export and import contracts and transactions with companies from low-tax jurisdictions.
If the tax authorities conclude that the transaction price does not correspond to the market level, the company may be charged additional taxes, late-payment penalties and fines.
In practice, it is international transactions that most often become the subject of tax audits, so it is important for businesses to assess the possible tax consequences in advance and build a safe operating structure.
If the tax authorities conclude that the transaction price does not correspond to the market level, the company may be charged additional taxes, late-payment penalties and fines.
In practice, it is international transactions that most often become the subject of tax audits, so it is important for businesses to assess the possible tax consequences in advance and build a safe operating structure.
structuring a business for tax purposes
The risk of creating a permanent establishment
One of the common problems when working with foreign companies is the risk of a non-resident being deemed to have a permanent establishment in Kazakhstan. This status may arise where services are provided in Kazakhstan over an extended period, construction projects are carried out, or the foreign company has employees in Kazakhstan.
If a permanent establishment is recognized, the foreign company is obliged to pay taxes in Kazakhstan and file tax returns.
In many cases, properly structuring a business for tax purposes helps reduce such risks and avoid additional tax liabilities.
If a permanent establishment is recognized, the foreign company is obliged to pay taxes in Kazakhstan and file tax returns.
In many cases, properly structuring a business for tax purposes helps reduce such risks and avoid additional tax liabilities.
compliance with legal requirements
International treaties and reducing the tax burden
Kazakhstan is a party to numerous double taxation treaties. These international agreements make it possible to reduce withholding tax rates or fully exempt certain types of income from taxation.
However, international treaties can be applied only where legal requirements are met and supporting documents are available, including a tax residency certificate of the foreign counterparty.
That is why, when working with international contracts, Kazakhstani businesses often need professional tax advice to apply the provisions of international treaties correctly and reduce the risk of tax disputes.
However, international treaties can be applied only where legal requirements are met and supporting documents are available, including a tax residency certificate of the foreign counterparty.
That is why, when working with international contracts, Kazakhstani businesses often need professional tax advice to apply the provisions of international treaties correctly and reduce the risk of tax disputes.
tax planning for large businesses
Why businesses should assess tax risks in advance
Mistakes in international taxation can lead to serious financial consequences: additional corporate income tax assessments, fines, the blocking of certain operations and litigation.
Comprehensive tax planning for large businesses helps to:
Comprehensive tax planning for large businesses helps to:
- identify tax risks in advance;
- formalize international transactions correctly;
- apply international treaties safely;
- minimize the likelihood of claims from the tax authorities.