The rules for taxation of dividends in respect of shares that are included in the official listing of a stock exchange in Kazakhstan will significantly change as of 1 January 2023.
On 11 July 2022, Law of the Republic of Kazakhstan No. 135-II, “On Introduction of Changes and Additions to the Code of the Republic of Kazakhstan, ‘On Taxes and Other Obligatory Payments to the Budget’ (Tax Code) and the Law of the Republic of Kazakhstan, ‘On Introduction of the Code of the Republic of Kazakhstan, ‘On Taxes and Other Obligatory Payments to the Budget’ (Tax Code)’” (the Amendment Law) was passed.
Starting from 1 January 2023 (when the Amendment Law comes into force), a mere inclusion of shares in the official listing of the stock exchange will not be sufficient (as is the case now) for the dividend tax exemption. The dividend tax exemption will apply only if there have been trades with such shares. The criteria of sufficiency of the trades will be set out by the Kazakhstan government.
Notably, the Amendment Law uses the plural for the term “exchange,” i.e., it refers to “the official listing of the stock exchanges functioning in the territory of the Republic of Kazakhstan” (emphasis added). There are two stock exchanges in Kazakhstan: the Kazakhstan Stock Exchange (KASE) and the Astana International Exchange (AIX).
It is unclear how the Amendment Law will apply to the AIX. A special statute governs the taxation of dividends in respect of shares that are included in the official listing of AIX: the Constitutional Law of the Republic of Kazakhstan dated 7 December 2015, No. 438-V ZRK, “On International Financial Centre ‘Astana’” (the Constitutional Law). The Constitutional Law does not provide for any additional criteria (such as active trades) for the dividend tax exemption in respect of shares that are included in the official listing of the AIX (save for the mere listing of such shares).
Taking the above into account, it seems that no withholding tax at the source will still apply in respect of such shares even after the Amendment Law comes into force (irrespective of the active trades). However, when such income is eventually received by a Kazakhstan resident company, then it appears that the resident company will not be able to adjust its income in the absence of the active trades (though this issue is rather debatable considering quite compelling supporting language of Constitutional Law Article 6.7).
That being said, one cannot exclude that the tax authorities and courts will take a more aggressive position on the matter. See, for instance, the Letter of the Deputy Head of the State Revenue Committee of the Ministry of Finance of the Republic of Kazakhstan dated 11 July 2022, No. KGD-07-1-15/10486-I: “[A]t the same time, aggregate annual income will be adjusted in respect of dividends on securities listed on KASE and AIX if – in the relevant tax period – there were active trades on the stock exchange (the criteria to be determined by the Government of Kazakhstan). If there were no active trades on the stock exchange in respect of such securities during the relevant tax period, then dividends on such securities will be subject to corporate income tax in the form of the income subject to taxation at source.”
The table below demonstrates the potential impact of the Amendment Law on taxation of dividends with respect to shares listed on a stock exchange.
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Income |
Resident Legal Entity |
Nonresident Legal Entity |
Comments |
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Income in the form of dividends in respect of shares that are included in the official listing of the KASE (no active trades) |
2022: No taxation 2023: Taxation both at the source and at the level of the recipient |
2022: No taxation 2023: Taxation at the source |
The situation with resident legal entities is quite unusual. Thus, if dividends are subject to taxation starting in 2023, then this effectively means that this regime is worse than the regime applicable to other (nonlisted) shares because no tax applies in respect of dividends on such nonlisted shares (both at the source and at the level of recipient) |
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Income in the form of dividends in respect of shares that are included in the official listing of the KASE (active trades) |
2022: No taxation 2023: No taxation |
2022: No taxation 2023: No taxation |
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Income in the form of dividends in respect of shares that are included in the official listing of the AIX (no active trades) |
2022: No taxation 2023: No tax at the source, but potentially there might be taxation at the level of the recipient |
2022: No taxation 2023: No tax at the source |
Given that the Constitutional Law is not amended, it seems that the withholding tax at the source should not apply (and taxation at the level of the recipient is quite debatable) |
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Income in the form of dividends in respect of shares that are included in the official listing of the AIX (active trades) |
2022: No taxation 2023: No taxation |
2022: No taxation 2023: No taxation |
The Amendment Law introduced other changes to the dividend taxation regime; in particular, it abolished the full dividend tax exemption rule when holding shares for more than three years (a 10% flat rate was introduced instead).
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