contents



Introduction

1     THEORETICAL ASPECTS OF FISCAL POLICY: TAXATION

        1.1 Fiscal policy



   1.2 Taxation


      1.2.1 MAJOR TAXES and DUTIES


   2  Features of Residents and Nonresidents taxation

   2.1. Features of Resident
   2.2       Permanent establishment of a nonresident

   2.3       Nonresidents income from sources in the Republic of Kazakhstan

   2.4       Procedure for the taxation of the income earned by nonresident
legal       entities doing business without creating a permanent
establishment in the Republic of Kazakhstan
      2.4.1 Procedure and deadlines for the payment of income tax at the
source            of payment
      2.4.2       Provisions specific to the calculation and payment of
income tax on
      capital gains from the realization of securities
      2.5 Procedure for the taxation of the income earned by nonresident
legal       entities doing business through a permanent establishment
      2.5.1 Procedure for taxation of the net income of a nonresident legal
entity       from doing business through a permanent establishment
      2.5.2 Procedure for taxation of the income of a nonresident legal
entity in certain cases
   2.6 Procedure for the taxation of the income of income of nonresident
   individual
      2.6.1 Procedure for calculation and payment of the income tax on a
      nonresident individual whose activities lead to the creation of a
      permanent establishment
      2.6.2 Procedure for the taxation of a nonresident individuals income
in certain cases
      2.6.3 Procedure and deadlines for prepayment of the individual income
tax
      2.6.4 Statement of anticipated individual income tax and individual
      income tax return
   2.7 Special provisions regarding international agreements
      2.7.1 Proportional distribution of expenses method
      2.7.2 Direct deduction of expenses method
    2.7.3 Procedure for payment of the income tax on income earned by
nonresidents from activity in the Republic of Kazakhstan not leading to the
creation of a permanent establishment
      2.7.4 Procedure for the application of an international agreement with
respect to taxation of income from providing transportation services in
international shipping
      2.7.5 Procedure for the application of an international agreement with
regard to the taxation of dividends, interest, and royalties
      2.7.6 Procedure for the application of an international agreement with
regard to the taxation of net income from doing business through a
permanent establishment
      2.7.7 Procedure for the application of an international agreement with
regard to the taxation of other income from sources in the Republic of
Kazakhstan
      2.7.8 General requirements for the filing of a request to apply the
provisions of an international agreement



Conclusion


Appendix A
Appendix B

THE LIST of USED SOURCES



                                Introduction


   The taxes are a necessary part economic activity in a society from the
moment of occurrence the states. Development and change of the forms of the
state system always lead to transformation of tax system. Taxes  is basic
sources of incomes of the state in a modern civilized society. Besides this
especially financial function, taxes are used for economic influence of the
state on public manufacture, its structure, and on condition of scientific
and technical progress. Among economic levers, through which the state
influences market economy, the important place belongs to the taxes. In
conditions of market economy any state widely uses tax policy as the
regulator of influence on the negative event in the market. The taxes, as
well as all tax system, are the powerful tool of management of economy in
terms of the market. The application of the taxes is one of economic
methods of management and maintenance of interrelation of nation-wide
interests with commercial interests of the businessmen and enterprises,
independent from departmental subordination, patterns of ownership and
legal form of the enterprise.
   With the help of the taxes determined the mutual relation of the
businessmen, enterprises of all forms is the properties with the state and
local budgets, with banks, and also with higher-level organizations.
Through the taxes the foreign trade activities are adjusted, include the
attraction of the foreign investments.
   The tax system in Kazakhstan is based on the Tax code enacted by the
presidents Decree that has the force of Law on Taxes and other obligatory
Payments to the Budget The taxes are the basic source of formation of a
profitable part of the budget of Republic of Kazakhstan. Not last role in
it plays the taxes from the nonresidents. According to the legislation on
Kazakhstan foreign citizens - residents in the Republic of Kazakhstan (RK)
are subject to individual income taxation on their worldwide income.
Foreign citizens - nonresidents are subject to taxation only on income
received from Kazakhstan sources. The following types of nonresidents
income, among others, should be considered as received from sources in
Kazakhstan:
      . Income received from operations in the RK under individual labor
        agreements (contracts) or under other agreements of a civil-legal
        nature;
      . Directors fees and /or other payments received by members of aboard
        of a resident legal entity, regardless of the place of the actual
        performance of their functions;
      . Fringe benefits received in connection with their assignment to
        Kazakhstan its rates;
    Payment and other conditions are regulated by the chapters 7, 10, 12,
15, 18 and other of Law on Taxes and other obligatory Payments to the
Budget. Taxation of foreign citizens in the RK is also regulated by
Conventions (agreements) on the avoidance of double taxation. In case there
is a Tax Convention signed between Kazakhstan and the other foreign state,
which may be applicable to a foreign employee, then the status of residency
is determined in compliance with this Convention. The Tax Conventions do
not regulate procedure of filing and regularity of tax payments. However,
based on the status of residency of a foreign employee determined by the
Tax Conventions specific reporting and taxation requirements stipulated by
the Kazakhstan tax legislation should be fulfilled with respect to
residents or nonresidents in the RK. In case the foreign employee is a
resident of the other foreign state, then he/she should be considered as a
nonresident for taxation purposes in Kazakhstan. In this case the foreign
employee should file a Certificate on the Estimated Personal In-come Tax
and pay personal income tax through the monthly transfer of advance
payments. In case a foreign employee is considered as a resident of
Kazakhstan, then the statutory rules do not contemplate filing of the
Certificate on the Estimated Personal Income Tax and contemplate in-come
tax payment once a year at the time of filing the income tax return from an
individual for a year.



              1. THEORETICAL ASPECTS OF FISCAL POLICY: TAXATION


     1.1    Fiscal policy


     Fiscal (lat. fiscalis - state) policy (politics) - is the aggregate of
financial measures of the state on regulation of the governmental incomes
and expenditures. It changes significant depending on put strategic tasks,
as for example, anticrisis regulation, maintenance high employment,
struggle with inflation.
     The modern fiscal policy defines basic directions of use of financial
resources of the state, means of financing and main sources of updating of
treasury. Depending on concrete - historical conditions in different
countries such policy (politics) has its own features. At the same time in
Developed Countries is used set of common measures. It includes straight
and indirect financial methods of regulation of economy.
     To straight ways concern the means of budget regulation. By the means
of the state budget are financed:
    1) expense on expanding of reproduction;
    2) unproductive expenditures of the state;
    3) development of an infrastructure, scientific researches and etc.:
    4) realization of structural policy (politics);
    5) the support of military producers complex etc.
     With help of indirect methods state influences on financial opportunity
of the manufacturers of the goods and services and on the demand sizes of
customer. The important role here plays the System Taxation. Changing the
rates of the taxes on various kinds of the incomes, giving tax privileges,
reducing free minimum of the incomes etc., state aspires to achieve
probably steadier rates of economic Growth and to avoid sharp rises and
falls of manufacture.
     To number of the important indirect methods assisting accumulation of
the capital, is the policy (politics) of the accelerated amortization. On
the essence, the state exempts the businessmen from payment taxes with part
of the profit, is artificial redistribute it in amortization fund. So, in
Germany in the beginning 70 years on a number of industries on amortization
it was authorized to write off till 20-30 of % of cost of a fixed capital
in one year. In Great Britain in first year of introduction in using of the
new equipment it was possible to deduct in fund of amortization 50 % of
cost new instruments of manufacture.
     However in these cases the amortization is written off in the sizes,
that significant exceeding the valid deterioration basic capital, in
consequences the raise of price on made with the help of this equipment
production. If accelerated amortization expands financial opportunities of
the businessmen, simultaneously it deteriorates the condition of
realization of production and reduces purchasing power of population.
     Depending on character of use direct and indirect financial methods
distinguish two kinds of fiscal policy of the state:
     a) Discretion
     b) Non-discretion.
a)    Discretion (lat. discrecio - working on itself discretion) the policy
(politics) means the following. The state consciously regulates its
expenditure and taxation with the purposes of improvements economic of
situation of the country. At the same time government takes into account
the following checked up on practice functional dependences between
financial variable.
The first dependence: the growth of the state expenditures increases
cumulative demand (consumption and investments). Thereof increase output
and employment of the population. Is important to take into account, that
state expenditures influence on cumulative demand the same as to
investments (work as the animator of investment which has developed  J.
Keynes). The animator state expenditures MG shows, how much grows total
national product D GNP in result of increase of these expenditures DG:
 D GNP =DG ' MG
      It is natural, that at reduction of state expenses G reduces the
volume of GNP.
      Other functional dependence shows, that increase the sums of the taxes
are reduced the personal available income of household. In this case are
reduced demand and volume of production and employment of a labor. And on
the contrary: decrease (reduction) of the taxes conducts to increase of the
consumer expenditures, production and employment.
      The change of the taxation gives multiply effect. However the
multiplier of the taxes is less than the multiplier of the investments and
state expenditures. Actually increase in unit of a gain of the investments
(and state expenditures) is directly influenced on increase in the volume
of the GNP. At reduction of taxes, grows available income, however part it
goes on the consumption, and stayed share is spent for the savings.
      Mentioned functional dependences are used in discretion policy
(politics) of the state for influence on business cycle. Certainly, this
policy (politics) differs on different phases of a cycle.
For example, at crisis the policy (politics) of economic growth will be
carried out.
In interests of growth GNP the state expenditures are increased, the taxes
are reduced, and the growth of the expenditures is combined with reduction
the taxes so that multiply effect on state expenses was more than multiply
effect of the taxes. A result is reduction of recession of manufacture.
      When there is an inflationary growth of manufacture (rise, induced by
surplus of demand), the government will carry out policy (politics) that
hold back business activity - reduces the state expenditures, increases the
taxes. These measures are combined so that multiply effect of reduction of
the expenditures was more, than multiplier of growth of the taxes. In
result the cumulative demand is reduced and volume GNP accordingly
decreases.
b)    The second kind of fiscal policy - non-discretion, or policy of the
automatic (built - in) stabilizers. The automatic stabilizer - economic
mechanism, which without assistance of the state eliminates an adverse
situation on different phases business cycle. Basic built - in stabilizers
are tax receipt and social payments that are carried out by the state.
      On a phase of rise, naturally, the incomes of firms and population
grow. But at the progressive taxation the sums of the taxes increased even
faster. In this period the unemployment is reduced, well being of needy
families is improved. Hence, decrease the payments of the unemployment
benefits and others social expenditures of the state. In a result the
cumulative demand is reduced, and it constrains economic growth.]
      The tendency of transfer payment spending to rise during recessions
and fall during expansions results from the bases on which people qualify
to receive these payments. People qualify to receive welfare programs only
if their income falls below a certain level. They qualify for unemployment
compensation by losing their jobs. When the economy expands, incomes and
employment rise, and fewer people qualify for welfare or unemployment
benefits. Spending for those programs therefore tends to fall. When
economic activity falls, incomes fall. people lose jobs, and more people
qualify for aid, so spending for these programs rises.

      Taxes affect the relationship between real GDP and personal disposable
income they therefore affect consumption expenditures. They also influence
investment decisions. Taxes imposed on firms affect the profitability of
investment decisions and therefore affect the levels of investment firms
will choose. Payroll taxes imposed on firms affect the costs of hiring
workers; they therefore have -impact on employment and on the real wages
earned by workers.
Exhibit below compares government revenues to government expenditures since
I996. We see that government spending in Kazakhstan has systematically
exceeded revenues, revealing an underlying fiscal deficit between 4 percent
and almost 9 percent of GDP, entailing substantial public sector borrowing
requirements. Until 1994, fiscal deficit had essentially financed through
monetary expansion by the Central bank, with a highly detrimental effect on
the rate of inflation during the period. Since then, the National Bank of
Kazakhstan has adopted a more independent monetary policy, and fiscal
deficits have basically financed either by the proceeds from privatization
of state assets or by borrowing foreign loans.

[pic]
Sources: Statistics Agency of RK, 2001

      On a phase of crisis tax receipts automatically fall and reduced the
sum of withdrawals from the incomes of firms and households. Simultaneously
grow payments of social character, including unemployment benefit.
At result the purchasing power of the population is increased, that helps
to overcoming recession of economy.
      From mentioned above it is visible, how large place occupies taxation
in financial regulation of macroeconomic. So we can conclude that the main
direction of fiscal policy of the state is improving the legislations and
practice collection of tax.
      Let's take example for the most important version of the taxes  the
income tax, which is established on the incomes of physical persons and on
profit of firms. How the size of this tax is defined (determined)?
      First is counted the total income - sum of all incomes that are
getting by the physical and legal entities from different sources. From the
total income by the legislation it is usual it is authorized deduct: 1)
industrial, transport, the travelers and advertising expenditures; 2)
various tax privileges (free minimum of the incomes; for example, in USA in
1990 this minimum was 2050 dollars; the sums of the donations, privilege
for the pensioners, disable people etc.). Thus, taxed income is a
difference between the total income and the specified deductions.
      It is important to establish optimum tax rate (size of the tax on unit
of taxation). The following rates of the tax differ:
 hard, which are established on unit of object independently on its cost
(for example, motor vehicle);
 proportional, i.e. uniform percent(interest) of payment of the taxes
independently on the sizes of the incomes;
 progressive, growing with increase of the incomes.
   The practice shows, that at the extremely high rates of taxes discourages
to work and to the innovation. Sharp increase in 60-70- years in western
countries of tax burden has resulted the negative consequences. It has
caused " Tax revolts ", wide evasion from the taxes, promoted outflow of
the capitals and flight of the addressees of the high personal incomes in
the countries with one lower level of the taxation.
   As it is known, in 70s neo-conservators have put forward the theory of
Supply. Its authors have established, that growth of the taxation renders
adverse influence on dynamics of manufacture and incomes. Increase of the
taxes at the expense of increase of their rates on certain stage does not
compensate reduction of receipts in the state budget because of fast
narrowing taxed incomes, and then it can be accompanied also by reduction
of total sums of the budget incomes. In a result the high taxes render
constraining influence on the offer of the capital, work and savings.
   Basic task of economic policy representatives of the theory of Supply
consider determining the optimum rates of taxation and both tax privileges
and payments. Decrease (reduction) of the taxes is considered as a means
capable to ensure Long-term economic growth and struggle with inflation. It
will strengthen aspiration to receive huge incomes, will render the
stimulating influence will increase by growth of production.



12 Taxation


   As required by the Constitution of Kazakhstan, within the tax system of
Kazakhstan, any taxes, levies, and other obligatory payments may be
established only by the laws enacted by the Parliament of the Republic of
Kazakhstan. Parliament may not delegate its constitutional powers to
establish the tax system, taxes or levies, and sanctions for tax violations
to the government or any other authority. Under the Constitution, laws in
general and tax laws in particular enter into effect after the President
signs them.
   Tax legislation of the Republic of Kazakhstan consists of the Tax Code
and Normative Legal Acts, and is regulated by International Agreements. Tax
legislation is based on the principles of the mandatory nature of payment
of taxes and other mandatory payments to revenue, certainty and equity of
taxation, unity of the tax system and publicity of tax legislation. The Tax
Code of the Republic of Kazakhstan establishes Kazakhstan taxes, levies,
and general tax principles. A tax takes largest share of budget revenues
(Appendix A).
   Companies formed in Kazakhstan under Kazakhstan law are taxed on world-
wide income. Income earned by a foreign company or person through a
permanent establishment in Kazakhstan is taxed in Kazakhstan. Branches of
foreign entities are taxed on Kazakhstan source income (where services are
performed, not where paid for). Income from a Kazakhstan source to a non-
resident and not related to a permanent establishment, is taxed at the
source of the payment, and further, on the total income without deductions,
excluding labor that is taxed as personal income.
   Double Tax Treaties In December 1996, a treaty on the Avoidance of
Double Taxation between the United States and Kazakhstan came into force. A
number of treaties on the avoidance of double taxation were ratified in
1998. This includes agreements with the following countries: the Czech
Republic (November 1998), France (November 1998), Sweden (July 1998),
Bulgaria (July 1998), Turkmenistan (July 1998), Georgia (July 1998),
Republic of Korea (July 1998), Germany (November 1998), and Belgium
(November 1998).
Kazakhstan has double tax treaties with more than 20 countries, which
generally follow the OECD Model Income Tax Convention.



|Withholding Tax Rates for Treaty Countries                             |
|                         |Dividends                 |                  |
|                         |Major  |Legislati|Major  |Interest|Royaltie|
|Country of Recipient     |Rate   |ve Rate  |Holding|        |s       |
|                         |(%)    |(%)      |       |(%)     |(%)     |
|                         |       |         |(%)    |        |        |
|Azerbaijan               |10     |15       |-      |10      |10      |
|Belarus                  |15     |15       |-      |10      |15      |
|Bulgaria                 |10     |15       |-      |10      |10      |
|Canada                   |5      |15       |10     |10      |10      |
|Czech Republic           |10     |15       |-      |10      |10      |
|Germany                  |5      |15       |25     |10      |    10  |
|Hungary                  |5      |15       |25     |10      |10      |
|India                    |10     |15       |-      |10      |10      |
|Iran                     |5      |15       |20     |     10 |    10  |
|Italy                    |5      |15       |10     |     10 |    10  |
|Kyrgyzstan               |10     |15       |       |10      |10      |
|Lithuania                |5      |15       |25     |10      |10      |
|Mongolia                 |    10 |15       |-      |10      |    10  |
|Netherlands              |      5|15       |10     |10      |    10  |
|Pakistan                 | 12.5  |15       |10     |  12.5  |15      |
|Poland                   |10     |15       |20     |10      |10      |
|Russia                   |10     |15       |-      |10      |10      |
|South Korea              |    10 |15       |10     |10      |    10  |
|Sweden                   |      5|15       |10     |10      |    10  |
|Turkey                   |10     |15       |-      |10      |    10  |
|Ukraine                  |5      |15       |25     |10      |    10  |
|United Kingdom           |5      |15       |10     |    10  |    10  |
|United States            |5      |15       |10     |    10  |    10  |
|Uzbekistan               |10     |15       |-      |10      |    10  |
|( Belgium                |5      |15       |10      |10      |    10  |
|Georgia                  |15     |15       |-       |10      |    10  |
|Iran                     |5      |15       |20      |10      |    10  |
|Mongolia                 |-      |-        |-       |-       |       -|
|Rumania                  |10     |10       |-       |10      |     10 |
|Turkmenistan             |10     |15       |-       |10      |     10 |
|France                   |5      |15       |10      |10      |     10 |
|Czech Republic           |10     |15       |-       |10      |     10 |
|South Korea              |5      |15       |10      |10      |     10 |
|a. Source: Guide on Taxation and Investment in Kazakhstan in 2002,     |
|Deloitte & Touche                                                      |
|Notes:                                                                 |
|(double taxation treaties with 9 countries listed below are ratified   |
|only by Kazakhstan.                                                    |



      Tax payment is based on the calendar year, with annual declarations
due by end March of the following year (and tax payment within ten days of
declaration). Annual financial statements are due April 30 following the
reporting year.
      Kazakhstan Tax Code, enacted in April 1995, currently apple an
international taxation model based on principles of equity, economic
neutrality and simplicity. The Parliament approved amendments to the Tax
Code by a law dated July 16, 1999; the law was published and became
effective August 3, 1999. Following amendments were made in 01 July 2001
and the New Tax Code has become effective January 1, 2002.  The Ministry of
State Revenues issued tax instructions clarifying the determination and
payment of taxes. Resident persons and local enterprises pay taxes on
worldwide income; foreign enterprises and non-residents pay taxes only on
income from local sources. One is a resident and tax-liable for both direct
and indirect income in Kazakhstan if he/she has been physically present in
Kazakhstan for 183 days in any consecutive 12-month period.
      The penalty for violation of foreign currency regulations constitutes
20 percent of the transaction amount. There are no limitations on the
penalty amount to be charged.
All tax laws must be contained in the Tax Code, which covers taxation at
all levels of government: central, oblast and local.


13 MAJOR TAXES and DUTIES


   Enterprise Profits Tax is levied on legal entities at the rate of 30%,
but 20% in SEZs, and 10% on direct use of land as a sole production asset.
All Kazakhstan and foreign legal entities doing business through a
permanent establishment must register with the tax authorities regardless
of whether they will pay taxes in Kazakhstan or not. Enterprise-related
provisions in the Tax Code include: withholding on dividends and interest
(15%); taxes on royalties, rentals and service fees; excise and local
taxes, and land (10%), property and vehicle taxes; business registration
fees, and fees to engage in selected activities. Branches of foreign
enterprises operating in Kazakhstan pay a "branch profits tax" applied to
their after-tax income. Most business expenses are deductible, including
wages, but there are limits on deductibility of reserves for bad debts
(actual losses deductible), and research and development. Depreciation is
based on pooled asset accounts. Losses can be carried forward for three
years.
   Individual Income Tax: Individuals resident in Kazakhstan are subject to
personal income taxation on their worldwide income. Nonresident individuals
are subject to taxation only on income from Kazakhstan sources. Marginal
rates after a small basic deduction, range from 5% to 30% with top rates
applied to incomes over $33,700 per year. Most tax is withheld at the
source of payment. The tax applies to non-residents' income that is sourced
in Kazakhstan only, and to residents' income worldwide, including interest,
dividends, capital gains and other income. Taxable income from a Kazakhstan
source includes income received under a contract for work or from provision
of services, when performed in Kazakhstan, regardless of where it is
actually paid. Foreigners must register with local tax authorities and
receive a Tax Registration Number within ten days of beginning work under
contract in Kazakhstan, or when they become otherwise tax liable as a
resident, or receive Kazakhstan sourced income at 500 times a monthly
computed basis (about $4,500/year). Foreigners paid abroad must make
quarterly estimated payments of income tax and a yearly income tax
declaration (due March 31st following the tax year). Foreigners paid
locally will have their individual income tax withheld at the source of
payment and sent to the Budget by the employers.
   Value Added Tax (VAT) applicable to all goods, work and services,
including imports to Kazakhstan. The VAT on imports is usually 16%, and
applies to services and goods. Credit for VAT paid on inputs, including
Capital investment, is offset against tax on sales. No VAT is paid on
exports except to other CIS countries, where by agreement, exports are
fully taxed and imports are not taxed (origin principle).
The  article  provides that sales of textile, sewing, leather processing,
and shoe industry products will be zero-rated (0 percent VAT on sales) for
residents of Kazakhstan for sales within Kazakhstan. This change represents
an important stimulus for the domestic light industry development.
      Natural Resources Taxes  include: bonuses paid for the right to
resource exploration, royalties paid for the privilege of exploitation and
excess profits taxes paid when profits exceed amounts anticipated in
setting royalties. Tax rates are set by the Cabinet of Ministers and differ
among resources, and are unique to each location and taxpayer. Prohibited:
special benefits including lock-in of profits tax rates at conclusion of a
Production Sharing Agreement (contract).
      Securities Transaction Tax on new issues of non-government securities,
including stocks and bonds: 0.5% of nominal value. Proceeds from secondary
transactions are taxed at 0.3%, and 0.1% for government securities. Issuer
is liable for tax on initial issues; buyer is liable for tax on secondary
transactions.
      Unified Land Tax is levied on peasants and farmers who use private or
leased land in their business. The payers of the unified land tax are
exempt from corporate income tax, VAT on sales, land tax, transport tax,
and property tax. The rate of the unified land tax is set at 0.1 percent of
the appraised land value (determined by the Land Committee).
      Other Taxes: A fee for the use of the words "National," "Kazakhstan,"
"Republic," and  their derivatives has been included into the list of taxes
in the Tax Code, Business assets are taxed at 0.5% yearly, and individual-
owned real estate is taxed at 0.1%. Vehicles are taxed annually depending
on vehicle type and engine size.
      Double Taxation. A foreigner won't be taxed in Kazakhstan if:
    . he/she is present in the country for less than 183 days in a year and
    . his/her income is paid by a non-resident of Kazakhstan and
    . his/her income is not taken as a deduction in computing corporate
      income tax by a permanent establishment in Kazakhstan.
In not distinct cases, where the person is liable to taxation by law in
his/her own country and in Kazakhstan, he/she is deemed to reside where
he/he has a permanent home, or if he/she has a permanent home in both
places, where his/her personal and economic relationships are centered, or
in case this cannot be determined, where he/she currently lives and works
("habitual abode"). An individual may offset income tax paid in Kazakhstan
against tax owing in his/her home country.

         Additional Payments applicable to businesses

Pension Contributions: Employers must pay two categories of pension
payment:
15% of payroll paid by companies monthly to the State Center for Pension
Payments to be spent on existing pensioners and on state pensions for
current employees;  ?
10% of employees' gross salaries, not affecting the net pay, transferred
for each employee to an accumulation pension fund of that employee's
choice.

           Excise :Excise duty is imposed on taxable items produced in, or
      imported into, Kazakhstan as well as on certain types of activities.
      Excise duty is imposed on alcohol and tobacco products, motor fuels,
      diesel, motor vehicles, salmon and sturgeon roe, firearms, crude oil
      and jewelry. Excise duty is also imposed on gambling businesses and
      lotteries.


           Taxable Products


      (1) Alcohol

      Excise duty is imposed on alcohol articles covered by Harmonized
System numbers 2204 (wine from fresh grapes), 2205 (vermouth and other
wines from fresh grapes flavored with plants or aromatic substances), 2206
(other fermented beverages), 2207 and 2208  (ethyl alcohol, spirits,
liqueurs and other alcoholic beverages).  Excise duty for alcohol products
is levied at various rates in KZT per liter.

      (2) Tobacco

      Excise duty is imposed on tobacco articles covered by Harmonized
System numbers 2402 (cigars, cheroots and cigarettes), 2403 (other
manufactured tobacco and tobacco substitutes, tobacco extracts and
essences).  Excise duty for tobacco products is levied at various rates in
Euros per 1000 items.

      (3) Motor Fuels

      Excise duty is imposed on certain motor fuels covered by Harmonized
System number 2710 (diesel, gasoline and jet engine fuels).  Excise duty
for motor fuels is levied at various rates in EURO per 1000 kg.

      (4) Motor Vehicles

   Excise duty is imposed on motor vehicles covered by Harmonized System
numbers 8703 (motor cars and other vehicles designed for the transportation
of persons). Excise duty for motor vehicles is levied at various rates
normally in EURO per vehicles engine bulk or customs value.
   Such taxes as corporate income tax, value added tax, personal income
tax, and excise taxes account for the largest portion of budget revenues
(Appendix B).



               Features of Residents and Nonresidents taxation


   2.1       Features of Resident

    Residents of the Republic of Kazakhstan are individuals who reside
permanently in the Republic of Kazakhstan, or whose center of vital
interests is located in the Republic of Kazakhstan. An individual shall be
considered to reside permanently in the Republic of Kazakhstan for the
current tax period if he spends at least 183 calendar days in any
consecutive 12-month period ending in the current tax period in the
Republic of Kazakhstan. An individual shall also be considered to reside
permanently in the Republic of Kazakhstan for the current tax period if the
number of days spent in the Republic of Kazakhstan in the current tax
period and the preceding two tax periods, determined by applying the
following coefficients to each tax period, is equal to at least 183
calendar days:
1  the number of days spent in the current tax period;
1/3  the number of days spent in the tax period immediately preceding the
current tax period;
1/6  the number of days spent in the tax period before the one immediately
preceding the current tax period.
      If an individual has lived in the Republic of Kazakhstan in the
current tax period for fewer than 30 calendar days, said individual shall
not be considered to reside permanently in the Republic of Kazakhstan. In
addition, an individual shall be considered a nonresident for the period
following the last day spent in the Republic of Kazakhstan, unless said
person becomes a resident in the year following the year in which the
persons stay in the Republic of Kazakhstan ended.
      An individuals center of vital interests shall be considered to be
located in the Republic of Kazakhstan if the following conditions are met
simultaneously:
1) an individual is a citizen of the Republic of Kazakhstan or has a permit
to reside in the Republic of Kazakhstan (residency permit);
2) an individuals family and/or close relatives reside in the Republic of
Kazakhstan;
3) real property owned by an individual and/or members of his family or
held by them on some other basis is located in the Republic of Kazakhstan,
and the individual has access to it at any time for use as a residence for
himself and/or members of his family.
      Individuals who fall into the following categories and who are
citizens of the Republic of Kazakhstan or who have filed an application for
citizenship of the Republic of Kazakhstan or for a permit to reside
permanently in the Republic of Kazakhstan without becoming a citizen of the
Republic of Kazakhstan, shall be considered resident individuals,
regardless of the time spent in the Republic of Kazakhstan and any other
criteria provided below:
      persons sent abroad on official business by government agencies,
including employees of diplomatic and consular institutions and
international organizations, as well as family members of said individuals;
      crew members of means of transport belonging to legal entities or
citizens of the Republic of Kazakhstan, which make regular international
trips;
      military and civilian personnel at military bases and those serving in
military units, groups, contingents, or formations deployed outside the
Republic of Kazakhstan;
      persons working at facilities located outside the Republic of
Kazakhstan which are owned by the Republic of Kazakhstan or constituent
territories of the Republic of Kazakhstan (including on the basis of
concession contracts);
      students and persons undergoing on-the-job and practical training
outside the Republic of Kazakhstan for educational purposes or to gain
practical experience, for the entire period of instruction or practical
training;
      teachers and scientific personnel located outside the Republic of
Kazakhstan for the purpose of teaching, consulting, or performing
scientific work, for the entire period they are teaching or performing said
work.
      Also legal entities established in accordance with the legislation of
the Republic of Kazakhstan, and/or other legal entities whose effective
headquarters (or actual administrative offices) are located in the Republic
of Kazakhstan, shall also be considered residents of the Republic of
Kazakhstan. Effective headquarters (or actual administrative offices) shall
be understood to mean the place where the principal management takes place
and where strategic commercial decisions are made which are necessary for
the performance of a legal entitys entrepreneurial activity.

   2.2 Permanent establishment of a nonresident

      A permanent establishment of a nonresident in the Republic of
Kazakhstan shall be defined as a place of business through which the
nonresident performs all or part of its entrepreneurial activity, including
activity performed through an authorized person, and specifically:
      1) any place of doing business related to the production, processing,
assembly, packaging, delivery, or realization of goods, regardless of the
duration of the activity;
      2) any management office, branch, division, representative office,
bureau, office, agency, factory, workshop, production shop, laboratory,
store, or warehouse of a nonresident, regardless of the duration of the
activity;
      3) any place of doing business related to the extraction of natural
resources, including the extraction of hydrocarbons: an underground mine, a
quarry, an oil and/or gas well, an open-pit mine, land-based or offshore
derricks and/or wells, regardless of the duration of the activity;
      4) any place of doing business (including monitoring or supervisory
activity) related to a pipeline, gas line, the exploration and/or
development of natural resources, the installation, set-up, assembly, start-
up, adjustment, and/or servicing of equipment, regardless of the duration
of the activity;
      5) any other place of doing business related to the operation of slot
machines (including accessories), computer networks and communications
channels, amusement parks, the transportation or other infrastructure,
regardless of the duration of the activity.
      A construction site, an installation or assembly project, and the
performance of planning work shall constitute a permanent establishment
regardless of the duration of the work. In this context a construction site
(project) shall be understood to mean specifically the place where work is
performed to erect and/or renovate real property, including the
construction of buildings and structures and/or the performance of
installation work, the construction and/or rebuilding of bridges, roads,
and canals, the laying of pipelines, the installation of power engineering,
industrial, and other equipment, and/or the performance of other similar
work. A construction site (project) shall cease to exist as of the day
following the day on which the operating certificate for the project (or
the acceptance certificate for the work performed) is signed and the
construction has been paid for in full.
      A nonresident shall also create a permanent establishment in the
Republic of Kazakhstan if the nonresident:
      1) collects insurance premiums and/or provides insurance or
reinsurance coverage for risks in the Republic of Kazakhstan through an
authorized agent;
      2) provides services on the territory of the Republic of Kazakhstan
continuously for more than 90 calendar days in any consecutive 12-month
period ending in the given tax period, through employees or personnel hired
for these purposes;
      3) is a participant in a simple partnership (joint operating
agreement) created in accordance with the legislation of the Republic of
Kazakhstan and operating on the territory of the Republic of Kazakhstan;
      4) holds exhibitions in the Republic of Kazakhstan for a fee and/or at
which goods are sold;
      5) on the basis of a contractual relationship grants a resident or
nonresident the right to represent its interests in the Republic of
Kazakhstan, or to act or conclude contracts (agreements, accords) on its
behalf.
      A nonresident engaged in entrepreneurial activity in the Republic of
Kazakhstan through an independent intermediary (a broker and/or other
independent agent acting on the basis of an agency, commission, or
consignment agreement or another similar type of agreement), who is not
authorized to sign contracts on behalf of the nonresident, shall not be
considered to be creating a permanent establishment.  An independent
intermediary shall be understood to mean a person operating within the
context of his usual (principal) business, who is both legally and
economically independent of the nonresident.

   2.3 Nonresidents income from sources in the Republic of Kazakhstan

The following types of income shall be considered nonresidents income from
sources in the Republic of Kazakhstan:
      1) income from the realization of goods, the performance of work, or
the delivery of services in the Republic of Kazakhstan;
      2) income earned from management, financial (with the exception of
services involving the insurance and/or reinsurance of risks), consulting,
auditing, marketing, legal (with the exception of attorneys services),
agency, and information services provided to residents or nonresidents
doing business in the Republic of Kazakhstan through a permanent
establishment, and related to said permanent establishment, regardless of
where the services are actually provided;
      3) capital gains resulting from:
the realization of property located on the territory of the Republic of
Kazakhstan;
the realization of securities issued by residents, as well as a share
interest in a resident legal entity or in property located in the Republic
of Kazakhstan;
      4) income from concession of the right of claim on a debt to residents
or nonresidents in connection with doing business in the Republic of
Kazakhstan through a permanent establishment;
      5) charges (fines, penalties) for failure to fulfill or improper
fulfillment of obligations by residents and nonresidents, which have arisen
in the course of operations by said nonresidents in the Republic of
Kazakhstan, including obligations under contracts (agreements, accords) for
the performance of work (delivery of services) and/or under foreign trade
contracts for the delivery of goods;
      6) income in the form of dividends received from a resident legal
entity, and income from a share interest in such a legal entity;
      7) income in the form of interest, with the exception of interest on
debt securities, received from:
residents;
nonresidents with a permanent establishment or property located in the
Republic of Kazakhstan, if the debt owed by these nonresidents applies to
their permanent establishment or property;
      8) income in the form of interest on debt securities, received from:
resident issuers;
      nonresident issuers with a permanent establishment or property located
in the Republic of Kazakhstan, if the debt owed by these nonresidents
applies to their permanent establishment or property;
      9) income in the form of royalties received from residents or
nonresidents in connection with doing business in the Republic of
Kazakhstan through a permanent establishment;
      10) income from the leasing of property located in the Republic of
Kazakhstan;
      11) income earned from real property located in the Republic of
Kazakhstan;
      12) income in the form of insurance premiums paid under agreements for
the insurance or reinsurance of risks arising in the Republic of
Kazakhstan;
      13) income from providing transportation services for international
shipments, one of the parties of which is the Republic of Kazakhstan;
      14) income from operations in the Republic of Kazakhstan under
individual labor agreements (contracts) or under other agreements of a
civil-legal nature;
      15) honoraria for managers and/or other payments received by members
of a top administrative body (council of directors, board, or other similar
body) of a resident legal entity, regardless of where the actual
performance of the administrative duties assigned to such persons takes
place;
      16) supplemental payments made in connection with residing in the
Republic of Kazakhstan;
      17) income in the form of compensation for expenditures borne by an
employer to provide material and social benefits or other material
advantages to nonresident individuals working in the Republic of
Kazakhstan, including expenditures on meals, housing, enrollment of
children at educational institutions, and expenses related to leisure
activities, including vacation travel for their family members;
      18) pension payments effected by resident pension savings funds;
      19) income paid to people employed in the arts: theater, film, radio
and television performers, musicians, artists, and athletes from activities
in the Republic of Kazakhstan, regardless of the person to whom payments
are made;
      20) winnings paid by residents;
      21) income earned from providing independent personal (professional)
services in the Republic of Kazakhstan;
      22) income in the form of property located in the Republic of
Kazakhstan that is received free of charge, including income from such
property;
      23) other income not covered under the preceding subitems that arises
on the basis of activities performed in the Republic of Kazakhstan.

2.4 PROCEDURE FOR THE TAXATION OF INCOME EARNED BY NONRESIDENT LEGAL
ENTITIES DOING BUSINESS WITHOUT CREATING A PERMANENT ESTABLISHMENT IN THE
REPUBLIC OF KAZAKHSTAN

      Income earned by a nonresident legal entity that defined above that is
not related to a permanent establishment in the Republic of Kazakhstan
shall be subject to the income tax at the source of payment without any
deductions, at the rates set below.
              Rates for the income tax at the source of payment
      The income of a nonresident from sources in the Republic of Kazakhstan
not related to a permanent establishment shall be subject to taxation at
the source of payment at the following rates:

|1) dividends, income from a share interest, and interest    |15 percent  |
|income                                                      |            |
|2) insurance premiums paid under agreements for the         |10 percent  |
|insurance of risks                                          |            |
|3) insurance premiums paid under agreements for the         |5 percent   |
|reinsurance of risks                                        |            |
|4) income from providing transportation services in         |5 percent   |
|international shipments                                     |            |
|5) income defined under Article 178 of Tax Code of RK, with |20 percent  |
|the exception of income referred to in subitems 1)4) of    |            |
|this article                                                |            |

      The payment of income shall be defined as the mean the transfer of
money in cash and/or noncash form, securities, goods, property, and the
performance of work or delivery of services. The following shall not be
subject to taxation at the source of payment:
1) payments related to the delivery of goods onto the territory of the
Republic of Kazakhstan under foreign trade transactions;
2) income from providing services related to the opening and maintenance of
correspondent accounts of resident banks and the performance of settlements
on them;
3) capital gains from the realization of securities;
4) income from operations with government securities;
5) payments related to an adjustment, based on quality, in the selling
price of crude oil transported via the unified pipeline system outside the
Republic of Kazakhstan;
6) interest accumulated (accrued) on debt securities paid by resident
buyers (not issuers) to nonresidents at the time of their purchase.
      The taxation of a nonresidents income at the source of payment shall
be effected regardless of whether said nonresident turns over this income
to third parties and/or to its subdivisions in other states.  The procedure
for the calculation and withholding of income tax at the source of payment
from interest on debt securities shall be established by the authorized
government agency. The person paying income (including a nonresident doing
business in the Republic of Kazakhstan through a permanent establishment)
is liable and responsible for the calculation and withholding of the income
tax at the source of payment, and for payment of the tax to the state
budget. Such a person shall be recognized as a tax agent in accordance with
item 1 of Article 10 of Tax Code. A nonresident shall be recognized as a
tax agent as of the moment said person begins doing business in the
Republic of Kazakhstan, if its period of operation exceeds that established
for the creation of a permanent establishment. The income tax shall be
withheld at the source of payment regardless of the form and place of
payment of the income.

2.4.1 Procedure and deadlines for the payment of income tax at the source
of payment

      Income tax withheld from the income of a nonresident legal entity at
the source of payment shall be payable to the state budget:
1) on the amount of income paid  within five business days of the end of
the month in which payment was effected;
2) on the amount of income accrued but not paid, when the income is taken
as a deduction, within ten business days of the deadline established for
the filing of a corporate income tax return.
      The provision of this subitem shall not extend to interest on debt
securities, the maturities of which fall after expiration of the deadline
established by this subitem.
      Tax agents shall be required to file a statement of income tax
withheld at the source of payment with tax authorities where they are
registered, on a quarterly basis no later than the 15th of the month
following the reporting quarter in which an obligation to withhold income
tax at the source of payment occurred.

2.4.2 Provisions specific to the calculation and payment of income tax on
capital gains from the realization of securities

      A nonresidents income from capital gains resulting from the
realization of securities issued by residents shall be subject to taxation
at the rate established under Article 180 of Tax Code, with the exception
of capital gains from the realization of stocks and bonds that are on the
stock exchanges official A and B lists. The corporate income tax shall
be calculated independently by the nonresident legal entity, the tax shall
be payable within ten business days of the moment at which the income was
received, and the filing of a corporate income tax return with the tax
authority where the issuer is registered shall be required. 

   2.5 PROCEDURE FOR THE TAXATION OF INCOME OF NONRESIDENT LEGAL ENTITIES
   DOING BUSINESS IN THE REPUBLIC OF KAZAKHSTAN THROUGH A PERMANENT
   ESTABLISHMENT

      The procedure for determination of the taxable income, and for the
calculation and payment of the corporate income tax on a nonresident legal
entity doing business in the Republic of Kazakhstan through a permanent
establishment, shall be carried out in accordance with the provisions of
Articles 79135 of Tax Code of RK.
      The income of a nonresident legal entity shall include all types of
income related to the operation of the permanent establishment.
      If a nonresident legal entity does business in the Republic of
Kazakhstan that is analogous or similar to that which is performed through
a permanent establishment, the income from that business shall be treated
as income from doing business through the permanent establishment.
      Expenses related directly to earning income from doing business in the
Republic of Kazakhstan through a permanent establishment shall be
deductible, regardless of whether they were incurred in the Republic of
Kazakhstan or outside its borders, with the exception of expenses that may
not be taken as a deduction in accordance with this Code.
      A nonresident legal entity shall not have the right to deduct the
following amounts charged to a permanent establishment in the form of:
1) royalties, honoraria, fees, and other payments for the use of or
granting the right to use property or intellectual property of the given
nonresident legal entity;
2) commission income for services;
3) interest on loans granted by the given nonresident legal entity;
4) expenditures not related to earning income from the nonresident legal
entitys operations in the Republic of Kazakhstan;
5) expenditures that are not documented;
6) management and general administrative expenses of the nonresident legal
entity incurred outside the territory of the Republic of Kazakhstan.

   2.5.1 Procedure for taxation of the net income of a nonresident legal
   entity from doing business through a permanent establishment

      The net income of a nonresident legal entity from doing business in
the Republic of Kazakhstan through a permanent establishment shall be
subject to taxation at the rate of 15 percent. (Net income shall be
understood to mean taxable income, less the amount of corporate income tax
assessed.) The amount of tax assessed on net income shall be reflected in
the corporate income tax return.
      A nonresident legal entity shall be required to pay the tax on net
income from doing business through a permanent establishment within ten
business days of the deadline established for the filing of the corporate
income tax return.

   2.5.2 Procedure for taxation of the income of a nonresident legal entity
   in certain cases

      The income of a nonresident legal entity that is not registered with a
tax authority, which it has earned from doing business in the Republic of
Kazakhstan through a permanent establishment, shall be subject to the
income tax at the source of payment without any deductions.
The income tax withheld at the source of payment by a tax agent shall be
credited against the discharge of the tax obligations of a nonresident
doing business through a permanent establishment.

   2.6 PROCEDURE FOR TAXATION OF THE INCOME OF NONRESIDENT INDIVIDUALS

       The income of a nonresident individual, as defined above, which is
not related to a permanent establishment of said individual, should be
subject to taxation at the source of payment following the procedure and
within the deadlines specified by the provisions of Articles 179181 of Tax
Code of RK, with the exception of:
1) income from individual entrepreneurial activity through a permanent
establishment in the Republic of Kazakhstan;
2) interest on bank deposits;
3) payments related to the delivery of goods onto the territory of the
Republic of Kazakhstan under foreign trade transactions;
4) capital gains from the realization of securities;
5) income from operations with government securities;
6) interest accumulated (accrued) on debt securities at the time of their
purchase, paid by resident buyers (not issuers) to nonresidents.
      The obligation and responsibility for the calculation and withholding
of the income tax at the source of payment, and for payment of the tax to
the state budget, shall be assigned to the person paying the income
(including a nonresident doing business in the Republic of Kazakhstan
through a permanent establishment). Such a person shall be recognized as a
tax agent in accordance with item 1 of Article 10 of Tax Code of RK.A
nonresident shall be recognized as a tax agent as of the moment said person
begins doing business in the Republic of Kazakhstan, if its period of
operation exceeds that established for the creation of a permanent
establishment. The income tax shall be withheld at the source of payment by
a tax agent regardless of the form and place of payment of the income.



Filing of tax reports
      Tax agents shall be required to file a statement of income tax
withheld at the source of payment with tax authorities where they are
registered within the deadlines established under Article 182 of Tax Code
of RK.

   2.6.1 Procedure for calculation and payment of the income tax on a
   nonresident individual whose activities lead to the creation of a
   permanent establishment

       A nonresident individual who is engaged in individual entrepreneurial
activity in the Republic of Kazakhstan through a permanent establishment
shall be a payer of the individual income tax with regard to income related
to said activity, less deductions directly tied to this income, with the
exception of expenses that are not deductible in accordance with item 5 of
Article 184 and the provisions of Tax Code. Dependent personal services
(work for hire) provided by a nonresident individual shall not lead to the
creation of a permanent establishment of said individual.

   2.6.2 Procedure for the taxation of a nonresident individuals income in
   certain cases

       The income earned by a nonresident individual from sources in the
Republic of Kazakhstan that is not subject to the income tax at the source
of payment and that is not related to a permanent establishment of said
individual, including capital gains from the realization of securities
issued by residents, shall be subject to taxation, without taking any
deductions, at the rates established under Article 180 of Tax Code. Capital
gains from the realization of stocks and bonds that are on the stock
exchanges official A and B lists shall not be subject to taxation. The
calculation and payment of the individual income tax shall be performed by
a nonresident individual independently within the deadlines established
under item 5 of Article 191 of Tax Code.

   2.6.3 Procedure and deadlines for prepayment of the individual income tax

      The following nonresident individuals shall pay the individual income
tax by making prepayments:
1) nonresident individuals earning income from individual entrepreneurial
activity in the Republic of Kazakhstan through a permanent establishment;
2) nonresident individuals earning income defined under subitems 14)17) of
Article 178 of Tax Code, including other income defined under Articles
149151 of Tax Code, with the exception of income subject to the income tax
at the source of payment.
      Prepayments of the individual income tax for the period of operation
shall be made by a nonresident individual mentioned above, following the
procedure and within the deadlines established by Tax Code. The amount of
prepayments of the individual income tax, which are payable in equal
installments during the period that a nonresident is doing business in the
Republic of Kazakhstan, shall be determined on the basis of the amount of
tax indicated in a statement of the anticipated amount of individual income
tax. Nonresident individuals referred to in subitem 2) shall be required to
attach to the statement of the anticipated amount of individual income tax
an individual labor agreement (contract) or other agreement of a civil-
legal nature confirming the declared amount of taxable income. Prepayments
that are made shall be credited against the payment of the individual
income tax owed by a nonresident individual for the current tax period. A
final settlement and payment of individual income tax shall be effected
within ten business days of the date an individual income tax return for
the tax period is filed, but not later than ten business day prior to
departure from the Republic of Kazakhstan.

   2.6.4 Statement of anticipated individual income tax and individual
   income tax return

       Nonresident individuals referred to in Article 191 of Tax Code of RK
shall be required to file with tax authorities serving the area where they
are staying a statement of the anticipated amount of individual income tax
for the period they are in operation, no later than 30 business days from
the date of their arrival in the Republic of Kazakhstan. The following
nonresident individuals shall file an individual income tax return with tax
authorities serving the area where they are staying within the deadline
established under Article 172 of this Code, or in the event of the
termination of their entrepreneurial activity and their departure from the
Republic of Kazakhstan during the current tax period, no later than ten
business days prior to their departure:
those earning income from sources in the Republic of Kazakhstan that is not
subject to the income tax at the source of payment;
those engaged in entrepreneurial activity in the Republic of Kazakhstan for
more than 30 calendar days or earning income from sources in the Republic
of Kazakhstan in excess of 500 times the monthly index factor during the
tax period.


2.7 SPECIAL PROVISIONS REGARDING INTERNATIONAL AGREEMENTS

      The Tax Code of RK gives provisions of an international agreement to
avoid dual taxation and prevent evasion of taxation of income or property
(capital) to which the Republic of Kazakhstan is a party (referred to
hereinafter as an international agreement for the purposes of Articles
193204 of Tax Code of RK) shall apply to persons who are residents of one
or both of the states that have concluded such an agreement. This statement
does not extend to a resident of a state with which an international
agreement has been concluded if this resident uses the provisions of the
international agreement in the interests of another person who is not a
resident of a state with which an international agreement has been
concluded. The administration of international agreements shall be carried
out following the procedure established by the authorized government agency
in accordance with the provisions of Articles 193204 of Tax Code.
       If the provisions of an international agreement regarding the
determination of taxable income of a nonresident legal entity from doing
business in the Republic of Kazakhstan through a permanent establishment
allow for the deduction of management and general administrative expenses
incurred for the purpose of earning said taxable income both in the
Republic of Kazakhstan and outside its borders, one of the following
methods shall be used to determine these expenses:
1) The proportional distribution of expenses method;
2) The direct deduction of expenses method.
      A nonresident legal entity may choose for itself one of these methods
for the deduction of management and general administrative expenses. The
method chosen for the deduction of management and general administrative
expenses charged to a permanent establishment (including the procedure for
calculation of the index factor used in the proportional distribution of
expenses method) shall be applied annually and may be changed only with the
approval of a tax authority.

2.7.1 Proportional distribution of expenses method

      When the proportional distribution of expenses method is used, the
amount of management and general administrative expenses referred to in
Article 195 of Tax Code of RK that are charged to a permanent establishment
as a deduction shall be determined as the product of these expenses and the
index factor. The index factor shall be calculated by one of the following
methods:
1) the ratio of gross annual income earned by a nonresident legal entity
from doing business in the Republic of Kazakhstan through a permanent
establishment during the tax period to the total gross annual income of the
nonresident legal entity as a whole for the same tax period;
2) the average of the following three indicators:
the ratio of gross annual income earned by a nonresident legal entity from
doing business in the Republic of Kazakhstan through a permanent
establishment during the tax period to the total gross annual income of the
nonresident legal entity as a whole for the same tax period;
the ratio of the value of fixed assets recorded in the financial statement
of the permanent establishment in the Republic of Kazakhstan as of the end
of the tax period, to the total value of the fixed assets of the
nonresident legal entity as a whole in the same tax period;
the ratio of the wages fund for personnel employed at the permanent
establishment in the Republic of Kazakhstan as of the end of the tax period
to the wages fund for personnel of the nonresident legal entity as a whole
in the same tax period.
      A nonresident legal entity can determine independently which of the
aforementioned methods for calculation of the index factor will be used.
      The amount of management and general administrative expenses arrived
at through these calculations shall be taken as a deduction charged to the
permanent establishment only if supporting documents are available.
Supporting documents shall include:
1) a copy of the financial statements of the nonresident legal entity in
which the following is indicated, depending on the index factor chosen by
the nonresident legal entity:
the total amount of gross annual income as a whole;
the total amount of the wages fund as a whole;
the original and residual value of fixed assets as a whole;
the total amount of expenses, with an item-by-item breakdown, including a
breakdown of the total amount of management and general administrative
expenses;
2) a copy of an audit opinion based on an audit of the nonresident legal
entitys financial statements (if an audit of the legal entitys financial
statements has been performed).
A statement of the aforementioned expenses that are taken, as a deduction
charged to a permanent establishment in the Republic of Kazakhstan shall be
attached to the corporate income tax return filed with the appropriate tax
authority of the Republic of Kazakhstan. In the event that the amount of
management and general administrative expenses subject to proportional
distribution is not indicated in the financial statements, these expenses
shall not be taken as deductions charged to a permanent establishment.

   2.7.2 Direct deduction of expenses method

       When the direct deduction method is used for a nonresidents
management and general administrative expenses, these expenses shall be
taken as a deduction charged to a permanent establishment in the Republic
of Kazakhstan if they can be determined directly and were incurred directly
for the purposes of earning income from doing business in the Republic of
Kazakhstan through a permanent establishment. Said expenses shall be taken
as deductions charged to a permanent established only if supporting
documents are available. Supporting documents shall include:
1) accounting records confirming expenses incurred by the nonresident legal
entity on the territory of the Republic of Kazakhstan for the purposes of
earning income from doing business through the permanent establishment;
2) copies of accounting records confirming expenses incurred by the
nonresident legal entity outside the Republic of Kazakhstan for the
purposes of earning income from doing business in the Republic of
Kazakhstan through the permanent establishment.

   2.7.3 Procedure for payment of the income tax on income earned by
   nonresidents from activity in the Republic of Kazakhstan not leading to
   the creation of a permanent establishment

      The procedure for payment of the income tax provided for under this
statement shall apply to the income of a nonresident from activity in the
Republic of Kazakhstan that does not lead to the creation of a permanent
establishment in accordance with the provisions of an international
agreement, with the exception of income referred to in Articles 199202 of
Tax Code Of RK, except as otherwise provided under said statements. A
nonresident mentioned above of this article that earns income from sources
in the Republic of Kazakhstan shall have the right to apply the procedure
for payment of the income tax provided for under this article. In the event
that the provisions of this article are not applied, a tax agent shall be
required to withhold the income tax at the source of payment and transfer
it to the state budget in accordance with the generally established
procedure. A nonresident earning income, a tax agent, and a resident bank
(referred to hereinafter as a bank) identified by a tax agent, shall
conclude a conditional bank deposit agreement following the form agreed
upon by the parties to the agreement, taking into account the provisions of
this article. Within ten business days of the signing of a conditional bank
deposit agreement, a tax agent shall be required to register the agreement
with a tax authority, and a copy of the agreement, as well as a copy of the
payment document confirming the transfer of income tax to a conditional
bank deposit, shall be submitted to the tax authority. The provisions of
this article shall extend only to conditional bank deposit agreements that
have been registered with a tax authority. Conditional bank deposit
agreements, the terms of which do not contradict the provisions of this
article, shall be subject to registration. At the time income is paid to a
nonresident, a tax agent shall be required to withhold income tax at the
source of payment at the rate specified under Article 180 of Tax Code, and
to transfer the tax that has been withheld to the conditional bank deposit
at a bank, in favor of the nonresident. In the case of compliance with the
terms of an international agreement, in order to obtain a refund of income
tax that has previously been withheld, a nonresident shall file a request
with the tax authority following the procedure and form established by the
authorized government agency.. The tax authority shall review said request
and the required documents, it shall make a decision regarding the request,
and it shall notify the nonresident and the bank of the decision. Upon
receipt of a request for a refund of income tax that has been withheld,
which has been certified by a tax authority, a bank shall grant the
nonresident who submitted the request the right to dispose of funds placed
in the conditional bank deposit, up to the amount indicated in the request,
plus bank interest that has accrued. In the event that a nonresident does
not agree with a negative decision by the tax authority, the nonresident
shall have the right within ten business days of the receipt of such a
decision to file a request with the authorized government agency (with the
involvement of the competent authority of the nonresidents country of
residence, if necessary), asking that the matter be reviewed again to
determine the proper application of the provisions of the international
agreement, and the tax authority shall be notified at the same time of the
appeal of its decision. In the event that a negative decision is made
regarding a request and if no notification of an appeal of the tax
authoritys decision is received from a nonresident within the established
deadline, within ten business days of the nonresidents receipt of the
refusal to apply the provisions of an international agreement, the tax
authority shall forward a collection order to the bank calling for transfer
of the amount indicated in the request and placed in a conditional bank
deposit, plus bank interest that has accrued, to the state budget,
accompanied by a document confirming the refusal to exempt the nonresident
from taxation. A bank shall be required, within one business day of the
receipt from the tax authority of documents referred above, to transfer the
amount of income tax placed in the conditional bank deposit, plus bank
interest that has accrued, to the state budget. The amount of tax collected
shall be credited against the nonresidents obligations to the state
budget. Conditional bank deposits shall be opened in the national currency
or in a foreign currency. In the event that conditional bank deposits are
opened in a foreign currency, the income tax and bank interest shall be
transferred to the budget in the national currency, after being converted
at the official rate of the National Bank of the Republic of Kazakhstan at
the time the tax is paid. A nonresident and a tax agent shall not have the
right to dispose of income tax placed in a conditional bank deposit until a
decision of some kind is reached by the tax authority. In the event that
the terms of a conditional bank deposit agreement are violated and income
tax that has been withheld is not transferred to the state budget in a
timely manner, through the fault of the bank, the bank shall bear liability
in accordance with legislative acts of the Republic of Kazakhstan. If it is
not possible for a bank to meet its obligations to transfer income tax
placed in a conditional bank deposit to the state budget, the obligation to
transfer income tax collected at the source of payment, bank interest, and
fines for the late transfer of tax to the state budget shall be assigned to
the tax agent. Tax authorities shall be required to maintain a record of
the amount of income tax:
1) placed in conditional bank deposits;
2) paid to nonresidents who have the right to apply the provisions of
international agreements;
3) transferred to the state budget.

   2.7.4 Procedure for the application of an international agreement with
   respect to taxation of income from providing transportation services in
   international shipping

       Income from providing transportation services in international
shipping in which the Republic of Kazakhstan is one of the parties, earned
by a nonresident legal entity that has the right to apply the provisions of
an international agreement, shall be exempt from taxation without the
filing of a request for application of the provisions of the international
agreement, on the basis of a document confirming residency, if the legal
entity has a permanent establishment in the Republic of Kazakhstan that is
related to this activity. In this case the nonresident legal entity shall
be required to maintain a separate record of income earned from providing
transportation services in international shipping (which is not subject to
taxation pursuant to an international agreement) and from providing
transportation services on the territory of the Republic of Kazakhstan
(subject to taxation), and also to reflect said income in a corporate
income tax return. The total amount of taxable income indicated in a
corporate income tax return shall be reduced by the amount of taxable
income that is exempt from taxation pursuant to an international agreement,
calculated on the basis of the separate accounting records. In the event of
the unlawful application of the provisions of an international agreement,
which results in nonpayment, or incomplete payment of tax to the state
budget, the taxpayer shall bear liability in accordance with legislative
acts of the Republic of Kazakhstan.
       Income earned by a nonresident legal entity that has the right to
apply the provisions of an international agreement, from the operation of
means of transport in international shipping in which the Republic of
Kazakhstan is one of the parties, without the creation of a permanent
establishment in the Republic of Kazakhstan, shall be exempt from taxation
in accordance with the procedure established under Article 198 of Tax Code.

   2.7.5 Procedure for the application of an international agreement with
   regard to the taxation of dividends, interest, and royalties

      At the time that income is paid to a nonresident in the form of
dividends, interest, or royalties, a tax agent shall have the right to
apply the provisions of the respective international agreement without the
filing by the nonresident of a request for application of the provisions of
an international agreement, on the basis of a document confirming
residency, if the nonresident in question is the final recipient of the
income and has the right to apply the provisions of an international
agreement. A tax agent shall be required to indicate in the statement of
income tax collected at the source of payment which is filed with a tax
authority the amount of income paid (accrued) and taxes withheld in
accordance with the provisions of international agreements, the income tax
rates, and the names of the international agreements. In the event of the
unlawful application of the provisions of an international agreement which
results in nonpayment or incomplete payment of tax to the state budget, the
tax agent shall bear liability in accordance with legislative acts of the
Republic of Kazakhstan.
   2.7.6 Procedure for the application of an international agreement with
   regard to the taxation of net income from doing business through a
   permanent establishment

       A nonresident shall have the right to apply the provisions of an
international agreement with regard to the taxation of net income from
doing business in the Republic of Kazakhstan through a permanent
establishment without filing a request for application of the provisions of
an international agreement, on the basis of a document confirming
residency, if the nonresident in question is the final recipient of the net
income and has the right to apply the provisions of the respective
international agreement. A nonresident legal entity shall be required to
indicate in a corporate income tax return the tax rate, the amount of tax
on net income, and the name of the international agreement on the basis of
which the respective tax rate was applied. In the event of the unlawful
application of the provisions of an international agreement which results
in nonpayment or incomplete payment of tax to the state budget, the
taxpayer shall bear liability in accordance with legislative acts of the
Republic of Kazakhstan.

   2.7.7 Procedure for the application of an international agreement with
   regard to the taxation of other income from sources in the Republic of
   Kazakhstan

       A nonresident earning income from sources in the Republic of
Kazakhstan, with the exception of those referred to in Articles 198201 of
Tax Code, shall have the right to file a request to apply the provisions of
an international agreement, following the form established by the
authorized government agency, with the tax authority where the tax agent is
registered, prior to the payment of the income. A tax authority shall
review the request, and if the information indicated in the request is
valid, it shall certify the request as filed.In the event of the unlawful
application of the provisions of an international agreement, the tax
authority shall deny the request and inform the nonresident of its reasons
for doing so. In the event that a nonresident does not agree with a tax
authoritys negative decision, the nonresident shall have the right to file
a request with the authorized government agency (with the involvement of
the competent authority of the nonresidents country of residence, if
necessary), asking that the matter be reviewed again to determine the
proper application of the provisions of the international agreement.

   2.7.8 General requirements for the filing of a request to apply the
   provisions of an international agreement

      A request to apply the provisions of an international agreement,
following the form established by the authorized government agency, shall
be accepted by a tax authority provided that the following requirements are
met:
1) the application is accompanied by:
copies of contracts (agreements, accords) for the performance of work
(delivery of services) or for other purposes;
copies of charter documents;
a breakdown of income from providing transportation services in
international shipping and on the territory of the Republic of Kazakhstan;
a certificate of work performed when the nonresident performs various types
of work, an operational use certificate when construction work is
performed, and an invoice or payment document confirming the receipt of
income for services provided;
2) the tax agent submits accounting records confirming the amount of income
accrued and/or paid and the taxes withheld;
3) there is confirmation of the applicants residency by a competent or
authorized body of the applicants state, with which the Republic of
Kazakhstan has concluded an international agreement (on the request form
itself or in the form of an attached document confirming residency). For
the purposes of this article and Articles 198202 of this Code, a
nonresident that has the right to apply the provisions of the respective
international agreement, in the event of a change in its registration data
in the country of residence, shall be required to present a document
confirming residency that indicates the changes in these data, following
the procedure established by said articles;
4) diplomatic or consular authorities provide legal validation of the
signature and official seal of the agency that certified the residency of
the nonresident (a document confirming residency), following the procedure
established by the legislation of the Republic of Kazakhstan or an
international agreement to which the Republic of Kazakhstan is a party.
      Certificate of taxes withheld and paid in the Republic of Kazakhstan
      Nonresident can request from tax authority a certificate indicating
the amount of income earned from sources in the Republic of Kazakhstan and
the taxes withheld and tax authority shall provide it.



      Kazakhstan creates not worst Tax system among CIS counties for Foreign
Direct Investment. Country realized many  term  and  conditions  to  attract
investors and make simply  legislation.  Within  county  work  many  foreign
companies and foreigners in different industries. Domestic enterprises  make
the business with nonresidents enterprises or with their branches and  their
representatives, which located in territory of Kazakhstan  within  framework
of external trade agreements.
    Foreigners earn here  money  by  using  our  natural  resources,  or  by
providing services to our company. And it is important how  much  they  will
pay tax to Kazakhstan budget. By level  of  collection  of  tax  depend  the
level of social support that may do by  government.  The  following  special
tax privileges are available for the  effective  realization  of  investment
projects in the priority sectors:
    . state grants;
    . exemption from land and property tax for a period up to 5 years  after
      the conclusion of the contract;
    . exemption from income tax for a period of  up  to  5  years  from  the
      moment of receiving the taxable supply, but for not more than 8  years
      from the conclusion of the contract;
    .  full  or  partial  exemption  from  customs  duty   assessments   for
      importation of equipment and  raw  materials  needed  to  fulfill  the
      investment project.
   In 1997 there were developed direct foreign investments in the amount  of
$1830.8 mln., with regard to repayment of credit according to  the  schedule
there were developed $1176.8 mln.
   The main direct investors in 1997 were non-residents from the  states  of
far abroad, among  which  the  first  place  on  developing  direct  foreign
investments belongs to Japan with investments in $ 381.5 mln, then - USA  ($
207.4 mln.) and Great Britain ($ 241.4 mln.).
   Level of Taxation usually depends on status of company or persons. It  is
very important is a  company/  person  resident  or  not,  does  nonresident
perform entrepreneurship through permanent establishment  or  not.  Resident
entities are taxable on their worldwide income received or accrued within  a
reporting period (calendar year) at the 30% basic tax rate  (The  amount  of
taxable  income  is  determined  by  subtracting  deductible  expenses   and
deductions on  fixed  assets  from  gross  income).  Income  of  nonresident
entities  derived  from  carrying  on  business  in  Kazakhstan  through   a
permanent establishment is subject to  taxation  under  the  same  rules  as
income  of  Kazakhstan  residents.  Nonresident  entities  are  subject   to
taxation  on  income  received  from  Kazakhstan   sources.   Incomes   from
Kazakhstan  sources,  except  income  in  the  form   of   dividend   (15%),
remunerations   (the   interest)   (15%),    insurance    payments    (10%),
telecommunication  or  transport  services  in  international   network   or
transportation between RK and the other state (5%), taxed  on  corresponding
to rate, are taxed by tax beside the  source  of  the  payment  at  rate  20
percents. As we can see nonresidents pay at less tax rates as residents.  So
nonresident taxation have important meaning to Kazakhstan. It means that  if
government will not clearly realize this problem, government may  find  miss
a big amount of money in budget, that may needed for other  thing;  defense,
education, social security etc.  In  the  cases  then  foreigners  or  local
company/ person decide use Nonresident taxation legislation  to  reduce  its
tax burden. Government should clearly determine the conception of  Residency
and Nonresidential, to avoid abuse in determination of  residency.   Clearly
determine taxed incomes of  nonresidents  through  permanent  establishment.
Determine list of the taxable incomes of nonresidents.
   Clear and stable taxes let to improve  investment  climate  in  Republic,
also it lead to development of entrepreneurship in Kazakhstan,  because  now
many domestic companies receive, commonly, services from  foreign  companies
in applying new technologies, training of staff, reclamation  of  new  types
of services, expanding markets for goods and services.



                                 Conclusion


      Since independence the legal system of the country has undergone
considerable reforms. The new constitution and a number of new
constitutional laws on state system and governmental bodies of Kazakhstan
have been passed. Amendments were introduced to the Civil, Criminal and Tax
Codes, trade and investment regulations and other legal acts regulating the
major aspects of the country life.
      Taxes  is basic sources of incomes of the state so the dominant
motivation for taxation in any counties is to finance public administration
and the public provision of economic and social service. Second motivations
are the redistribution of income and correction of market imperfections.
But also tax creates distortions in the economy that reduce the real income
of taxpayers by more than amount of revenue that is transferred to the
government. This occurs when taxpayers either modify their behavior in an
attempt to reduce their tax burdens or spend resources in evading taxes.
Taxes are used for economic influence of the state on public manufacture,
its structure, and on condition of scientific and technical progress. By
tax government may discourage domestic production and foreign investments.
So government should balanced between public provision of economic and
social service, and level of taxation. The appropriate level of taxation
depends on a countrys desired role for the state, the efficiency and
equity of its public spending, and the efficiency and equity of its tax
structure and administration. The Government of Kazakhstan is clearly aware
of this and continues to make steady progress in developing its tax system
to fit the realities of modern business in the global economy.
      Consideration of Nonresident taxation is important because this tax
may use as a loophole for avoiding or decreasing tax burden of taxpayers.
Level of tax payments is critical to the economic development of Kazakhstan
as sovereign state.
        So it can decrease level of tax collection and level of social
expenditures. Lead to social instability in society.



                                                                  Appendix A

[pic]
          Sources: Statistics Agency of RK, 2001



[pic]
          Sources: Statistics Agency of RK, 2001


                                                                  Appendix B



[pic]
   Sources: Statistics Agency of RK, 2001



      The tax revenue in the consolidated budget has shown a rising trend in
the last two years. The performance of domestic taxes (particularly VAT and
Excises) has been improving.
|    |Income |Income |      |       |Land |Ownership |Social|Property |
|    |Tax    |Tax    |      |       |Tax  |Tax       |Tax   |Tax      |
|    |from   |from   |      |       |     |          |      |         |
|    |Legal  |Physica|      |       |     |          |      |         |
|    |Entatie|l      |      |       |     |          |      |         |
|    |s      |Persons|VAT   |Excises|     |          |      |         |
|1999|54759  |35329  |89030 |18956  |4644 |24537     |70463 |15210    |
|2000|163529 |51016  |115132|19285  |5506 |26693     |9907  |14763    |

  [pic]
Sources: Statistics Agency of RK, 2001



                          THE LIST of USED SOURCES

1. Law of Republic of Kazakhstan from January 1, 2002 " Law on Taxes and
other obligatory Payments to the Budget "

2. " Law on Taxes and other obligatory Payments to the Budget " Chapter 7
Features of Taxation on Nonresidents Income (with changes from January 1,
2002)

3. Bulletin of Accountant, Tax Code about Taxation of Operation with
Nonresidents of RK " (Print house BIKO Almaty, 2001) / 1  35/

4. Hodorovich, Mihail Ivanovich 1997, Taxation of Individuals /p25  40/

5. Lessons of Tax Reform, World Bank Publication  /15  25/

6. National Statistics Agency of Republic of Kazakhstan, Short Statistics
annual edition of Republic of Kazakhstan (Almaty, 2001) /130  135/

7. Kazakhstan Public Expenditure Review, June 27, 2000 (Document of the
World Bank)
p /12- 15/

8. Macroeconomics, Timothy Tregarthen 1996  /p328 340/





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