VAT and CIT exposure on a cross-border software licence
Astana Digital Solutions LLP (Kazakhstan, VAT-registered) paid USD 400,000 in 2025 to a non-resident software vendor (registered nowhere in Kazakhstan) for a perpetual licence to use accounting software, plus USD 60,000 for annual technical support delivered remotely. The company did not withhold any tax and did not self-assess VAT, treating the payments as 'import of intangible property not subject to VAT'. The company also claimed a deduction for the full USD 460,000 in its corporate income tax return. The tax authority has started a desk audit. The USD/KZT average rate for the period was 470.
1. Analyse the VAT consequences of the two payments and quantify the potential VAT liability.
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VAT analysis (Kazakhstan Tax Code):
- The place of supply for services related to software (licensing, support) supplied by a non-resident to a Kazakhstan VAT-registered buyer is Kazakhstan (place of consumption). The Kazakh buyer is the VAT withholding agent and must self-assess VAT.
- The taxable base is the amount paid to the non-resident, converted at the official rate.
- Licence: USD 400,000 × 470 = KZT 188,000,000. Support: USD 60,000 × 470 = KZT 28,200,000. Total base = KZT 216,200,000.
- VAT at 12% = KZT 25,944,000.
Key issues:
- The company incorrectly treated the licence as outside the scope. A perpetual licence for software is a supply of services/rights, and the place of supply rule applies.
- The VAT is payable by the Kazakh buyer (withholding), and the company may be able to claim the VAT as input VAT if the services are used in VATable activity - this must be assessed; if so, the net cost is the cash-flow timing and penalties.
- Late payment attracts penalties and possibly a fine under the Tax Code.
Conclusion: Potential VAT liability of KZT 25,944,000 plus penalties; the auditor should recommend voluntary disclosure and assess whether input VAT is recoverable.
2. Assess the corporate income tax and withholding tax treatment of the payments.
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Corporate income tax (CIT):
- The licence and support fees are deductible if they are incurred for business purposes, documented, and connected with taxable activity. The deduction of USD 460,000 (KZT 216.2 million) is prima facie allowable, but the auditor must verify the contract, invoices, and evidence of actual use.
- If the payments are reclassified as royalties, the deductibility may still hold, but withholding obligations arise.
Withholding tax (WHT):
- Payments for the use of software (royalties) to a non-resident are subject to WHT at the statutory rate (20% for royalties, unless a double tax treaty reduces it).
- The vendor is not registered in Kazakhstan and no treaty relief has been documented; the company should have withheld WHT.
- WHT base: licence USD 400,000 = KZT 188,000,000; WHT at 20% = KZT 37,600,000. The support fee may be treated as a service (not royalty) depending on the contract; if it is a royalty, add 20% of KZT 28,200,000 = KZT 5,640,000.
- The company is liable for the unwithheld tax, plus penalties.
Conclusion: The company faces a WHT exposure of up to KZT 43.24 million plus penalties, and the CIT deduction should be reviewed for documentation. The auditor should recommend treaty analysis and voluntary correction.