Zhetysu Agro LLP - VAT, Withholding Tax and CIT Exposure on Cross-Border and Year-End Items
Zhetysu Agro LLP is a Kazakh resident, VAT-registered corporate income tax payer using the accrual method. In 2025 it reported accounting profit of KZT 310,000,000 on taxable supplies of KZT 2,400,000,000 (VAT-exclusive). Five items need review: (i) on 20 December 2025 a customer prepaid KZT 672,000,000 including VAT for oil delivered in February 2026, and the invoice was issued on 22 December 2025; (ii) a Dutch vendor invoiced KZT 40,000,000 for a three-year software licence used in Kazakhstan - the vendor has no permanent establishment and the treaty limits royalty withholding tax to 10%, but no tax was withheld and no import VAT was self-assessed; (iii) a Russian consultancy billed KZT 25,000,000 for a market study performed entirely in Moscow, and no tax was withheld; (iv) KZT 8,000,000 of fines and penalties paid to the state budget were expensed; (v) the company has not filed amended returns and the CFO wants the exposure quantified before the 2025 returns are finalised. All contracts are stated gross of withholding tax.
1. Quantify the VAT consequences of items (i), (ii) and (iii) and state when each liability arises.
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(i) Customer prepayment - domestic VAT on advances. VAT on a prepayment becomes due when the advance is received and the invoice is issued, not when the goods are shipped. The KZT 672,000,000 is VAT-inclusive, so the tax is extracted at 12/112:
- 672,000,000 × 12 ÷ 112 = KZT 72,000,000, reportable in the December 2025 / Q4 2025 return.
- When the oil is delivered in February 2026, the supply is declared again and the advance VAT of KZT 72,000,000 is offset, so there is no double taxation - only a timing cost.
(ii) Dutch software licence - import of services. The licence is a service supplied to a Kazakh VAT payer, so VAT is payable in Kazakhstan through the reverse-charge mechanism, with Zhetysu acting as tax agent:
- 40,000,000 × 12% = KZT 4,800,000, payable in the period the invoice is received, and creditable as input VAT if the licence is used in VATable supplies.
(iii) Russian consultancy - EAEU place-of-supply rule. Under the EAEU Treaty the place of supply of consulting services to a business customer is the customer's country, so the service is subject to Kazakh VAT at 12%:
- 25,000,000 × 12% = KZT 3,000,000, payable by Zhetysu as tax agent and creditable as input VAT.
Items (ii) and (iii) are cash-flow timing only if fully creditable; they become a real cost if any input VAT is not recoverable (for example, supplies used for exempt activities).
2. Quantify the withholding tax exposure on items (ii) and (iii), and explain what the company must do to limit the damage.
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(ii) Dutch licence - royalty. A payment for the right to use software is Kazakhstan-source royalty income. The default non-resident rate is 20%, reducible to the treaty rate of 10% only if a valid certificate of tax residence and beneficial ownership documentation are held at the time of payment.
- WHT due: 40,000,000 × 10% = KZT 4,000,000
- Because the contract is gross, the vendor should have received KZT 36,000,000. Having paid gross, Zhetysu is liable as tax agent to remit KZT 4,000,000 from its own funds, with a right of recovery from the vendor.
- If the residence certificate cannot be obtained, the liability rises to 40,000,000 × 20% = KZT 8,000,000.
- Remittance is due within the statutory deadline after payment (generally five working days), so the amount is already late; penalty interest and an administrative fine will accrue on the unpaid tax.
(iii) Russian consultancy - outside Kazakhstan. Services physically performed wholly outside Kazakhstan by a non-resident without a permanent establishment are not Kazakhstan-source income, so no withholding tax is due. The company must be able to evidence the place of performance: the contract, the deliverable/act, and evidence that no work was carried out in Kazakhstan. Without that file, the tax authority may recharacterise the payment and assess 20% (KZT 5,000,000) plus penalties.
Actions: obtain the Dutch certificate of residence and treaty documentation, self-assess and remit the KZT 4,000,000 with penalty interest before the audit, file an amended return, and build a place-of-performance file for the Russian consultancy.
3. Compute the 2025 corporate income tax liability and explain the treatment of each adjustment.
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Starting point: accounting profit KZT 310,000,000 (accrual basis).
| Adjustment | KZT | Reason |
|---|---|---|
| Accounting profit | 310,000,000 | |
| Add back fines and penalties to the state budget | 8,000,000 | Non-deductible by law; a penalty for breaching a public-law obligation cannot reduce taxable income |
| Add back withholding tax borne by the company | 4,000,000 | Tax paid on the company's own account is not an expense incurred in earning income; it is not deductible |
| Dutch royalty itself | 0 | Deductible in full if it meets the arm's-length and documentation tests; the WHT is a separate matter |
| Russian consultancy | 0 | Deductible if the contract, act and place-of-performance evidence exist; if documentation fails, add back KZT 25,000,000 |
| Customer prepayment | 0 | Accrual method: revenue is recognised when control of the oil transfers in 2026, not on receipt of cash |
| Taxable income | 322,000,000 |
Corporate income tax at 20% = KZT 64,400,000.
Additional points
- The prepayment creates a deferred tax asset/liability question only in the accounts, not a current tax charge.
- Quarterly advance payments made during 2025 are credited against the KZT 64,400,000; any shortfall attracts penalty interest.
- If the Russian consultancy is disallowed, taxable income rises to KZT 347,000,000 and CIT to KZT 69,400,000 - a KZT 5,000,000 swing that should be resolved with the documentation file before filing.
- The Dutch royalty should be tested against transfer pricing rules if the vendor is related; a deduction can be denied if the price is not arm's length.