VAT registration failure and artificial business splitting
Shymkent-based Saryarka Agro LLP supplies vegetables and processed oil. In 2024 its taxable turnover reached 96 million KZT, and by 1 September it had crossed the mandatory VAT registration threshold of 20,000 MCI, with the 2024 MCI at 3,692 KZT. The director did not register, arguing that most sales were to VAT-registered wholesalers under long-term contracts. The accountant continued issuing invoices without VAT and filed no VAT returns. In November a tax audit began. The LLP also received a 40 million KZT grant from a local executive body for a cold-storage unit and spent 12 million KZT on a used truck. The director asks whether he can avoid VAT by splitting the business into two LLPs and whether the grant changes the analysis. The company has 38 employees and no foreign ownership.
1. When did VAT registration become mandatory, and what are the consequences of not registering?
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The threshold is 20,000 MCI. At 3,692 KZT per MCI, that is 73,840,000 KZT. Saryarka exceeded it before 1 September, so registration was no longer optional. Once the threshold is crossed, the LLP must apply for VAT registration within the period set by the Tax Code and is treated as a VAT payer from the month following the exceedance. It must charge VAT at 12%, issue electronic invoices, file VAT returns, and remit tax. Invoices issued without VAT do not give customers valid input VAT and expose the LLP to additional tax, penalties, and administrative liability. The director's argument that buyers are VAT-registered is irrelevant: the obligation depends on the seller's taxable turnover. The first head should stop unfounded invoicing immediately, quantify the exposure, and consider voluntary disclosure before the audit finishes.
2. Can splitting the business into two LLPs eliminate the VAT obligation?
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Not if the split is an artificial arrangement without business purpose. Each LLP is a separate taxpayer, but the Tax Code contains anti-avoidance rules that allow the tax authority to look through fragmentation designed mainly to avoid registration. The director should test the proposal against substance: separate premises, staff, management, contracts, bank accounts, and independent commercial reasons. If the two entities serve the same customers from the same operation under common control, the split is likely to be recharacterized, and the LLP may still owe VAT plus penalties. Splitting also creates duplicate compliance costs and may trigger transfer-pricing or beneficial-ownership scrutiny. The safer course is to register, charge VAT, renegotiate wholesale contracts, and document any genuine reorganization.
3. How should the grant and truck purchase be treated in the corrective action plan?
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The 40 million KZT grant must be separated from commercial revenue and documented against its stated purpose. A state grant for a cold-storage unit may qualify for special treatment only if it meets the Tax Code definition and the funds are used for the approved purpose; otherwise it is ordinary taxable income. The used truck is a fixed asset: record it at cost, maintain the purchase contract and technical documents, and depreciate it under the company's accounting policy. Because the LLP should now be a VAT payer, it must determine whether input VAT on the truck is deductible and whether the grant-funded asset creates any VAT adjustment. The first head should require monthly reconciliation of turnover against the registration threshold, a grant register, and a written tax position reviewed by an external adviser before the audit closes.