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Kazakhstan VAT obligations for foreign digital firms from January 2022

Draft law to extend Kazakhstan's VAT system to digital services supplied by foreign providers on January 1, 2022, has been approved by parliament's lower house.

An updated draft law – approved by the lower house of the Kazakhstan Parliament in late September – shows that plans to extend the Kazakh VAT system to foreign-supplied digital services will apply from January 1, 2022, instead of January 1, 2021, as originally planned.

In doing so, Kazakhstan is following the path of its Central Asian neighbour Uzbekistan. The Uzbek VAT obligations commenced for non-resident digital businesses on January 1, 2020. 

The region had not witnessed much movement until Uzbekistan's legislative change with only Azerbaijan, across the Caspian Sea, being the closest tax jurisdiction to have made any amendments to their tax code to bring foreign-supplied digital services into scope.

Rules in Azerbaijan for foreign suppliers of digital services to pay VAT at the place of consumption have been in place since January 2017. However, the burden of the collection is currently with the local card issuers.

Here we outline some of the characteristics of the Kazakhstan, Uzbekistan, and Azerbaijan rules:

Kazakhstan

Planned date of introduction: January 1, 2022

Tax rate: 12% (VAT)

According to the proposed draft law, a foreign digital service supplier with customers in Kazakhstan will be required to register for VAT. These suppliers will also be obliged to regularly remit VAT on their sales in Kazakhstan based on the turnover of services rendered.

Affected digital services would include (non-exhaustive list) the provision of the following services via the internet:

  • Computer programs
  • Advertising services
  • Services involving the posting of an offer to acquire (sell) goods (works or services) or property rights online
  • Technical, organizational, informational or other means to enable transactions between sellers and buyers
  • Maintenance of a commercial or personal presence online
  • Storage and processing of information online
  • Domain names and hosting services
  • Services for the administration of information systems and sites online
  • Maintenance of statistics on internet sites
  • Sales of e-books, graphics, or music

Uzbekistan

Date of introduction: January 1, 2020

Tax rate: 15% (VAT)

Foreign suppliers of affected digital services must register for the collection and remittance of VAT on the sales they have in Uzbekistan. The rules were introduced on January 1, 2020, and foreign suppliers with digital sales to customers in Uzbekistan can register online here: http://tax.uz/en

By late October 2020, a total of 20 foreign suppliers had registered to collect and remit VAT on their sales in Uzbekistan. The list is publicly available here: https://tax.uz/en/site/companys 

At the same time Uzbekistan's Ministry of Finance also released a lengthy statement on the importance of the digital economy to the country's continued growth.

The place of supply of affected digital services are deemed to be in Uzbekistan if:

  • The customer’s “place of living” is in Uzbekistan
  • The customer’s bank account used for the payment of these services is opened is in Uzbekistan.
  • The location of an electronic money operator through which the customer may make a payment for the services is located in Uzbekistan.
  • The customer’s IP address is registered in Uzbekistan.
  • The international country code of the telephone number used to purchase or pay for the services is assigned to Uzbekistan.

Affected digital services include the following (non-exhaustive list):

  • License and updates of software
  • Cloud computing
  • e-books
  • Multimedia services
  • Web advertising
  • Web hosting
  • Web-based platforms
  • Remote data storage

Azerbaijan

Date of introduction: January 1, 2017

Tax rate: 18% (VAT)

Rules in Azerbaijan for foreign suppliers of digital services to pay VAT at the place of consumption have been in place since January 2017.

However, the rules differ from those proposed in Kazakhstan and Uzbekistan as the burden of the collection is currently with the local card issuers. We will, of course, update you if there is a change to this obligation.

Acknowledgement: Thanks to Liya Akzhanova, of GRATA International, for her help in researching this article.

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