Under the Article 12 of the Convention for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion on Income and Capital, royalties arising in a Contracting State and paid to a resident of another Contracting State may be taxed in that other State. However, such royalties may also be taxed in the Contracting State in which they arise and in accordance with the laws of that State, but if the recipient of the royalties is the beneficial owner of the royalties, the tax so charged shall not exceed 10 percent of the gross amount of the royalties.
This provision of the Convention proves to be ambiguous, granting the right to withhold tax on royalties to both contracting states. Many companies face a dilemma as to whether they are entitled to apply this provision and whether there will be consequences in the form of penalties for exempting royalties in their own country. There are many articles online on how to proceed if royalties arise in the territory of Kazakhstan. However, what should be done if royalties arise in another contracting state and the Kazakhstani company is the owner of this income?
According to subparagraph 52) of paragraph 1 of Article 1 of the Tax Code, royalties are payment for the use or right to use copyrights, software, designs, or models, excluding the full or partial realization of property (exclusive) rights to objects of intellectual property; the use or right to use patents, trademarks, or other similar rights.
Under subparagraph 3) of paragraph 4 of Article 227 of the Tax Code, income in the form of royalties is classified as income from services provided. In accordance with subparagraph 3 of Article 313 of the Tax Code, income taxable at the source of payment, except for non-resident income from sources in the Republic of Kazakhstan, is subject to taxation at the source of payment at a rate of 15 percent.
According to Article 2, paragraph 5 of the Tax Code, if an international treaty ratified by the Republic of Kazakhstan establishes rules different from those contained in the Tax Code, the rules of the specified treaty apply.
In accordance with paragraph 1 of Article 660 of the Tax Code, the provisions of an international treaty regulating issues of double taxation avoidance and tax evasion prevention, one of the parties to which is the Republic of Kazakhstan, apply to persons who are residents of one or both states that have concluded such a treaty.
Paragraph 2 of the Regulatory Resolution of the Supreme Court of the Republic of Kazakhstan dated December 22, 2022, No. 9 "On Some Issues of Application by Courts of Tax Legislation" establishes that when applying the norms of legislation for taxation purposes, it is necessary to proceed from the priority of its norms established by paragraph 3 of Article 2 of the Tax Code. If an international treaty ratified by the Republic of Kazakhstan establishes rules different from those contained in the Tax Code, the rules of the specified treaty apply (paragraph 5 of Article 2 of the Tax Code).
In accordance with paragraph 3 of Article 4 of the Constitution of Kazakhstan, the procedure and conditions for the implementation on the territory of the Republic of Kazakhstan of international treaties to which Kazakhstan is a party are determined by the legislation of the Republic.
Since Kazakhstan has concluded and ratified Conventions for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with many other countries, a resident of Kazakhstan has the right to apply the provisions of such a Convention.
According to paragraph 1 of Article 12 of the Convention, royalties may be taxed in the recipient country at a rate of up to 15 percent. However, paragraph 2 of the same article of the Convention grants preferential taxation rights to the state that is the source of payment of such income, at rates not exceeding those specified in the relevant article of the Convention.
This means that if a non-resident pays royalties for services or the use of intellectual property and tax has been withheld in the country where these incomes arose, then the Kazakhstan company can apply the provisions of the Convention to exempt from paying CIT in Kazakhstan, provided that the relevant documents confirming the payment of tax in the other country are provided.
For more detailed information, please send a request to
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