Permanent establishment in Kazakhstan


Most of the contracts executed between Kazakhstan and foreign companies contain a clause requiring the latter to set up a permanent establishment in Kazakhstan. The existence of such clause should not be underestimated because it has a direct impact on the final revenue of a foreign company. It is worthy to note that setting up a branch or representative office also has a judicial impact for dispute settlement purposes.

There are several reasons of existence of a ‘permanent establishment’ clause in the Kazakh contracts. Two major reasons that directly affect expected revenues are: (a) corporate income tax and (b) VAT.

Under the Article 645 (Rules for calculating and withholding corporate income tax from local sources) of the Kazakh Tax Code a Kazakh tax resident (Kazakh company) has to withhold and pay, without deduction, a corporate income tax on a non-resident’s income (foreign company’s income) from Kazakhstan sources, unless the latter has a permanent establishment in Kazakhstan. The corporate income tax rate is equal to 20% unless a double tax treaty is exercised. Situations when a non-resident enjoys the benefits of a double tax treaty (e.g. business profit) are not always clear with tax authorities. Tax residence certificate is, as a rule, subject to approval by Kazakh tax authorities (there are certain rules applicable to tax resident certificates, such as issuing body and having apostille on its face).

Under the Article 373 (Imposed turnover on services and works provided by a non-resident) of the Kazakh Tax Code works and services provided by non-residents are considered to be turnover of a Kazakh tax resident that receives works and services and subject to VAT. VAT is equal to 12%.

Thus, the best option for a Kazakh company that intends to conclude a services contract with a foreign entity is to require the latter to establish a branch office in Kazakhstan that would serve as a permanent establishment and can be registered as a local VAT payer.

Permanent establishment under Kazakh Tax Code

According to the Article 220 (Permanent establishment of a non-resident) of the Kazakh Tax Code a foreign entity, without reference to duration in time, is considered to have a permanent establishment through which it conducts business activities in Kazakhstan if the former has:

  1. any place of manufacturing, processing, kitting, packaging and (or) supply of goods;
  2. any place of management;
  3. any place of geological research, exploration, developments for extraction of minerals and (or) extraction of minerals and (or) execution of works, rendering of services related to control and supervision of minerals’ exportation and (or) extraction process;
  4. any place of management (including control and supervision) related to pipelines;
  5. any place of activities related to installation, setup and operation of slot-machines (including detachable devices), computer networks and network channels, and also related to transportation or other infrastructure;
  6. a place of sale of goods on the territory of the Republic of Kazakhstan;
  7. any place of construction and (or) construction and installation works, and also services related to supervision of such works;
  8. a branch or representative office;
  9. a location of a person that provides intermediate services according to the Law ‘On insurance activities;
  10.  a location of a resident that is a party to a joint venture agreement concluded with a non-resident in accordance to the laws of other state or the Republic of Kazakhstan if activities under joint venture are executed on the territory of the Republic of Kazakhstan.

Should a non-resident provide services or execute works in Kazakhstan that are not covered by the above list through its personnel, such non-resident is considered to constitute a permanent establishment if the services or works are executed during 183 days within 12 months.

Non-resident is also considered to set up a permanent establishment during sale of goods on fairs and exhibitions should such sale take place during 10 days.

If a non-resident conducts business in Kazakhstan through its dependent agent (legal entity or individual) such non-resident is deemed to have a permanent establishment in Kazakhstan. For this purposes subsidiary company could also be considered as a dependent agent.

A non-resident, that is considered to constitute a permanent establishment in Kazakhstan according to the aforesaid rules, has to register with tax authorities of Kazakhstan within 30 days from the moment of commencing business in Kazakhstan.

Permanent establishment under OECD Model Tax Convention of Income and on Capital

Most of the double tax treaties concluded by the Government of Kazakhstan are based on the OECD Model tax treaty, except for the treaty with the U.S.

Without going deep into analysis of the Article 5 (Permanent establishment) of the OECD Model tax treaty (2010 edition), as each situation is unique and has to be investigated taking into consideration various circumstances, the following are the indicators of a permanent establishment under the aforesaid Article 5:

  1. a place of management;
  2. a branch;
  3. an office;
  4. a factory;
  5. a workshop, and
  6. a mine, an oil or gas well, a quarry or any other place of extraction of natural resources;
  7. a building site or construction or installation project that lasts more than 12 months.

Dependent agent rule also apply under the OECD Model tax treaty.


Various circumstances should be taken into account when deciding on what type of a permanent establishment should be set up in Kazakhstan. Setting up a branch office is the most practicable way of doing business in Kazakhstan through a permanent establishment.