4.4.5. Subsoil users’ taxation

Who is a payer of taxes and payments associated with subsoil use?

According to Article 280 of the Tax Code of the Republic of Kazakhstan, individuals and legal entities that carry out transactions on subsoil use in the Republic of Kazakhstan, as well as extraction of minerals from technogenic mineral formations shall be deemed the payers of excess profit tax and subsoil users’ special payments (bonuses and royalties).

How the tax regime for subsoil users is established and what models to exist?

Tax regime established for subsoil user shall be stipulated for in the Subsoil Use Contract. According to Article 283 of the Tax Code, taxation of subsoil users is divided into two models: first one stipulates a payment by the subsoil user of all types of taxes and the other obligatory payments to the budget; the second model stipulates the payment (transfer) by subsurface user of a share to the Republic of Kazakhstan under the production sharing, as well as the payment of all types of taxes and the other obligatory payments, except for excise on crude oil and other minerals, excess profit tax, land tax and tax on property. The second model shall be established only in production sharing agreements.

What is the procedure to pay the signature bonus by the subsoil user?

According to Article 288 of the Tax Code, the signature bonus is a lump sum fixed payment for the right to exercise subsoil use activity within the contract territory, and it shall be determined when signing the contract. The Government of the Republic of Kazakhstan shall define initial amounts of signature bonuses on the basis of calculations made in relation to the volume of minerals and economic value of the field. The final amount of signature bonus shall be stipulated in the contract, but not lower than the starting amounts.

Signature bonus shall be paid to the budget within the deadlines as stipulated in the contract, but not later than thirty calendar days from the date the contract comes into effect. Declarations of Signature Bonus shall be submitted by subsoil user to the Territorial Tax Authorities in the place of his registration by the 15 day of the month following a reporting one.

What is a procedure to pay commercial discovery bonus by the subsoil user?

According to Article 291 of the Tax Code, commercial discovery bonus shall be determined as a fixed payment for each commercial discovery in the contract territory, except for the contracts on conducting the exploration of fields of useful minerals, which do not envisage their subsequent production.

The volume of minerals resources produced in the field as approved by the Authorized State Body shall be deemed the object of taxation. The value of the approved volumes of minerals produced shall be deemed the base to calculate a payment on.

Commercial discovery bonus rate shall be determined in percentage to the value of the approved volumes of minerals produced on the corresponding commercial discovery, on the assumption of individual terms to carry out subsoil use as stipulated in each Subsoil Use Contract, but not less than 0.1%. Deadline to pay commercial discovery bonus shall be stipulated by the Contract. The subsoil user shall submit bonus declaration by 15 day of the month following the reporting one.

What is a procedure to pay royalty by subsoil user?

Volume of minerals produced or volume of the first marketable product received from the minerals produced shall be deemed the royalty taxable object. Value of minerals shall be deemed the basis to calculate royalty.

Royalty rates shall be stipulated for by the Contract on the basis of the economics of the project on all types of useful minerals, except for the commonly occurring useful minerals and subsurface water. At the same time the royalty rate shall not be less than 0.5%. Royalty rate for commonly occurring useful minerals and subsurface water shall be determined on the basis of the fixed rates in percentage from 1% (for the non-metallic minerals for metallurgy) up to 10% (for subsurface water). Royalty rates for carbohydrates shall be determined on the basis of the sliding scale as a percent defined depending on the volume of production.

Royalty on all types of useful mineral shall be paid not later that 15 days of the month following the tax period. Calendar year shall be deemed a tax period to pay royalty, however, if the average monthly royalty payments for the previous quarter equaled to the amount less than 1000 monthly calculated indexes, then a quarter shall be deemed a tax period. Declaration on royalty shall be submitted by the subsoil user not later then the 10^th day of the month following the tax period.

What is a procedure to pay tax on excess profit?

An amount of net income of subsoil user under each individual contract in a reporting year, under which subsoil users receive internal rate of profit in excess of twenty per cent, shall be deemed the tax base for excess profit tax.

Tax on excess profit shall be calculated at the rates from 0% up to 30% depending on the achieved level of internal rate of profit at the end of tax period (calendar year). Tax shall be paid not later than 15 April of a year following the reporting one. The subsoil user shall submit tax return on tax on excess profit not later that 10 April of a year following the reporting one.