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LETTER OF THE TAX COMMITTEE OF THE MINISTRY OF FINANCE OF THE REPUBLIC OF KAZAKHSTAN

of March 26, 2009 No. CK-23-43/2733

The Tax Committee of the Ministry of Finance of the Republic of Kazakhstan, for the purpose of observance of the tax legislation of the Republic of Kazakhstan, reports the following.

Due to the enforcement of the Code of the Republic of Kazakhstan «About taxes and other obligatory payments in the budget» (further - the Tax code) since January 1, 2009 cases of the address of subsoil users concerning explanation of separate provisions concerning the value added tax became frequent (further - the VAT). So, in many contracts for subsurface use the regulation according to which service providers on exploration and geological and search works are exempted from payment of the VAT is pledged. Moreover, according to the Tax code existing till January 1, 2009, turnovers on realization of exploration and geological and search works were exempted from payment of the VAT.

However in connection with enforcement of the Tax code, the regulation about exemption of the VAT (article 230 of the Tax Code in edition till January 1, 2009) turnovers on realization of exploration works was cancelled. Respectively, since January 1, 2009 turnovers on realization of exploration and geological and search works are subject to VAT liability.

According to Item 2 of article 308 of the Code of the Republic of Kazakhstan «About taxes and other obligatory payments in the budget» (further - the Tax code) the tax regime determined in the agreement (contract) on the Section of products signed between the Government of the Republic of Kazakhstan or competent authority and the subsoil user till January 1, 2009 and the President of the Republic of Kazakhstan who passed the obligatory tax examination, and also the contract for subsurface use, approved, remains for taxes and other obligatory payments in the budget concerning which according to provisions of such agreement (contract) stability of tax regime is directly provided, is effective only concerning the parties of such agreement (contract), and also concerning the confided persons (operators) according to Item 3 of this Article during all fixed term of action, does not extend to persons, not being the parties of such agreement (contract) or the confided persons (operators) according to Item 3 of this Article, it can also be changed under the mutual agreement of the parties.

According to the subitem 33) of Item 1 of article 12 of the Tax Code, the tax regime is set of the regulations of the tax legislation of the Republic of Kazakhstan applied by the taxpayer in case of calculation of all tax liabilities on tax payment and other obligatory payments in the budget, established by the Tax code.

At the same time contracts for subsurface use are signed between the Contractor and competent authority, respectively the tax regime extends only to the Contractor or the confided person (operator).

Thus, the tax regime provided in contracts for subsurface use on release from the VAT of turnovers on realization of exploration and geological and search works is not applied to subcontractors as, subcontractors are not the party of contracts for subsurface use, respectively, the tax regime of the Production Sharing Agreement does not extend to them.

Considering the above, Tax departments are entrusted to bring this letter to the attention of subsoil users at whom stability of tax regime, including exemption of the VAT of subcontractors on exploration and geological and search works, and also persons performing such work is provided in contracts for subsurface use.

Chairman D. Ergozhin

 

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