Tax Consultant
Import VAT offset mechanism in Kazakhstan: Key conditions and benefits
- Kazakhstan allows import VAT offset for eligible industrial equipment
- Import VAT may be offset without physical payment at customs clearance
- HS Code classification is key for applying the import VAT offset mechanism
- Companies should verify eligibility before importing equipment into Kazakhstan
When importing goods into Kazakhstan, companies are generally required to pay value added tax (VAT) at the customs clearance stage. This may create a significant cash flow burden, particularly when importing high-value equipment. At the same time, Kazakhstan tax legislation provides for a special import VAT offset mechanism, which allows taxpayers, under certain conditions, to avoid the physical payment of import VAT at the time of customs clearance.
What is the import VAT offset mechanism?
Under the VAT offset mechanism, import VAT is not physically paid to the state budget upon importation of goods. Instead, the amount of import VAT is simultaneously reflected in the VAT return both as output VAT and as input VAT credit available for offset.
Which goods qualify for the VAT offset mechanism?
The VAT offset mechanism may only be applied to goods included in a specific list approved by the Government of the Republic of Kazakhstan. Eligibility is determined based on the EAEU Commodity Nomenclature of Foreign Economic Activity (HS Code) declared during customs clearance. Compliance of the declared HS Code with the approved list is the key condition for applying the VAT offset mechanism.
The list includes various categories of industrial and production equipment. For example, the VAT offset mechanism may apply to certain types of lifting and handling equipment, drilling rigs, as well as specific categories of electrical machinery and equipment.
Where necessary, a company may apply for an advance classification ruling prior to importing the goods into Kazakhstan in order to confirm the correct HS Code classification.
Conditions for applying the VAT offset mechanism
To apply the VAT offset mechanism, the imported goods must be placed under the customs procedure of release for domestic consumption. No preliminary approvals, permits or notifications from the tax authorities are required. The mechanism is applied directly during the customs declaration process.
In practice, the importer should:
- declare the relevant customs procedure
- confirm that the goods are included in the approved list
- properly reflect the transaction in the Kazakhstan VAT return
Restrictions following importation
It is important to note that goods imported under the VAT offset mechanism must not be intended for subsequent resale or transfer under an international financial leasing arrangement. Such goods are expected to be used by the importer for its own business activities.
In addition, Kazakhstan legislation establishes a five-year monitoring period. If the conditions for applying the VAT offset mechanism are violated during this period, the import VAT that was not previously paid may become payable together with late payment interest.
Practical recommendations
Before importing equipment, companies should verify the applicable HS Code and confirm that the relevant goods are included in the current list of products eligible for the VAT offset mechanism. In cases where the classification is uncertain, obtaining an advance classification ruling from the customs authorities may help reduce the risk of disputes during customs clearance.
RÖDL provides comprehensive support in relation to the application of the import VAT offset mechanism, including HS Code analysis, assessment of eligibility under the applicable regulations, and evaluation of potential tax risks. A timely assessment of the availability of this mechanism may allow companies to significantly improve cash flow management and minimize tax risks when implementing investment projects in Kazakhstan.