Kazakhstan: Withholding Tax Risk in Cross-Border Goods Deliveries

When a goods delivery suddenly becomes a tax issue

In practice, the question increasingly arises whether payments made by a Kazakh buyer to a foreign supplier for the delivery of goods to Kazakhstan may be treated as income from Kazakh sources. This creates a real risk that the Kazakh buyer may, as a precaution, withhold 20% Kazakh withholding tax before paying the purchase price, or contractually shift the corresponding tax risk to the foreign supplier.

The issue becomes particularly sensitive where the foreign supplier performs only limited ancillary activities in connection with the delivery, such as visually inspecting containers, checking completeness, identifying defects, or verifying seals during customs clearance. From an economic perspective, these activities would normally be seen as part of the goods delivery. In Kazakh tax practice, however, there is a risk that they may be interpreted as separate domestic activities, as services performed in Kazakhstan, or even as grounds for the creation of a permanent establishment.

Why this issue goes far beyond isolated cases

This is not just a theoretical tax issue. If a broad interpretation takes hold in practice, the consequences for foreign trade would be immediate.

Foreign suppliers would need to factor in additional tax clauses, price adjustments, gross-up provisions, or lengthy exemption and refund procedures. Kazakh buyers, in turn, may feel compelled to make withholdings as a precaution in order to avoid disputes with the tax authorities. The result would be a material burden on standard supply transactions, even though their economic substance clearly lies in cross-border trade in goods.

This creates significant risks for commercial predictability, especially for companies with regular exports to Kazakhstan, including supplies of machinery, technical equipment, spare parts, and industrial goods.

The key tax issue: sale of goods in Kazakhstan or delivery of goods to Kazakhstan?

The core of the issue lies in the distinction between two different taxable situations under Kazakh tax law. On the one hand, Kazakh tax law treats income from the sale of goods within the territory of the Republic of Kazakhstan as income from Kazakh sources (Art. 679 of the Kazakh Tax Code).

On the other hand, it expressly provides that payments related to the delivery of goods to Kazakhstan in the course of foreign economic activity do not qualify as income from Kazakh sources, provided that no separate services are rendered or works are performed in Kazakhstan (Art. 680 para. 1 subpara. 4 of the Kazakh Tax Code) .

This distinction is critical in practice. Not every delivery of goods to Kazakhstan automatically amounts to a sale of goods within Kazakhstan. In typical cross-border supply scenarios, there are strong arguments that payments for the goods themselves fall under the specific exemption and therefore should not be subject to Kazakh withholding tax.

Does goods inspection in Kazakhstan create a permanent establishment?

A separate question is whether ancillary activities in Kazakhstan could lead to the creation of a permanent establishment.

Under the tax treaty between Germany and Kazakhstan, this generally requires either a fixed place of business or a dependent agent. The treaty does not contain a separate service permanent establishment concept. This is important: the mere dispatch of personnel or engagement of a local customs broker is generally not sufficient to create a permanent establishment.

Under the new Kazakh Tax Code, caution is also required, but not every activity automatically leads to a permanent establishment. Article 228 applies to the provision of services or the performance of work through personnel and additionally requires a time threshold of more than 183 days within any consecutive twelve-month period. This means that not every presence in Kazakhstan is tax-relevant. The decisive question is whether an independent service or work is actually being performed.

This is where foreign suppliers have a strong argument. The mere inspection of the completeness, condition, or integrity of goods during customs clearance is generally not an independent service, but rather an ancillary measure connected with the delivery. This is particularly true where such activity is neither separately remunerated nor contractually described as a separate service.

Article 229 of the Kazakh Tax Code on dependent-agent permanent establishments is relevant only where the local personnel or broker actually represents the foreign company and performs legally binding acts on its behalf, in particular by concluding contracts. The mere signing of an inspection protocol that documents factual circumstances will generally not be sufficient.

What foreign companies should review now

Foreign companies delivering goods to Kazakhstan should review their contractual and operational structures with particular care.

It is essential that the transaction is documented in line with its true economic character: a cross-border delivery of goods in the course of foreign trade. Ancillary measures such as inspections or customs-related checks should not be unnecessarily described as separate technical services or remunerated separately if they are merely part of the delivery process.

Particular attention should be paid to:

• the wording of supply contracts,
• the description of the contractual scope,
• the structure of acceptance and inspection protocols,
• whether separate service elements are agreed or remunerated in Kazakhstan, and
• the allocation of tax risk between buyer and supplier.

Why action is needed now

Kazakh buyers may choose to withhold tax as a precaution or make the issue a condition in contract negotiations. This creates a genuine economic challenge for German exporters. The issue is not limited to large-scale projects. It also affects recurring supply relationships in mechanical engineering, plant construction, energy technology, industrial goods trading, and technically driven supply chains.

In our view, these cases urgently require a clear, practical, and trade-friendly classification. Standard goods deliveries to Kazakhstan should not be burdened by an overly broad withholding tax approach or by excessive permanent establishment risk.

RÖDL in Kazakhstan: tax law, foreign trade, and cross-border structuring

RÖDL has been advising German and international companies in Kazakhstan for many years at the intersection of international tax law, tax treaties, withholding tax, permanent establishment issues, and cross-border contract structuring. In supply relationships involving Kazakhstan, tax risks often arise not only during tax audits, but already at the stage of contract negotiations, procurement processes, and payment structuring.

Our advisory services help companies to:

• identify withholding tax risks at an early stage,
• clearly distinguish between supply and service structures,
• prepare robust treaty protection,
• design contracts and documentation in a tax-resilient manner, and
• address tax issues proactively with Kazakh business partners and tax authorities.

Conclusion

The current discussion around withholding tax and permanent establishment risks in goods deliveries to Kazakhstan is not limited to isolated cases. For German and other foreign companies, now is the right time to review existing delivery models, contractual wording, and operational processes from a tax perspective.