As international trade grows, Kazakhstani companies are increasingly acting as intermediaries in transactions between foreign suppliers and buyers. One of the most common business models is transit, in which goods are purchased from a foreign supplier and sold to a foreign buyer without actually being imported into the Republic of Kazakhstan.
When is VAT due in transit trade?
The main question regarding such transactions is whether VAT is due in Kazakhstan.
According to Article 459 of the Tax Code of the Republic of Kazakhstan, the Republic of Kazakhstan is recognized as the place of sale of goods if:
- The point of origin for the shipment of goods is the Republic of Kazakhstan
- The goods are delivered to the recipient within the Republic of Kazakhstan.
When is the sale of goods not subject to VAT in Kazakhstan?
If the goods are shipped outside Kazakhstan and are also delivered to the buyer outside Kazakhstan, the transaction is not recognized as a sale within Kazakhstan. In this case, the transaction is classified as VAT-exempt.
Therefore:
— No 16% VAT is charged on sales;
— no import VAT is due;
— There is no obligation to pay VAT to the Republic of Kazakhstan’s budget on such a supply.
How is income from transit trade taxed?
With regard to corporate income tax, revenue from sales is included in the annual tax return. Corporate income tax is paid in accordance with standard procedures.
What documents serve as proof of a transit transaction?
During a desk audit, confirmation is typically requested that the goods were indeed not located within Kazakhstan:
— Contract with the supplier;
— Contract with the buyer;
— invoices;
— CMR, bills of lading, air waybills, freight bills;
— documents evidencing the transfer of ownership;
— bank payments and SWIFT;
— foreign exchange control documents.
If even some of the documents are missing, the tax authority may attempt to reclassify the transaction and request additional explanations regarding VAT and the tax payment notice.
Are customs procedures required for transit shipments?
For such transactions, customs clearance for imports and exports is not required, since the goods do not cross the border of the Republic of Kazakhstan. Customs procedures will be carried out in the countries through which the goods actually pass.
Although the goods are not physically delivered to the territory of the Republic of Kazakhstan, from an accounting perspective, the LLP purchases the goods and then sells them to the buyer; therefore, the transactions are recorded as a regular sale.
Receiving Goods
Debit 1330 "Merchandise"
Account 3310 “Short-Term Accounts Payable to Suppliers”
Recording the Sale of Goods
On the date of transfer of ownership to the buyer, the following is carried out:
Debit 1210 “Short-Term Accounts Receivable from Customers”
Account 6010 "Revenue from the Sale of Products and Services"
Write-off of the cost of goods sold
Write-off of the cost of goods sold:
Debit 7010 "Cost of Goods Sold"
Account 1330 "Inventory"
The Main Mistake in Accounting for Transit Trade
In practice, many accountants mistakenly fail to record goods on the balance sheet because they are not physically delivered to Kazakhstan. This is incorrect. If, under the terms of the contract, ownership of the goods transfers to the LLP, then the goods must be recognized as an asset of the company regardless of their location. Otherwise, the tax authorities may question the validity of the transaction and the justification for recognizing the revenue.
Need help with accounting and taxes in Kazakhstan?
Transit transactions require proper documentation, recording of transactions in the accounting system, and validation of the tax position. EGSAT’s specialists will help you manage your company’s accounting and tax matters.
Get advice from an EGSAT specialist on accounting services in Kazakhstan.
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