What tax applies to income from the securities market?

How to calculate the tax base for income from the sale of securities?

Capital gains from sale can be derived from:

• Exempt securities;
• Other securities.

The following securities are eligible for exemption:

• Securities admitted to the official lists of Kazakhstan's stock exchanges (Astana International Exchange (AIX) and Kazakhstan Stock Exchange (KASE)) as at the time of sale;
• Government bonds;
• Agency bonds;
• Units in open-end and interval mutual investment funds;
• Stocks of legal entities registered with the AIFC.

No exemptions are provided for other securities.

Capital gains from sale of eligible securities are exempt from taxation through an adjustment.

In order to do that, capital gains from eligible securities must be reported on the tax return, and then excluded from taxable income in special lines.

The result from the sale of securities can be positive or negative. A loss (negative value) from the sale of securities reduces the profit (positive value) from the sale of similar securities for the same tax period. If a loss is incurred as a result of all securities transactions during the reporting period, it is not carried forward to subsequent tax periods.

It's important to emphasize that the results of transactions with exempt and non-exempt securities are calculated separately. If a loss is incurred on exempt securities, it cannot be used to reduce the profit earned from transactions with non-exempt securities.

The gain or loss for the tax period is determined as the difference between the sale (redemption) price of the security and its original cost.

Capital gain or loss is calculated using the FIFO (first-in, first-out) principle. This means that securities are written off in the order they were acquired. The law stipulates this method as the only possible one.

The initial cost of securities includes:

• Purchase price and the Kazakhstani broker's fee. For securities purchased through an option, the strike price and premium;
• Value specified in the asset transfer document (if received through the distribution of the company's assets);
• Amount of income previously recorded in the tax return or received through a tax agent (if the securities were transferred as income);
• Amount of debt being repaid (if the securities were received to pay off a debt);
• Value previously recognized as income (if the securities were received free of charge);
• Market price as at the time of receipt (if the securities were inherited or donated).

The initial cost must be supported by documents. If the documents are not available, the cost is considered zero.

When selling or transferring securities to the authorized capital, their value is determined by the securities that were received first.

Example:

The investor (individual) actively traded Tesla shares (ticker TSLA) on KASE and Altaba shares (ticker AABA) on foreign exchanges.

TSLA is included in the official KASE list and is therefore considered a tax-privileged security. AABA is not included in this list and is therefore classified as a non-privileged security. More details about the classification of securities into privileged and non-privileged categories are provided below.

Over the course of the year, the investor sold one share of stock of each of these companies. The results of the transactions were as follows:

Based on the results of all transactions, the investor will report taxable income of 21,000 on the Personal Income Tax (PIT) Return and adjust it downward by the same amount, since TSLA is a exempt stock. As a result, the investor will not pay PIT.

The resulting loss from the AABA transactions will not be carried forward to subsequent years. This loss also cannot be used to reduce the final profit from the TSLA transactions. We will discuss this in more detail later.

If the investor had realized the final profit from all the AABA transactions, it would be subject to PIT.

It is important to understand: the income adjustment benefit does not exempt the investor from filing a return. The taxpayer is still required to report the income on the PIT Return and then reduce it using the designated lines on the form. Failure to file a return, believing that the tax will still be zero, is a violation of Kazakhstan tax legislation.

Income from the sale of securities exempt from personal income tax:

How to calculate the tax base for a coupon on debt securities?

Income includes the coupon on the debt security, with allowance for the discount or premium from the initial public offering price and/or the acquisition price.

Coupons on debt securities exempt from personal income tax:

What are considered dividends on equity securities?

• Payments on stocks (including the underlying assets of depositary receipts);
• Payments on mutual fund and ETF units (except for income from the repurchase of units by the management company).

Dividends exempt from Personal Income Tax:

All information provided above is for reference purposes only.According to the Regulations for provision of services, we do not provide an advice on tax issues. For all questions regarding taxation, you should contact professional tax consultants or the tax authorities of the Republic of Kazakhstan at 1414 or +7-800-0807777.

Freedom Finance group of companies are not responsible for any consequences that may arise from use of this information. When preparing tax reporting, individuals must be guided exclusively by the applicable regulations of the Republic of Kazakhstan.