U.S. income tax treaty with Kazakhstan

Treaty documents and protocols

The convention was signed at Almaty on October 24, 1993. A Protocol signed the same day is an integral part of it, and the treaty package also includes technical corrections, two exchanges of notes and a memorandum of understanding. The IRS lists an Income Tax Treaty and a Technical Explanation, both labelled 1993.

The Protocol clarifies the permanent establishment and dividend provisions, treats dividends from a U.S. regulated investment company and real estate investment trust separately, defines the dividend equivalent amount and excess interest amount behind the additional taxes, and adds a most favored rate rule for interest described below. Under Article 28, the convention has effect for dividends, interest and royalties from the first day of the second month after it entered into force, and for other taxes from January 1 of that year. IRS Table 3 shows a general effective date of January 1, 1996.^[2][5]

Convention structure

The convention begins with Article 1, General Scope; Article 2, Taxes Covered; Article 3, General Definitions; and Article 4, Residence. The next titles are Article 5, Permanent Establishment; Article 6, Business Profits; Article 7, Associated Enterprises; Article 8, Shipping and Air Transport; and Article 9, Income from Real Property.^[2]

The income articles at issue here are Article 10, Dividends; Article 11, Interest; and Article 12, Royalties. The remaining titles are Article 13, Gains; Article 14, Independent Personal Services; Article 15, Income from Employment; Article 16, Directors' Fees; Article 17, Government Service; Article 18, Pensions, etc.; Article 19, Students, Trainees and Researchers; and Article 20, Other Income.^[2]

The final titles are Article 21, Limitation on Benefits; Article 22, Capital; Article 23, Relief from Double Taxation; Article 24, Non-discrimination; Article 25, Mutual Agreement Procedure; Article 26, Exchange of Information; Article 27, Diplomatic Agents and Consular Officers; Article 28, Entry into Force; and Article 29, Termination.^[2]

Dividends, interest and royalties

Article 10 addresses dividends paid by a company resident in one contracting state and beneficially owned by a resident of the other. The recipient's state may tax them. The paying company's state may also tax them under its laws, subject to a ceiling of 5 percent of the gross dividend when the beneficial owner is a company holding at least 10 percent of the payer's voting stock. In other cases the ceiling is 15 percent of the gross dividend.^[2]

The article defines dividends to include income from shares and certain corporate rights treated like share income under the relevant state's laws. It also includes qualifying arrangements carrying participation in profits, to the extent characterized as dividends under the law where the income arises. For Kazakhstan, the definition expressly includes certain income sent abroad to foreign participants in a Kazakhstan joint venture.^[2]

The dividend ceilings do not govern when the beneficial owner conducts business through a permanent establishment in the state where the payer resides, or performs independent services from a fixed base there, and the dividend is attributable to that establishment or base. In that case the convention points to the business profits or independent personal services article. A separate paragraph permits an additional tax, capped at 5 percent of the specified dividend-equivalent amount, for certain company profits connected with the other state.^[2]

Article 11 lets the source country tax interest at up to 10 percent of the gross amount when the beneficial owner resides in the other country. Interest beneficially owned or paid by a government, a subdivision or an agreed instrumentality is taxable only in that country, and so is interest on a loan of at least three years made, guaranteed or insured by an export credit agency wholly owned by the other country, which the Protocol names as the Export-Import Bank and the Overseas Private Investment Corporation for the United States. Point 3(a) of the Protocol adds that if Kazakhstan agrees a lower interest rate in a treaty with another OECD member country, both countries apply that lower rate.

It also limits the interest article to the amount that would have been agreed without a special relationship between the payer and the beneficial owner, or between both of them and another person. A separate paragraph allows an additional tax capped at 10 percent of the defined excess interest amount.^[2]

The royalty definition covers payments for rights such as copyrights, patents, trademarks, designs, plans and processes, as well as information about industrial, commercial or scientific experience. The royalty article applies only to the amount that would have been agreed without a special relationship; the excess remains taxable under each state's laws, subject to the convention's other provisions.^[2]

Residence and dual residence

Article 4 defines a resident of a contracting state by reference to liability to tax there under that state's laws because of domicile, residence, citizenship, place of management, place of incorporation or a similar criterion. A person taxed there only on income sourced there or capital situated there is excluded from that definition. For income of a partnership, trust or estate, residence follows the person liable to tax on that income.^[2]

For an individual treated as resident in both states under that definition, the convention first assigns residence to the state where a permanent home is available. If a home is available in both, the rule looks to the closer personal and economic relations. If that cannot be determined, or no permanent home is available in either state, habitual abode is the next criterion.^[2]

If habitual abode exists in both states or neither, the individual is assigned to the state of citizenship. When each state considers the individual its citizen, or the individual is a citizen of neither, the competent authorities are to settle the question by mutual agreement. For a company resident in both states, the authorities are to seek agreement; absent agreement, it is treated as resident of neither for purposes of treaty benefits.^[2]

Exchange of information

Article 26 directs the competent authorities to exchange information needed to carry out the convention or domestic tax laws concerning covered taxes, insofar as taxation under those laws is consistent with the convention. The exchange is not restricted by Article 1. Information received is treated as confidential under the receiving state's domestic law and may be disclosed only to people or authorities involved in the listed tax functions.^[2]

Limitation on benefits

Article 21 is titled Limitation on Benefits and sets out categories of residents that may qualify for treaty relief on income from the other state. Those categories include individuals, persons conducting qualifying active business, certain publicly traded companies or their wholly owned subsidiaries, qualifying not-for-profit organizations, and persons meeting ownership and payment conditions. A person outside the listed categories may still receive benefits if the competent authority in the state where the income arises so determines.^[2]

The saving clause and U.S. citizens

Paragraph 3 of Article 1 says a contracting state may tax its residents, as determined under Article 4, and its citizens or former citizens according to domestic law, notwithstanding the convention, subject to paragraph 4. Paragraph 4 preserves specified benefits despite that rule, including provisions on associated enterprises, pensions, relief from double taxation, non-discrimination and mutual agreement procedure. It also identifies government service, student, trainee and researcher, and diplomatic provisions for individuals meeting its stated conditions.^[2]

Point 8(a) of the Protocol covers an individual who is resident in Kazakhstan and is also a U.S. citizen. The credit against Kazakhstan tax is to include a credit for the U.S. income tax imposed solely by reason of citizenship, limited to Kazakhstan tax on income from all sources outside Kazakhstan.^[2]

Questions and answers

Related resources

Related glossary terms

• Limitation on benefits: A limitation on benefits article sets conditions for entities in a treaty country to qualify for certain treaty benefits under the applicable U.S. tax treaty.
• Treaty rate table: A treaty rate table summarizes income categories and tax rates or exemptions under U.S. income tax treaties. The IRS explains the tables' scope and limits.
• Tax residence: Tax residence describes a person's status in a country for tax purposes. Treaty texts address how it affects income items and applicable treaty requirements.

Related articles and guides

• U.S. income tax treaty with France: The U.S. income tax convention with France is amended by two protocols, and the 2009 Protocol changed the dividend and royalty rules for qualifying holders.
• U.S. income tax treaty with Switzerland: The U.S. income tax convention with Switzerland dates from 1996, and a Protocol in force since 2019 covers information exchange and binding arbitration.

Related pages

• Tax treaties: All treaty partners listed by the IRS.
• Treaty documents lookup: Find IRS-listed treaty documents by country.