Tax Implications of Bankruptcy in Kazakhstan
1) What taxes are due during bankruptcy proceedings?
In the course of bankruptcy proceedings, the taxpayer may incur tax obligations for the payment of corporate income tax (hereinafter - ‘CIT’) and value-added tax (hereinafter – ‘VAT’) when the bankrupt's assets are sold. According to Article 228 of the Tax Code of Kazakhstan, income from the sale of non-depreciable assets is the positive difference between the sale price and the purchase price of such an asset. Article 234 of the Tax Code states that when selling depreciable assets, the income is recognized as the positive difference between the sale price and the carrying value of the asset group.
This difference must be included in the taxpayer's total annual income and is subject to CIT at a rate of 20%.
Additionally, according to paragraph 1 of Article 372 of the Tax Code, the sale of assets is considered a taxable turnover for VAT, which means that VAT at a rate of 12% is included in the cost of the assets.
2) What happens to outstanding tax liabilities during bankruptcy proceedings?
Tax obligations are included in the list of creditor claims, which are satisfied from the debtor's assets. Unpaid tax obligations may be partially or fully covered by the proceeds from the sale of the bankrupt's assets. Furthermore, during bankruptcy proceedings, the bankruptcy manager conducts a check for signs of intentional bankruptcy. If signs of intentional bankruptcy are found, responsibility for the tax obligations may be imposed on the director of the LLC, including the possibility of recovering the tax debt from their personal funds.
In the absence of signs of intentional bankruptcy and if the debtor's assets are insufficient to cover the tax obligations, the tax debt is subject to write-off upon completion of the bankruptcy process.
3) Are the founders (shareholders) of the bankrupt enterprise liable for the tax debts on a subsidiary basis?
Yes, they can be. The subsidiary liability of the founders of an LLP arises in the event that intentional bankruptcy is established.
4) What are the tax consequences of the sale of the bankrupt's assets?
The answer is provided above in item 1 of the table.
5) What tax risks do purchasers of the bankrupt's assets face?
Possible tax risks may arise even before the bankruptcy procedure begins. During the bankruptcy process, the bankruptcy trustee examines transactions made within the last three years before the taxpayer is declared bankrupt. If it is established that the property was sold at a price below market value, the bankruptcy trustee has the right to file a lawsuit requesting the transaction be declared invalid. In such a case, the buyer may be required to return the purchased property.
Purchasing assets during bankruptcy proceedings, tax risks are minimal because transactions are under the control of the bankruptcy trustee. Under these conditions, the risk of the transaction being declared invalid or the emergence of additional tax liabilities for the buyer does not exist.
Author: Kanat Adilbekov