Dividends Before Year-End: How to Keep a Payment to a Shareholder from Becoming an Accounting Headache
Interim dividends have long been a routine instrument of corporate practice: business owners are not always willing to wait until the end of the financial year to receive a share of the profit their company has earned. The Law on Limited Liability Partnerships permits the distribution of net income not only on annual results but also on the results of a quarter or half-year.
The logic looks straightforward: the money is needed now, not later. Yet it is precisely these advance payments that most often come to the attention of the tax authorities.
The rate question: 5%, 10% or 15%?
For dividends paid to a non-resident holding a significant stake in a company's capital, Kazakhstan tax law provides for a reduced rate of 5%. Its application is capped by the annual amount of dividends — approximately KZT 1 billion. Any excess is taxed at the standard rate of 15%.
Before 2026 the reduced rate was 10%, with no cap. However, it could not be applied to interim dividends at the moment of payment: under the structure of the relief at that time, entitlement to the 10% rate was confirmed only on the results of the tax period.
The mechanism was a two-stage one. Tax was first withheld at the general rate; once the corporate income tax return had been filed and the conditions for the relief confirmed, the tax withheld at source was adjusted to 10%.
Where a double tax treaty applies, there is no link either to a cap or to the timing of payment. The validity of applying it, however, depends on a series of requirements regarding documentation, filing deadlines and the status of the beneficial owner. Practice shows that Kazakhstani courts approach these requirements very strictly: even where entitlement to treaty relief exists, its application may be challenged on procedural grounds.
The principal purpose test is in play too
The international mechanisms for countering treaty abuse (the MLI) add a further layer of analysis. It is necessary to establish whether the relevant provisions apply to the particular treaty, and to be ready to substantiate the business purpose of the payment structure should the tax authority raise the question.
The main risk is not the form but the numbers
The most delicate aspect of advance dividends is the relationship between interim profit and the final annual result. Where before 2026 the clear two-stage mechanism described above applied, the current version of the Tax Code does not expressly impose comparable restrictions. Practice has not yet settled, and this raises a key question: how will a situation be assessed in which taxable profit for the year turns out to be lower than the interim dividends already paid?
In principle such a discrepancy should not create tax risk, but it is advisable to substantiate its nature and economic rationale with a professional opinion reflecting the requirements of accounting legislation, tax legislation and IFRS.
A separate red flag is financing dividends out of borrowed funds. This structure does not in itself constitute a violation, but it materially increases tax risk. Where a company takes on a loan to pay dividends in the absence of sufficient liquidity of its own, the tax authority may question whether the interest expense is connected to activity directed at generating income.
Why there is no template answer
Each of the issues above could become the subject of genuine litigation. There is no single correct answer to the question of how much may be distributed and at what rate: everything depends on the ownership structure, the content of the applicable treaty, the quality of the interim reporting, and how accounting and tax figures relate to one another in the particular period.
Tax planning follows a simple rule: the earlier the question arises, the greater the scope for a safe answer. A decision on paying interim dividends is therefore best taken not at the moment the owner needs the money, but earlier — while there is still time to review the financial result, the corporate documents and the grounds for applying the reduced rate.
This preparation may look excessive while everything is going well. But it is exactly what determines how confidently a company can explain its position if questions arise later.
If you are planning a distribution of profit on quarterly or half-year results, considering a dividend payment to a non-resident, or would like to assess the tax risks of a particular structure in advance, the Fortune Partners team can help.
Legal sources
- Law of the Republic of Kazakhstan No. 220-I of 22 April 1998 "On Limited and Additional Liability Partnerships"
- Tax Code of the Republic of Kazakhstan No. 214-VIII of 18 July 2025
- Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (Paris, 24 November 2016)
