Kazakhstan offers tax incentives to attract foreign investment. Yet some benefits may ultimately flow to another country’s treasury. The reason is the global minimum tax. For large multinational groups, lower taxes in Kazakhstan can trigger additional taxes elsewhere.
Meanwhile, Kazakhstan’s 2026 Tax Code has increased several domestic tax burdens. This makes the design of investment incentives more consequential. Europe’s experience offers a warning. Closing profit-shifting channels can protect revenue while making investment more sensitive to remaining tax differences.
Why investment becomes more sensitive to tax
Profit shifting separates where companies report profits from where they operate. A multinational can produce in one country and report profits in another. This can reduce its overall tax burden. It can also soften the influence of local taxes on investment decisions.
Once governments restrict those arrangements, tax differences become harder to offset. They can then matter more when companies choose factory locations or expand production. A Bruegel policy brief examines this trade-off in the European Union. The analysis reports greater investment sensitivity after coordinated anti-avoidance efforts began in 2015. Previously, a one-percentage-point tax increase was associated with roughly 8% lower foreign direct investment inflows. After the reforms, the estimated decline reached 14%.
These are estimates for the European setting, not forecasts for Kazakhstan. Their relevance lies in the mechanism they describe.
Evidence from other countries also points to real economic effects. The United States phased out Section 936 tax benefits associated with Puerto Rico. Affected businesses subsequently reduced domestic investment and employment. Exposed local labour markets experienced weaker wages, employment and property values. Demand for government assistance increased.
British restrictions on interest deductions within multinational groups also affected business activity. Some companies changed their operations as well as their financing. Structural estimates illustrate the difference. With profit shifting available, a one-percentage-point tax increase reduced capital accumulation by about 0.8%. Without that option, the estimated reduction reached 1.8%.
Why Europe has struggled to align corporate taxes
Profit shifting persisted partly because European law protected genuine cross-border business activity. In the Cadbury Schweppes case, the EU’s highest court constrained Britain’s controlled foreign company rules. These rules address certain profits earned through foreign subsidiaries.
The judgment distinguished genuine establishment from wholly artificial arrangements. A lower foreign tax rate alone did not justify restricting freedom of establishment. Governments subsequently pursued narrower forms of coordination. These included anti-abuse standards, automatic information exchange and the global minimum tax.
Such measures protect revenue while preserving national authority over statutory tax rates. International agreements also helped governments build political support. However, the gains from coordination remain uneven. Some EU countries lost revenue equivalent to as much as 1% of GDP annually. Other countries benefited from receiving shifted profits.
That imbalance helps explain resistance to full tax harmonisation. Corporate income tax provides roughly one-tenth of EU tax receipts on average. Countries therefore retain other instruments for pursuing national fiscal priorities. Large multinational groups nevertheless account for almost half of corporate tax revenue. Coordinating their taxation could address a substantial share of the problem. Smaller businesses could remain under national regimes.
There is also an external risk. Stronger coordination within Europe may redirect profit shifting beyond the bloc. Common internal rules therefore need an effective approach to outward profit flows. Otherwise, some revenue leakage may simply change destination.
Early evidence discussed in the analysis offers a more encouraging signal. The minimum tax appears to affect tax planning more than production locations. However, those findings remain preliminary.
What Kazakhstan’s 2026 tax code changes
Kazakhstan’s new Tax Code took effect on 1 January 2026. It changed VAT, registration requirements and several corporate tax rates.
The main changes include:
- The standard VAT rate increased from 12% to 16%, including for taxable imports.
- The mandatory VAT registration threshold fell from 20,000 to 10,000 monthly calculation indices.
- The corporate income tax rate increased to 25% for specified banking income and gambling businesses. Qualifying business lending receives different treatment.
- The standard corporate income tax rate remained 20%.
The monthly calculation index is Kazakhstan’s statutory reference unit. Authorities use it to calculate various thresholds and payments. The Ministry of National Economy’s announcement outlines the reform. These changes affect businesses’ tax costs and compliance decisions. However, higher rates and lower registration thresholds are not themselves proof of reduced avoidance.
Measures limiting artificial business fragmentation could also reduce opportunities for domestic tax arbitrage. Their investment effects would require separate evidence. The European findings raise a relevant policy question for Kazakhstan. As tax planning becomes harder, which remaining tax differences will influence investment?
Those differences can arise between general and special regimes. They can also emerge between Kazakhstan and competing investment destinations.
How the global minimum tax can offset incentives
Kazakhstan has not implemented the Pillar Two global minimum tax, according to the 2026 Kazakhstan tax guide. Pillar Two generally covers multinational groups with consolidated annual revenue of at least €750 million. It applies a 15% minimum effective tax rate, calculated under specific international rules.
A Kazakhstan tax incentive may reduce an eligible group’s effective local rate below that threshold. This can create a top-up tax liability. Another jurisdiction may then collect that tax under its implemented rules. Depending on the group’s structure, this could be a parent company’s jurisdiction or another implementing country.
Kazakhstan can forgo revenue while part of the investor’s tax saving is offset abroad.
However, the outcome is not automatic. The calculation depends on covered taxes, income, exclusions and applicable safe harbours. Payroll and tangible assets can reduce the income exposed to top-up tax. The treatment of incentives also depends on their design. The OECD’s 2026 package introduced further safe harbours, including provisions for certain substance-based tax incentives. Each incentive therefore requires an assessment under the applicable rules.
The OECD’s overview explains both the calculation and the order of taxing rights.
Can Kazakhstan keep the additional revenue?
A qualified domestic minimum top-up tax, or QDMTT, gives the host jurisdiction priority to collect the additional tax. For Kazakhstan, this offers a potential way to retain revenue that might otherwise be collected abroad. Its design would require careful assessment. The wider incentive question also remains. Governments compete through tax relief for industrial, green and technology investment.
That competition can become expensive. Generous incentives do not necessarily produce equally large investment gains. Their value depends on the investor’s structure, applicable tax rules and the project itself. Infrastructure, skills and regulatory predictability also influence location decisions.
The central question is who ultimately receives the benefit. Kazakhstan needs to assess incentives against investors’ total tax liabilities. It also needs to measure their effects on investment, employment and domestic revenue.
The global minimum tax makes that assessment more urgent. A tax concession can attract capital, lose effectiveness or transfer revenue abroad. Knowing which outcome applies is now a central task for Kazakhstan’s investment policy.
Alen Serik, EconomyKZ Research, exclusively for EconomyKZ.org
