This material highlights some aspects of the legal regulation of tolling operations in the Republic of Kazakhstan.

Advantages of tolling operations

«Tolling operations» refers to operations in which raw material is recovered or imported for processing in the customs territory of the Republic of Kazakhstan, with clearing of payment of some obligatory payments to the budget.

Tolling operation represents transfer by one company (the Customer), to another company (Executor), of raw material for processing on or outside the territory of the Republic of Kazakhstan. Tolling operations are very widely used in the metallurgy industry, as a result of the fact that raw-material bases and the centers of processing of raw materials, sometimes appear in a number of different countries.

Goods made on commission, means raw materials and materials which are temporarily imported into the territory of the Republic of Kazakhstan, or have been temporarily exported from the territory for processing. The processed materials must be subsequently returned to Kazakhstan, or exported to third countries, which may be coordinated between the «Customer» and «Executor».

Tolling operations are profitable in the following principal cases:

1. If the raw material is imported into the territory of the Republic of Kazakhstan under a mode of processing in the customs territory that in this case:
   • a) Measures of non tariff regulation are not applied, and the customs and taxes are not paid;
   • b) Products of processing are exempted from the export customs duties, and measures of non tariff regulation also are not applied to them;
2. If the raw material is exported from the territory of the Republic of Kazakhstan under a mode of processing of the goods outside of the customs territory, then in this case:
   • a) Measures of non-tariff regulation are not applied, and the customs and taxes are not paid (however the person who is coordinating the export should make a security deposit of export duties), but measures of the export controls are applied;
   • b) Import of products for processing in the customs territory of the Republic of Kazakhstan, are carried out with full or partial clearing of the customs and taxes, without application of measures of non-tariff regulations, except for measures of the export control;
3. Shipment of the goods made on commission by the Customer to the Contractor for processing, is not considered revenue from selling goods, and is exempt from payment of value-added tax;
4. Revenue from selling services for processing raw material imported into the territory of the Republic of Kazakhstan, in a customs mode for processing of the goods in the customs territory of the Republic of Kazakhstan, are exempted from value-added tax. Thus, if the organization receives raw material with the help of tolling schemes, it allows said organisation to lower the cost price of the end product.

Legal regulation

The basic legal acts regulating the tolling operations in the Republic of Kazakhstan are:

1. The Customs Code of the Republic of Kazakhstan;
2. The Tax Code of the Republic of Kazakhstan
3. The Civil Code of the Republic of Kazakhstan (General and Special Parts);
4. The Decree of the Government of Republic of Kazakhstan from July, 10, 2003 N 681 «About the statement of interdictions on import in the Republic of Kazakhstan and export from the Republic of Kazakhstan of the goods and vehicles, the inventories forbidden to a premise under some customs modes, and also interdictions and restrictions on carrying out of operations with the goods placed under separate customs modes» (further — the Decree № 681);
5. Rules of customs registration of products of processing at the end of customs modes of processing of the goods in/outside of the customs territory of the Republic of Kazakhstan (are approved by the Order of Chairman of Agency of the customs control of the Republic of Kazakhstan, 27.05.2003, # 187 «About the customs control over separate customs modes»);
6. Rules of stock-taking and representation of the reporting of goods which have been registered within the framework of customs modes (are approved by the Order of Chairman of Agency of the customs control of the Republic of Kazakhstan, 27.05.2003, # 250);
7. Resolution of Government of Republic Kazakhstan from October, 15, 2003 N 1054 «About the statement of criteria of sufficient processing of the goods».

Legal regulation of tolling operations stipulated in the Customs Code

There are 2 customs modes determining the status imported on customs territory or taken out for its limits of raw material with reference to the tolling operations in the current Customs Code of the Republic of Kazakhstan of 5.04.2003:

1. Processing the goods in the customs territory (chapter 20 of the Customs Code);
2. Processing the goods outside of the customs territory (chapter 22 of the Customs Code).

The general sense of all these modes implies that the goods imported for processing (the goods made on commission) are exempted from payment of the import duties, and the resulting product should be exported from the Republic of Kazakhstan, and thus they are exempted from payment of the export duties. And, on export from the Republic of Kazakhstan of raw material for processing, it is only necessary to make a security deposit of the export duties. This is a provisional measure for confirmation that products of processing will be returned to the territory of the Republic of Kazakhstan. The returning products of processing are imported back into the customs territory of the Republic of Kazakhstan, with full or partial clearing of the customs duties and taxes, without application of measures of non tariff regulation.

Restrictions of the admission of the goods to modes of processing

However, certain kinds of goods cannot be admitted for processing in/outside of the customs territory Republic of Kazakhstan (this list is authorized by the Decree № 681). Also, processing outside of the customs territory, other waste products and scrap containing precious metal or connections of precious metals are forbidden; waste products and scrap of ferrous metals; waste products and scrap of nonferrous metals, their alloys and other goods according to article 182 of Customs Code.

The customs mode for processing of the goods outside the customs territory cannot be used in the following cases:

1. For the goods, previously released into free circulation with payment of the customs duties, and/or the taxes connected to the obligation of observance of established restrictions, requirements or conditions, before the termination of validity of such restrictions, requirements and conditions, except for export of the goods on repair;
2. If the goods are exported for processing under the contract of sale and purchase;
3. If it is impossible to establish, that the products of processing were formed as a result of processing of the exported materials, except for the cases stipulated by articles 179 and 180 Customs Codes (the question of substitution of products of processing with foreign goods).

Operations on processing

Operations involving processing the goods in/outside of the customs territory include:

1. Processing or production of the goods during which the foreign/Kazakhstan goods lose individual character, with preservation in the processed products of characteristics allowing identification of the imported/exported goods in products of processing when identification is an obligatory condition of processing;
2. Manufacturing the goods, including installation, assembly and adjustment at which the basic characteristics of the imported/exported goods are kept;
3. Repair of the goods, including their restoration, and replacement of components;

In addition to the above-mentioned operations on processing the goods in the customs territory also include use of the goods as raw material which promotes the manufacture of products, or facilitates processing of a final product, even if these initial goods are in full or in part consumed during processing. The given operation should be executed simultaneously from one of the operations specified in points 1 — 3. 

And, operations of processing the goods under a mode of processing outside of the customs territory besides item 1 — 3 also includes repair of the goods, including restoration during which there is a restoration or replacement of the damaged or worn out components, or elimination of defects under the reclamation.

Terms and end of customs modes of processing

Term of processing in/outside of the customs territory is defined by the declaror, or the person who is carrying out the processing.

Processing of the goods in the customs territory is made in terms which do not exceed three years from the date of import premise of the goods under the customs mode.

Processing of the goods outside of the customs territory is made also in terms determined by the declaror, or the person who is carrying out processing, but no more than two years from the date of the export premise of the goods under the customs mode.

Term of processing of the goods in/outside of customs territory can be increased, but within the limits of three or two years accordingly.

No later than the expiry date of the term of processing within the customs territory, the products of processing should be exported from the limits of the customs territory of the Republic of Kazakhstan, or be re-declared under another customs mode.

No later than the expiry date of the term of processing of the goods outside of the customs territory, the products of processing should be imported into the customs territory of the Republic of Kazakhstan, or be placed under a customs mode for exportation of goods.

Legal status tolling operations under the civil legislation

In the civil legislation the contract for processing of raw material on the conditions of goods made on commission is not selected in an independent kind of contract. By the legal nature of it{him} it is possible to attribute{relate} to the turnkey contract (clauses{articles} 616 — 639 Civil Codes of Republic Kazakhstan (the Especial part). The customer in the contract for processing давальческого raw material can be both the proprietor of raw material, and the intermediary having the right to dispose by raw material (this applies particularly in cases of minimization of tax obligations with the help low-taxes jurisdictions).

For avoidance of disputes in the future, at the time of drawing up the contract for the processing of raw material alongside with the essential and usual conditions inherent in the turnkey contract, it is necessary to provide additional essential conditions on which volume appropriate execution{performance} will depend:

1. The order of acceptance of raw material the contractor (the processing enterprise) in processing and delivery of finished goods to the customer by quantity{amount} and quality;
2. The moment of transition of risks by transfer of raw material for processing and at reception of the finished goods;
3. Duties of the contractor about rational and economical use of the raw material given by the customer according to the established norms of his{its} charge on unit of finished goods and specifications of technological losses;
4. Rights of the customer under the control over a course of performance of jobs by the contractor;
5. Cost of jobs of the contractor, the form of payment and terms of performance of these jobs;
6. The responsibility of the contractor for loss or defects transferred {handed} by the customer for processing of raw material.