How to Account for Services When Calculating Corporate Income Tax
The accounting of services for corporate income tax (CIT) purposes in Kazakhstan depends on the substance of the transaction, the counterparty’s status, and tax accounting rules. When purchasing services, the accountant verifies documentary evidence of the expenses and whether they may be deducted. When providing services, the accountant recognizes the organization’s income under the applicable tax accounting rules.
Services provided by non-residents require a separate analysis. In such cases, it is necessary to determine the counterparty’s tax residency, the type and place of service provision, whether there is income from sources in the Republic of Kazakhstan, and whether CIT must be withheld at the source of payment. The tax implications are determined based on the actual circumstances of the transaction and the provisions of the Tax Code of the Republic of Kazakhstan effective in the relevant period.
A bank statement shows the movement of money but does not fully disclose the substance of the transaction. It is necessary to establish which service is stipulated by the agreement, who the contractor and customer are, when the obligation was performed, how the price was determined, and which documents confirm the result. An amount received or transferred may relate to an advance payment, payment for a completed service, or settlement of a previously incurred debt.
Transactions with non-residents should be separated for individual analysis. For such transactions, the accountant records the counterparty’s residency, the substance and place of service provision, the terms of the agreement, the performance date, and the settlement procedure. These characteristics make it possible to determine which provisions of tax legislation apply to a particular transaction without extending to it the rules established for other procedures or types of activity.
Services Provided: What the Contractor Should Check
An organization that provides services records the transaction with due regard to its substance and the applicable accounting and tax accounting rules. The accountant should not rely solely on the date when the money was received: the payment may be for a service already provided, an advance payment, or settlement of a debt.
For each transaction, it is advisable to check:
the agreement and an exact description of its subject matter;
the cost of the service and the stipulated settlement procedure;
the period in which the service was actually provided;
the acceptance certificate, contractor’s report, or another document disclosing performance;
the source document and invoice, when their preparation is required for the transaction;
the consistency of information in the agreement, accounting system, performance documents, and bank statement;
the customer’s tax status, if it is relevant to documenting and recording the transaction.
Long-term agreements require particular attention. If services are provided in stages or continuously, the documents should specify the result and the period to which each stage relates. The general wording “services under the agreement” does not indicate the scope of performance and makes it difficult to compare the acceptance certificate with the terms of the agreement.
If money was received before the service was provided, the nature of the payment is determined based on the agreement and the actual status of settlements. In the accounting records, such a payment is separated from payment for a performed obligation so that the date of the movement of money does not itself replace an analysis of the substance of the transaction.
Purchased Services: When an Expense Requires Supporting Documents
For a purchased service, the accountant must record its substance, result, and use in the company’s activities. The documents must make it possible to compare the service ordered with its actual performance, cost, and the period in which the transaction was recorded. Payment alone does not disclose these circumstances.
For the purpose of verifying the expense, it is convenient to compile a single set of documents:
An agreement or order containing a clear description of the service.
Documents confirming the authority of the persons who signed the agreement and performance documents.
An acceptance certificate, report, opinion, business correspondence, or another documented result of performance.
Payment documents and information on the status of settlements.
Source accounting documents and an invoice, when one is required for the transaction.
Internal documents showing that the company received and used the result of the service.
The supporting documents required depend on the nature of the service. For consulting, the result may be documented by an opinion or report; for advertising, by a placement report; for repairs, by a list of work completed; and for transportation, by the relevant transport documents. If the acceptance certificate contains only a general description, it is advisable to disclose the substance of the transaction in an appendix, report, or another related document.
Services provided by non-residents and related-party transactions are reviewed separately from ordinary settlements with local counterparties. The working file for such a transaction should retain information about the parties, the terms of the agreement, the place and period of service provision, the result of performance, and payments. This makes it possible to apply the rules relating specifically to the actual circumstances of the transaction.
Practical Workflow for the Accountant
Begin by classifying the transaction: whether the company provided or purchased the service, whether an advance payment was received, whether performance has been completed, and whether the counterparty is a resident. Then compare the agreement, source documents, documents confirming the service result, payment, and accounting entries. Discrepancies in dates, amounts, and descriptions should preferably be resolved before the period is closed.
In current releases of “Accounting for Kazakhstan” 3.0.74.x, the receipt of services is registered using the “Receipt of Goods and Services” document. To create it, use the following path: “Purchases” → “Receipt of Goods and Services” → “Create”. Information about the counterparty, agreement, date, substance, and cost of the service is entered in the document based on the documents actually prepared.
Before posting the document, check the selected counterparty and agreement, the transaction date, and the description and cost of the service. Complete the tax details based on the actual terms of the particular transaction. After posting, compare the accounting system entries with the source documents, settlements with the counterparty, and the company’s adopted accounting policy.
Before closing the period, it is recommended to:
reconcile settlements with contractors and customers;
identify payments for which no performance documents are available;
check acceptance certificates that have no agreement, order, or clear description of the result;
separate advance payments from settlements for performed obligations;
check services provided by non-residents using a separate list;
compare the periods in which services were provided with the periods in which they were recorded;
verify that the amounts and descriptions match in all related documents;
retain electronic and paper evidence of the transaction in a single set.
Such controls help compile the CIT calculation from consistent accounting data and systematically explain the origin of each amount during internal control or a review of documents by the regulatory authority.
Frequently Asked Questions
Is CIT withheld from every payment for services? — A payment received is first classified according to its substance. It may be an advance payment, payment for a completed service, or settlement of a debt. Therefore, the banking transaction must be compared with the agreement, performance documents, and accounting data.
Can a service be recognized as an expense based solely on a bank statement? — A bank statement confirms the transfer of money but does not describe the subject matter or result of the service. To record the transaction, a set of documents is required that makes it possible to establish the parties, substance, cost, period, and fact of performance.
Is an acceptance certificate stating “services provided” sufficient? — Such wording does not disclose the scope, period, or result of the contractor’s work. This information should be included in the acceptance certificate itself or in a related report, appendix, or another document.
Where should the receipt of a service be recorded in 1C? — In current releases of “Accounting for Kazakhstan” 3.0.74.x, use the following path: “Purchases” → “Receipt of Goods and Services” → “Create”.
How should services provided by a non-resident be accounted for? — The transaction is placed in a separate working file. It records the residency of the parties, the subject matter of the agreement, the place and period of service provision, the result of performance, the cost, and the settlement procedure. The tax treatment is determined based on these circumstances and the legislative provisions applicable to the transaction.