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Kazakhstan: Legal Opinion Regarding Property Tax Calculation for a Solar Power Plant


published on 11 December 2020 | reading time approx. 5 minutes

Based on the provisions of the Article 519 of the Code of the Republic of Kazakhstan dated December 25, 2017 No. 120-VI “On taxes and other obligatory payments to the budget” (“Tax Code”), the objects of taxation of property tax for legal entities are buildings, structures related to them in accordance with the classification established by the authorized state body that carries out state regulation in the field of technical regulation, parts of such buildings, accounted for in fixed assets. At that, machinery and equipment are not subject to taxation of property tax. Legal entities calculate property tax at a rate of 1.5 percent of the carrying amount of the building or construction. However, solar power plants are not specified in the provisions of the current Classifier of fixed assets. The following is a legal assessment of the attribution of all components of a solar power plant, including solar modules, to equipment.



I. Definition of concepts

The p.1, Art. 519 of the Tax Code provides for the taxation of objects that can be classified as buildings and structures in accordance with the provisions of the Classifier of Fixed Assets (State Classifier of the Republic of Kazakhstan 12-2009) (“SC”). As such, in paragraph 3 of the SC, definitions are given for the terms “Building”, “Construction”, as well as “Machinery and equipment” from a legal point of view, which are reflected in this assessment.


1. The term “Building” and “Construction” in SC

A building is an object built for permanent purposes, consisting of supporting and enclosing or combined (bearing and enclosing) structures, intended for living, staying people or animals, storing objects depending on the functional purpose of the object.

In this case, the construction is a civil engineering object (except buildings), the purpose of which is to create conditions necessary for the implementation of the production process by performing various technical functions not related to changing the subject of the work, or for various non-productive functions. In other words, the legislator established, the structure must serve purposes different from the production (including the production of electricity by solar energy).

Therefore, in order to determine the classification of the object as a structure, it is important to consider the appropriate function of the object. With regard to a solar power station, this means that the function of each object, each component part of the solar station must be determined separately.


2. The term "machinery and equipment" in SC

In accordance with the provisions of SC, machines and equipment are devices that convert the energy, materials and information. In other words, machines and other equipment must serve for the actual production process. This issue should be considered on the example of a factory for the production of metal products. According to SC, metalworking machines and similar objects located in plant buildings are classified under "machinery and equipment", while a plant building is classified under "industrial buildings". This example can be used as an analogy for the purpose of classifying solar installations in the context of related structures.

3. The definition from the General provisions of civil law

According to p. 1 Art. 117 of the Civil Code, immovable property includes buildings and structures firmly connected with the ground, that is, objects whose movement without exposing them to significant damage to their purpose is impossible. In this regard, the classification of the object as a real estate shall be assessed by the following criteria:

  • to what extent the object is fixed on the surface of the ground;
  • what efforts should be hypothetically taken to move it from one place to another, taking into account the fact that this object will not be disproportionately damaged.


4. The definition according to the construction laws of Kazakhstan

In accordance with clause 7 of Art. 1 of the Law of the Republic of Kazakhstan dated July 16, 2001 No. No. 242-II "On architectural, urban planning and construction activities in the Republic of Kazakhstan", "a structure is an artificially created volumetric, planar or linear object that has natural or artificial spatial boundaries and is intended for performing production processes, placing and storing material values or temporary stay (movement) of people, cargo, as well as placement (laying, wiring) of equipment or communications.
The given definition also applies to the above example of a metal products factory, where a factory building, classified as an industrial building, is used to carry out production processes, the placement of machines and other equipment. At that, the machines themselves cannot be defined as structures.

5. The definition according to the Order of the Minister of energy of Kazakhstan from March 20, 2015 № 230 "On approval of Rules of the device of electrical installations"

According to subparagraph 1 of paragraph 2 of this norm, electrical installations are the set of machines, devices, lines and accessory equipment (together with constructions and premises in which they are installed), intended for production, conversion, transformation and transmission of electric energy and convert it into another form of energy. It is important to note here that solar installations are used to generate electricity from the sunlight, which allows them to be classified as equipment in accordance with the aforementioned Order.

6. The definition according to the Law of RK dated July 4, 2009 № 165-IV "About support of usage of renewable energy sources"

According to p. 7 of the Art. 1 of this law, the installation of renewable energy sources is defined as technological and auxiliary equipment using renewable sources of energy for generation of electric and thermal energy.  Additionally, in p. 8 of the Art. 1 it stipulates that the objects on usage of renewable energy sources are technical devices designed for production of electric and (or) thermal energy with use of renewable sources of energy, and the interrelated facilities and infrastructure technologically necessary for the operation of the object on usage of renewable energy sources and on the balance of the owner of the object on usage of renewable energy sources. Thus, the Law distinguishes technological and auxiliary equipment when determining the installation using renewable energy sources.

Considering the above, photovoltaic modules (solar panels) and similar equipment should be considered as technical devices, different from the structures and other installations interconnected with such modules, necessary for the operation of solar panels.

7. Historical argument

It should be noted that "National Classifier of Kazakhstan 12-2014, "Classifier of fixed assets" was cancelled by the Chairman of the Committee for technical regulation and Metrology (Ministry for investment and development of Kazakhstan dated July 29, 2016 No. 184). In this invalid now the classifier solar installations for power generation or solar power plant has been classified under the number 132.420014 as building design.
Explanation to the term " Structures of power plants", which are also part of the classification standards (see paragraph 8), the examples were given of hydroelectric, coal-fired power plants and wind farms. At that, solar installation examples are not explicitly mentioned.

In the current version of the classifier SC RK 12-2009, solar installation is not mentioned. Power plant (power generating installation) now has the same classification number (132.420000). In the notes to the concept of "Structures of power plants" are used the same explanations as above.

8. Court decisions

In a Decision dated 03.12.2014, the Supreme court in the classification of a floating drilling rig (“FDR”) also relied on a strong attachment to the surface of the ground. In the excerpt from the Decision is written: “thus, the FDR is not firmly connected to the ground; it is a non-self-propelled floating installation equipped with equipment for drilling wells; it moves with the help of tugs, and when installed at the destination, does not require additional construction work.”
In this dispute, the Supreme Court also used the legal definitions provided in p. 1-3 above to differentiate a floating drilling rig as production equipment from other building structures.

II. Conclusions

In accordance with the legal definitions, in particular, the Law on renewable energy sources, when it comes to the installation for the generation (production) of energy, it is necessary to distinguish between building construction and technical equipment for energy production from renewable energy sources. For this purposes, the explanations provided in p. 8 of the SC shall be considered, where as examples are provided hydro, thermal or wind power plants. The legislator, from our point of view, takes into account the following facts:

  • the wind farm always has a solid connection to the ground (a foundation is always required for wind farms up to 120 m in size);
  • a coal-fired cogeneration plant has a similar strong connection between the furnace and the rest of the building.

In the case of solar installations, the situation is different – separate parts of the installation are attached to the surface of the ground (the criterion strong connection with the surface of the ground), and even such parts can usually be separated and moved without disproportionate damage to their purpose.

In addition, the functions of the corresponding equipment should be also taken into account. This is confirmed by the legal definition in paragraph 3.7 of SC. If the equipment should be directly involved in the production process (i.e. the process of generating energy), they should not be considered as building structures. Building structure can serve for other technical purposes than only for production. In turn, there are equipment such as inverters, which serve the purpose of converting the direct current produced by solar modules into alternating current. In this way, inverters are directly involved in the production process: from exposure to sunlight to supply to the high-voltage grid. A similar example can be found for most parts of an electrical installation.
Summarizing the written above, considering the provisions of the effective current Classifier, solar installations should be classified as devices and equipment. Consequently, solar power plants are not real estate objects and therefore cannot be subject to property taxation in accordance with Art. 519 of the Code of the Republic of Kazakhstan dated December 25, 2017 No. 120-VI "On taxes and other mandatory payments to the budget."

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