Is your shareholder loan turning into a tax trap? – Smart Solutions for Debt Restructuring in Kazakhstan
Foreign subsidiaries operating in Kazakhstan frequently rely on shareholder loans as a primary source of funding. While this structure is simple at the outset, it can become highly complex over time — particularly when repayment difficulties arise. The below case study demonstrates how the Astana International Financial Centre (AIFC) legal framework could bring solutions not available under Kazakhstan’s general corporate legislation.
The Problem: Debt Pressure and Tax Traps
A private company, registered in the AIFC, was funded by its non-resident shareholder through an interest-bearing loan. When repayment difficulties arose, the company faced a series of burdens:
- Withholding tax (WHT) on accrued interest — payable even if no actual cash payments were made.
- Debt forgiveness risks — under Kazakhstan’s Tax Code, forgiven shareholder loans could trigger taxable income.
- Regulatory tightening — as of January 2025, loan transactions fall under enhanced fiscal monitoring, increasing the risk of scrutiny.
- Transfer pricing concerns — reducing interest to zero could breach the “arm’s length principle”, inviting tax adjustments.
In short, the company was trapped between growing tax liabilities and limited legal flexibility.
The Solution: Debt-to-Equity Swap under AIFC Rules
In many international jurisdictions, converting debt into equity is a tried-and-true method of stabilising balance sheets. Yet under Kazakhstan’s Civil Code, this practice is blocked for most local entities such as LLPs.
The AIFC framework, however, offers a clear path. By recognising contributions in “non-cash consideration”, it allows shareholder loans to be restructured into equity through a debt-to-equity swap.
This not only eliminates the tax and compliance pitfalls of perpetual loan extensions but also strengthens the company’s financial position by reducing leverage.
How It Works in Practice?
The process is efficient and transparent:
- Valuation & Board Approval – The company’s board approves the fair value of the outstanding debt.
- Allotment & Set-Off – New shares are issued to the creditor in exchange for extinguishing the loan.
- Registration & Completion – The transaction is formalised with the AIFC Registrar of Companies.
The result: a legally robust restructuring that resolves tax liabilities, restores financial balance, and ensures compliance.
Why It Matters for Businesses?
This case underlines a broader truth: the AIFC is more than a financial hub. Its modern, common-law-based legal environment provides companies with flexible tools to manage tax and corporate challenges that would otherwise be roadblocks under Kazakhstan’s general legislation.
At Juralink, we help our clients unlock tax opportunities and navigate even the most complex challenges. By combining deep local tax expertise with a strategic command of Kazakhstan’s regulatory frameworks — including the AIFC — we deliver solutions that protect your business, resolve risks, and position you for sustainable growth.
Whether you are dealing with distressed debt, shareholder financing, or cross-border tax exposure, our team is here to guide you every step of the way.
