/McGuireWoods Kazakhstan LLP, June 16, 06/ - Intellectual property items (IPI) can be used as a contribution to the charter capital of a company or recorded in its balance sheet as intangible assets. Analysis of the current legislation shows that the following rights to IPI are referred to as intangible assets, namely the rights: (1) to inventions, industrial designs, utility models and trademarks; (2) arising from license agreements made in relation to the use of protected industrial designs, utility models, trademarks, and know-how; and (3) copyrights and related rights, including software and databases.

Under Article 105 of the RoK Tax Code of June 12, 2001, intangible assets recorded in the balance sheet in accordance with the legislation of the Republic of Kazakhstan on accounting and financial reporting, and accounting standards, and used for generating aggregate annual income shall be assigned to fixed assets.

Intangible assets may come to a company when purchased with money, as a result of reorganization, when generated, or contributed to the charter capital, etc. The initial cost of an intangible asset is composed of the expenses incurred for acquisition and/or generation, including costs of foundation parties, or participants (Article 106.4. RoK Tax Code). This initial cost is used for recording intangible assets in the balance sheet of a company.

Depreciation

The initial cost of fixed assets (i.e. intangible assets) is written off by way of their depreciation in the procedure as set out in the Tax Code. In each group/subgroup, the depreciation charge is measured using the relevant depreciation rate, but should not exceed the limit set out in Article 110 of the RoK Tax Code as at the end of the taxation period (Clause 2, Article 107 of RoK Tax Code). The limit rate of depreciation for intangible assets (Group IV) as set in Clause 2 of Article 110 of the RoK Tax Code is 15%.

In respect of fixed assets (i.e. intangible assets) put into operation in the territory of the Republic of Kazakhstan for the first time, the taxpayer shall have the right to measure the depreciation charge at double depreciation rates (i.e. 30%) in the first tax period of their use, provided those fixed assets are used for the purpose of earning aggregate annual income for at least three years. Such fixed assets in the first tax period of their use shall be accounted for separately from the value balance of the group. In the subsequent tax period, the said fixed assets shall be subject to inclusion into the value balance of the relevant group (Article 110.2 of the RoK Tax Code).

Advantages of Accounting Intangible Assets

The four main advantages of accounting intangible assets are: (1) the company's market value increases when its intangible assets are evaluated together with its other assets; (2) the possibility of assessing the amount of material damage where IPI are illegally used by third parties; (3) the possibility of depreciating IPI and developing the relevant depreciation charges funds (the taxpayer shall have the right to measure the amortization charge at double depreciation rates (i.e. 30%) in the first tax period of their use,); and (4) the appearance of added commercially attractive assets to third parties.

As IPI are promoted, their value (e.g. the value of a trademark) may considerably increase as compared with the initial cost. For that reason, it is advisable to periodically conduct an internal audit of IPI to check them for availability, the quality of protection, and to revalue them.

For more information please contact: McGuireWoods Kazakhstan LLP E-mail: mwk@mcguirewoods.com

Informational agency of financial markets IRBIS broadcasts this material according to agrement, achieved with McGuireWoods Kazakhstan LLP

[2006-06-16]