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Recent Changes to Azerbaijani Tax Legislation

15 Jan 2024

According to the Law on Changes to Azerbaijani Tax Code, introduced on 5 December 2023 (effective from 1 January 2024), there have been made several changes related to businesses operating in the country. Below, some important revisions are highlighted: 

Sanction for transaction without commodity. According to Article 13.2.81 of the Code, a definition of “transaction without commodity” was improved and now it covers any transaction without providing goods, work or services, whether executed with or without a prupose curtaining another transaction with an aim of gaining profit (income). Any taxpayer who is included into the list of “riskeous taxpayers” by a decision of the State Tax Service due to committing a transaction wituout commodity shall be subject to financial sanctions in the amount of 10% of the transaction value if such wrongdoing was committed first time during a year, and resepctively, 20% for the second time and 40% for the third and more times during a calendar year.

Sanction for lack of documentation. In case if lack of documents confirming purchase and receipt of goods outlined under Article 58.8 of the Code (i.e., e-invoice, handover acts (or return acts), import customs declaration and related invoice etc.) were revelaed during on-site tax inspection or operative tax control – then buyer shall be subject to financial sanction in the amount of 10% of the value of goods, 20%  if this breach is committed for the second time and 40% if commited for the third or mote times during a caledar year. On this regard, the “value of goods” shall mean actual purchase price of the goods, and if it is impossible to determine that price then wholesale market price shall be referred to as the value. 

VAT payment. VAT taxpayer who performs transactions requiring implementation of cash register machine in line with Article 16.1.8 of the Code, the time of the transaction shall be considered as the time of registration of cash cheque concerning payment of goods (service and works).

VAT taxpayer must transfer the amount of VAT to the deposit account of VAT within one business day from the day of payment of the value of goods (work and services), which otherwise shall be subject to financial sanction in the amount of 50% of the delayed VAT payment.

Deductible/Non-deductible expense. According to Article 108 of the Code, all deductible expenses must be registered officially in line with the legislation. Accordingly, expenses not registered as per the legislation shall not be considered tax-deductible. Even though, taxpayer was subject to financial sanction as per Article 58.8 of the Code due to lack of formal registration of purchase and receipt of goods as outlined under Article 58.8 of the Code, the value of such goods shall be considered as tax-deductible expense.

Moreover, based on change to Article 71-1 of the Code, seller of goods, performer of service and works must issue an e-invoice for advance payment on the day of receiving such payment.

Income/profit tax exemption requirements. Based on the changes to Articles 102.1.30 and 106 of the Code, physical persons (private entrepereneurs) as well as legal entities classified as a microcommercial entity shall be exempt from profit tax 75% of its profit provided that it does not have state social insurance debt and have 3 employees on a monthly average during a year. "Monthly average of employees" is calculated by dividing overall sum of employees during a year by 12.This exemption does not apply to profit from transactions without commodity.  

Dividend tax. Based on the revised Article 122 of the Code following the recent changes, a resident legal entity shall pay 5% (instead of 10% as required before) witholding tax at the source of payment of a dividend.