Amendments to the Tax Code of the Republic of Azerbaijan
Amendments to the Tax Code of the Republic of Azerbaijan
The Law of the Republic of Azerbaijan “On amendments the Tax Code of the Republic of Azerbaijan” dated November 29, 2019 was published and entered into force on December 28, 2019.
The law amends seventy five (75) articles of the Tax Code of the Republic of Azerbaijan and amendments comes into force from 1 January 2020.
We outline below significant amendments to the Tax Code:
- The accrual method will no longer be applied for defining date of VATable transactions, but rather cash method will be used. From the new year for VAT purposes, the time of VATable transactions will be considered the date of appropriate payment (for cash transactions) and date of actual transactions for non-cash transactions (such as barter, in-kind payments, etc.) ;
- The date of a taxable transaction for non-residents VAT will be considered the date of actual payment to such non-resident.
- Electronic VAT invoices will be canceled and electronic delivery notes will be applied depending on the type of transaction;
- A number of new definitions, such as, “fictitious (non-substantiated) transaction”, “fictitious (non-substantiated) transaction beneficiary”, “venturous taxpayer”, “transnational corporation group” were included into the Tax Code.
- Fictitious transaction-transactions made to cover-up other transaction and gain illigal profit without actual supply of goods/works/services;
- Such transactions are concluded by the fictitious transaction beneficiaries, i.e. persons receiving income from mentioned transactions;
- Documents related to fictitious transactions will not be accepted (allowed) for VAT claim or substantiation purposes;
- Documents related to fictitious transactions will not be considered as a document proving the cost of transaction for tax deductibility purposes, and the cost of the goods for deductibility purposes will be calculated as defined by the legislation;
- Venturous taxpayer - tax evasion taxpayers meeting criteria established by legislation and decision of respective executive authority;
- Transnational corporation group- a group of companies that is resident in various countries or group of company that is resident in one country and consisting of two or more companies operating in other countries through their permanent establishments.
- For data exchange purposes, if total income of the transnational group of companies exceeds 750 million Euros in a fiscal year, a company within this group that is resident in the Republic of Azerbaijan will be required to submit appropriate report to the Azerbaijan tax authorities.
- Taxpayers meeting the following criteria will registered in a centralised manner:
- Natural monopolies;
- Enterprises with special tax treatment;
- Taxpayers with an average employees of 251 and above;
- Taxpayers with an average annual residual value of fixed assets of more than AZN 5 mln.
- It will be required to seperately maintain tax accounting of income and expenses for tax exempt transactions (along with taxable transactions);
- Duration of exemptions/benefits for entities receiving income from industrial and technological parks have been increased. As such, the exemptions from income tax, land and property taxes for residents of these parks are extended for additional 3 years and become 10 years in total;
- The deadlines are also set for submitting an electronic delivery note by a tax agent:
- Delivery of goods - date of delivery of goods;
- Provision of goods without prepayment - within 5 days from the date of issuance of the supporting document on the delivery of the goods;
- Performance of work and provision of services - within 5 days from the date of performance of work and provision of services.
- The tax authorities of the Republic of Azerbaijan and other tax authorities have the right to conduct joint tax audits with a taxpayer operating in Azerbaijan or another state, in cases as stipulated in the interstate and intergovernmental agreements of the Republic of Azerbaijan concluded with foreign states and international organizations.
- When purchasing goods from individuals who are not registered with the tax authority, an electronic delivery note must be drawn up in the form established by the Ministry of Economy of the Republic of Azerbaijan, no later than 5 days from the date of purchase of these goods. An electronic purchase act will be considered a document confirming the purchase of goods, if printed and signed by a natural person who is not registered with the tax authority. Electronic purchase act will be a document proving/confirming receipt of goods.
- Persons involved in the construction of buildings will no longer be considered as simplified tax payers. They will be payers of income and value added taxes;
- The followings shall be exempted from simplified tax:
- Dividends paid to persons accounting for income and expenses, not registered for VAT and having founders or shareholders of a resident enterprise with a transaction volume of up to AZN 200,000 in any month (months) for 12 consecutive months;
- Income of individual from sale of residences (dwelling) who is registered at the place of residence for at least 3 calendar years;
- Income received from write-off of tax debts to the State Budget;
- Export promotions paid in the prescribed manner at the expense of the State Budget;
- Compensation paid to individuals and legal entities in accordance with the law of the Republic of Azerbaijan on “Land acquisition for state needs";
- Individuals alienating privately owned living space more than 30 square meters;
- The full value of the gift, material assistance and inheritance received by a taxpayer from family members;
- Assets issued during a divorce between a husband and wife or between a former husband and wife;
- Income from the sale of agricultural products for a period of 10 years from January 1, 2014;
- Sale of animal and poultry meat (with the exception of processed meat), fodder and feed additives used in livestock and poultry farms, will be exempt from VAT for a period of 4 years effective from January 1, 2020;
- Excise taxes on all alcoholic beverages, tobacco products and energy drinks, except for cognac and cognac materials, have been increased.