Value-added tax is levied in Azerbaijan on the supply of goods and services as well as on imports. A standard rate is applied to many of these categories, however, there are some types of activities that are zero-rated for VAT purposes.
VAT registration in Azerbaijan is required for taxpayers who exceed a certain amount of taxable income for a period of twelve months or who exceed the same amount per one taxable taxation.
Investors who open a company in Azerbaijan should be well aware of the registration threshold for value-added tax as well as the types of goods and services that are subject to this tax (and at the same time those that are exempt).
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What are the VAT rates in Azerbaijan for 2021?
Company formation in Azerbaijan is subject to a set of registration conditions. For example, all companies involved in business and in the import of goods are subject to the value-added tax. For most business purposes, the standard rate for this tax is 18%. Below, we also offer examples for other situations:
- Zero-rated goods: these are exports, international transit cargo as well as passenger transportation, works and services directly related to international transit flights and others.
- Exempted: these are financial services, publications, transactions that involve currencies or securities, or the payment for rent or lease of aircraft and aircraft engines from non-residents.
One of our agents can provide interested investors with more details in case their business activities fall under one of these categories.
What are the VAT registration conditions?
When looking forward to company incorporation in Azerbaijan, investors should know the VAT registration thresholds in 2021. They are required to register if:
- the cumulative taxable income exceeds the value of 200,000 AZN for twelve months;
- the value of one taxable transaction exceeds the value of 200,000 AZN.
Entrepreneurs should also know that when they make a payment to a non-resident person (not registered as a VAT payer) for e-commerce services, this is subject to VAT.
VAT regulations in Azerbaijan in 2021
When discussing the value-added tax in Azerbaijan in 2021, investors are advised to keep in mind the following relevant regulations:
- Reverse VAT charge: foreign businesses that offer services in the country without having a permanent establishment here are required to pay VAT on taxable sales; this is the reverse-charge mechanism.
- VAT deposit: VAT payers must remit the VAT amounts through special bank accounts that are the VAT deposit accounts; only in this way may they use the amounts as a credit against output VAT.
- Electronic VAT invoice: a company that is VAT payer must issue electronic VAT invoices; there is a general format to be used as well as general information to be included.
- VAT statements and payment: the VAT statements are to be filed and the tax remitted on a monthly basis until the 20th of the month following the one for which the payment is made.
The value-added tax on imported goods is paid at the point of customs clearance, separately.
Companies that supply goods and services or perform works are required to prepare an electronic delivery note. These have a general format and must include certain information. More details about these procedures are to be found in the Rules on Electronic Delivery Notes. Other sources of tax law include the Tax Code as well as other statutory acts under the Ministry of Finance.
Our agents who specialize in company formation in Azerbaijan can provide investors with more details on the VAT applicability and requirements for 2021.
Taxation in Azerbaijan
The value-added tax is just one of the taxes that are applied in Azerbaijan. Apart from state taxes, there are also municipal taxes (applied through local decisions and payable in the said territories) and the taxes of the autonomous republic (payable in the Nakhichevan Autonomous Republic). Below, our team of agents specializing in company formation in Azerbaijan lists some of the other important taxes investors should keep in mind:
- 20%: this is the general rate of the profit tax; 10% also applies in case of remittances from the branch to the head office.
- 10%: this is the withholding tax applicable in case of dividends and interest paid to a non-resident.
- 14%: the value of the withholding tax on royalties paid to a non-resident.
- 3%: social insurance contributions on the first 200 AZN and 10% on the excess of gross salary per employee (except for the oil and gas industry).
Our tax lawyers in Azerbaijan can give you complete details on the relevant laws that apply.
Investors who are interested in knowing more about the business conditions and opportunities in the country can contact us for detailed information on how to open a company in Azerbaijan. Our team provides complete assistance to local and foreign investors and offers counsel in the pre and post-incorporation stages.