Tax Amendments in Azerbaijan (2019)

2019 Tax Amendments in Azerbaijan

This Extended Synopsis of Tax Amendments in Azerbaijan (2019) is prepared by Caspian Legal Center.

Effective from 1 January 2019, more than 200 articles of Azerbaijani Tax Code have been amended.

Amendments cover many substantive and procedural matters, including new tax exemptions and reliefs.

The significant amendments may be summarized and grouped as follows:

1.     Definitions

Some of the current definitions, such as “Dividends” have been modified to cover lacuna and prevent illegal avoidance; new definitions have been introduced, such as “SME cluster company”, “Startup”, “Capital”, “E-cabinet”, “Compulsory marking”, “Center of economic interests”, “Excise Mark”, “Innovation Activity”.

2.     Compulsory Marking of Goods

Compulsory marking system for certain goods has been introduced. For a defined list goods, taxpayers must conduct import, purchase, sell or maintain for selling purposes with compulsory marking and comply with the rules specific for compulsory marking.

3.     Tax Procedures

Several procedural matters have been modified, corrected and clarified regarding tax audits, rights and duties of taxpayers and tax authorities, information exchange and communication.

- For VAT payment debts, delay interest rate and penalty, VAT deposit account of the taxpayer may be suspended in the amount of 105% of the total amount. Where the tax payer does not appeal to higher administrative body or the court within 30 days upon receiving notice for payment of taxes, delay interest rate and penalties from the tax authority, the amount of unpaid VAT, delay interest rate and penalties shall be deducted from the suspended VAT account (New Articles 65.2.3-1 – 65.2.3-3);

-While tax inspection, if tax authority detects that the goods are not possessed by the taxpayer in fact, taxes shall be calculated for the reporting period when this has been detected, and for the latest reporting period covered by the field tax audit where this is detected during such audit (New Article 67.15);

- Where investment promotion scheme of a taxpayer is terminated or where such taxpayer fails to contribute the required investment as per the scheme, taxes will be imposed on the taxpayer from the date of implementing the investment project for the terminated tax exemptions, without any delay interest rate (New Article 67-2.4);

- Exemption from submission of e-bills (e-qaim?) has been introduced for the following taxpayers:

-         Entities providing banking operation services over client accounts;

-         State entities, local municipalities, state funded entities;

-         Notaries for providing notary services.

- Documents shall be considered as delivered as follows (New Article 70.2-1—70.2-3):

 a) the date of actual delivery, when submitted personally; 

 b) after 5 working days from the date of submission to the postal service, when submitted via postal mail service providers;

 c) after 3 working days from the date of electronic delivery, when submitted to the e-portal of the taxpayer.

4.     Tax Penalties

New tax penalties have been introduced and some of the current penalties are also amended.

-New penalty for failing to submit social contribution reports or letters by the users of agricultural lands has been set to be 3% of the minimum salary for the first time, and 6% for the subsequent breaches (New Article 57.1-1);

- Penalty for failing to provide book-keeping and financial documents to tax authorities has been increased to 1000 AZN from 100 AZN (Modified Article 57.3);

- Where tax avoidance has been detected basing on the information and filings submitted by the taxpayers, 25% of the avoided tax payment shall be imposed as penalty (New Article 58.1-1);

- penalty for failure to provide the client with relevant official receipts (including cash machine receipt) has been increased to 1000 AZN from 400 AZN for the first instance of breach (Modified Article 58.7.1) and to 3000 AZN from 800 AZN for the second instance of breach, and 6000 AZN for the third and subsequent instance of breaches.. This will be applicable to the producers of agricultural goods starting from 1 January 2020 (Modified Article 58.7.2.);

- for off-record funds, and for failing to keep the registry of income and expenses, as well as where e-bills e-VAT invoices are lacking for the purchased goods, and where purchase certificates, import declarations and documents required by the Tax Code where the goods are manufactured by the taxpayer: 10% of unrecorded or hidden funds exceeding 1000 AZN for the first instance of breach and 20% of the amount exceeding 1000 AZN for the recurrent breaches shall be imposed as penalty (these were previously 5% and 10% respectively) (Modified Article 58.8.1);

-where income and cost of the taxpayer is not recorded, 10% of the undocumented expenses shall be imposed as new penalty (New Article 58.8.3);

-new penalty has been introduced regarding failure of tax filing by taxpayers exempted from tax obligation or enjoying some tax relief. According to this new penalty, 6% (without deducting expenses) of the non-declared income or reduced income will be subject to penalty by such taxpayers. This penalty will be applicable to the producers of the agricultural goods from 1 January 2020, for the rest of the taxpayers exempted from tax obligation or enjoying some tax this penalty is applicable from 1 January 2019;

5. Transfer of Shares

The new amendments have brought clarification for the taxation while the transfer of shares at legal entities:

 Where the shares at a legal entity is transferred for the price above the proportionate net asset value of the share, the difference between the actual transfer price and net asset value shall be considered as income of the taxpayer. Where the shares at a legal entity is transferred for the price below the proportionate net asset value of the share, the difference between the par value and the net asset value of the share shall be considered as the income of the taxpayer (New Articles 96.5, New Article 104.6).

6. Personal Income Tax

Income taxation of physical individuals have been amended.

 - From 1 January 2019, income tax for employees working in private non oil-gas industry would be 0% for the monthly income of up to 8 000 AZN, and 14% of the monthly income amount exceeding 8 000 AZN for 7 years. Previously effective general rate 14% (for income up to 2500 AZN monthly) and 25% (for income above 2500 AZN monthly) applies to oil-gas industry and state entities (New Article 101.1-1);

7. Mandatory Social Insurance

By default this insurance is calculated 3% from the salary of the employee, and plus 22 % from the labor remuneration (salary) fund which is paid by Employer...

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[1] See below Table 2 for the Criteria of Business Categories.