Indirect tax - Azerbaijan

Value Added Tax (VAT) is the main type of indirect taxation in Azerbaijan.
It is a tax on consumption which is applied during the production and distribution process to most goods and services. It is also applied to goods, and certain services, entering the country. Although VAT is ultimately borne by the consumer by being included in the price paid, the responsibility for charging, collecting and paying it to the tax authority at each stage of the process rests with the business making the supply, i.e. the sale.
A business registered for the tax as a VAT taxpayer will charge VAT (output tax) on its taxable supplies (sales), and incur VAT (input tax) on its purchases (including any VAT paid at importation). The positive difference between the output VAT and the claimable (offsetable) input VAT in each accounting period represents the amount of VAT payable by the business to the government. Where the input tax exceeds the output tax, any such excess can be offset against other tax liabilities or claimed to be paid back. The tax refund process is very burdensome and rare phenomenon in Azerbaijan.
A transaction is generally within the scope of Azerbaijan VAT if the following conditions are met:
• it is a supply of goods, works or services (Under the Tax Code, the supply of goods/provision of services, mark-up on retail trade of agricultural commodities and import of goods are subject to VAT. Subject to certain exceptions, normally taxable transactions do not include services provided or work completed outside Azerbaijan)
• it is an import of goods
• it takes place in Azerbaijan
• it is made by a taxable person (for these purposes, a taxable person is a person or entity who is registered for VAT in the Azerbaijan or is a tax agent for VAT purposes)
• it is made in the course or furtherance of any business carried on by that person or entity.
There are two rates of VAT that are applied to goods and services in Azerbaijan; the standard rate of 18% and the zero rates. In addition, some goods and services are VAT exempted.
Businesses having VAT exempt supplies (sales) are unable to claim input VAT that they incur, so the VAT paid to suppliers will be added to their costs.
Most of the goods imported to Azerbaijan are subject to VAT. The tax will have to be paid by the importer at the time of importation. Where the importation is for business purposes and the importer is registered for VAT, it is possible to claim paid import VAT as input VAT.
Commencing from 1 January 2020, recognition of taxable turnover for output VAT purposes was shifted to the cash basis method. Generally, in monetary transactions (i.e. cash and non-cash settlements), the time of the taxable VAT supplies is the date when payment of net amount (an amount of consideration without VAT) was received by the taxpayer. Alongside this, the time of VATable non-monetary supplies, such as barter and in-kind transactions, as well as free-of-charge provision of goods, services, and works, is the date when such non-monetary transactions are actually formalised (made) between the relevant parties.
Electronic tax invoices were abolished effective 1 January 2020. Taxpayers are required to issue electronic delivery notes only. Taxpayers are expected to submit several types of electronic delivery notes depending on the nature of the transaction and based on deadlines specified in the tax law in respect of those transactions. E-delivery notes must be issued on the same date when pre-ordered goods are handed over to the customers. For other supplies, generally e-delivery notes should be transmitted within five days from the date of completion of VATable transaction (i.e. supply of goods, works and/or services).

Yes, an individual entrepreneur or a legal entity whose taxable supplies (sales) within any consecutive 12-month period or whose single transaction or single contract value exceeds AZN 200,000 must register as a VAT payer. The tax law also permits voluntarily registration for VAT purposes.

A financial sanction is imposed by the tax authority if a business fails to register at the time when it is mandatory to register.

Yes, however, one should note that the tax law provides for an obligation to register as a taxpayer before commencement of any entrepreneurial activities in Azerbaijan. In case of supplies made by a non-resident without PE in Azerbaijan, VAT is self-assessed, reported and remitted by a paying person (a tax agent). This applies also to banking institutions which service accounts of those individuals that are not taxpayers: banks act then as tax agents and are liable to identifying non-resident VAT triggering payments. This also applies to works and services furnished by non-resident e-commerce suppliers, including e-lotteries, e-gambling, other e-competitions.

Supplies made by non-residents without PE in Azerbaijan for the goods and services via e-commerce, digital services and provision of services electronically to private consumers located in Azerbaijan, which are not registered for VAT purposes, are subject to 18% rate VAT. The exceptions are purchases of airline tickets and booking of hotel accommodation outside of Azerbaijan. Therefore, B2C supplies of electronically supplied services to customers in Azerbaijan are generally subject to VAT.

No, there is no such requirement in Azerbaijan as any applicable VAT is self-assessed on the gross value of non-resident’s works and/or services by a paying person acting as a tax agent. In contrast to the withholding tax, if applicable, the self-assessed VAT does not decrease amounts payable to the non-resident.

All VAT registered persons are required to submit VAT returns on a monthly basis. Contractor parties, operating companies, subcontractors and foreign subcontractors, that are functioning under existing PSAs, host government agreements and risk agreements in the oil and gas industry, are not registered as VAT payers and possess so-called VAT exemption certificates, file VAT return on a quarterly basis. In addition, persons not registered as VAT payers and acting as tax agents in respect of non-resident’s income tax withholding also file quarterly VAT return for the quarter in which they made payment to the non-resident.

Yes. Under the statutory taxation regime, failure to submit a tax return triggers a financial sanction of AZN 40 per each tax return. In the absence of any available tax credit as of the payment deadline, late tax payment entails a daily fine of 0.1% on the due amount of tax. PSA Contractor Parties are liable to pay 110% of the amount of CIT in case of their failure to submit CIT return on time. PSA foreign subcontractors face rather softer financial sanctions for their failure to pay due amount of PSA withholding tax.

No.

Yes. There is a range of other, quite harsh financial sanctions associated with VAT non-compliance as envisaged under Article 58 of the Tax Code of Azerbaijan: for instance, payment of VAT to a supplier on a date later than the date of payment of net amount (net value of supplied goods, services, works) to the supplier triggers a financial sanction of 50% of the VAT amount; underreported tax triggers a financial sanction of 50%, that is imposed during field tax audits; etc. Penalties can also be applied where the business has failed to maintain and/or to formalise / provide adequate documentation and/or records.

N/A. As explained above, non-residents’ reverse-charge VAT is not supposed to reduce the amount payable to the non-resident.

There is no VAT invoice concept in Azerbaijan since 2020. This concept has been replaced by the concept of e-delivery note issued by taxpayers virtually in respect of all their supplies. E-delivery notes are transmitted via the web portal of tax authorities at www.e-taxes.gov.az, therefore their pro-forma contents are ready made and cannot be changed by the taxpayer. The taxpayer should only fill in respective fields applicable to his transaction/s and each dispatch of e-delivery note should be authorised by means of so-called Asan Imza mobile signature card.

All output VAT related e-delivery notes sent as well as input VAT related received e-delivery notes are monitored in real time by the State Tax Service at their web portal via which those e-delivery notes are sent and received.