VALUE ADDED TAX

(Registration and taxation object for

VAT, VAT rates, and offset issues)
Concept of VAT
• The concept of VAT according to Azerbaijani tax
legislation is similar to the principles used in most
European countries.
• Under Azerbaijani law, VAT payers are entitled to
recover VAT paid on purchases (input VAT) even if this
exceeds the VAT generated by the sale of goods or
services (output VAT).
Payers of VAT
• An individual or legal entity whose taxable sales amount to more than
AZN 200,000 in a consecutive 12-month period must register for VAT.
Taxpayers must register for VAT in advance of carrying out a taxable
transaction worth more than AZN 200,000 (111 000 EURO).
• The Tax Code also allows for voluntary VAT registration. A taxpayer
that has registered, but whose total taxable sales over a 12-month
period do not exceed AZN 100,000 may apply to cancel their
registration at any time after a one-year period from their last VAT
registration, subject to some exceptions indicated in the Tax Code.
Obligatory VAT registration
• 01.05.2021-01.05.2022- turnover is more than 200 000 AZN – should
go to the tax Office for registration.
• 02.05.2022- without VAT registration.

• voluntary VAT registration

• 01.05.2021-01.05.2022- turnover is less than 200 000 AZN.
 Country VAT Registration threshold
Country VAT Registration threshold
EU One-Stop Shop €10,000
Austria €35,000 Italy €65,000

Belgium €25,000 Latvia €40,000

Bulgaria BGN 50,000 Lithuania €45,000
Croatia HRK 300,000
Luxembourg €35,000
Cyprus €15,600
Czech Republic CZK 1m Malta Goods €35,000 Other €30,000
Denmark DKK 50,000
Netherlands €20,000
Estonia €40,000
Finland €15,000 Poland PLN 207,000
Goods €85,800 Services Portugal Nil
France
€34,400
German €22,000 Romania RON 445,500

Greece Nil Slovakia €49,790

Hungary  HUF 12m Slovenia €50,000
Goods €75,000
Ireland Spain Nil
Services €37,500
Sweden  SEK 30,000
VAT Registration threshold

• AZN 300 000 – number of VAT payers: 5 000:

• AZN 200,000 – number of VAT payers: 10 000:
• AZN 100 000 - number of VAT payers: 30 000

• New VAT payers whose turnover is between AZN 100 000 - AZN
200,000 will be covered by VAT administration
 Objects of taxation
• Under the Tax Code, the supply of goods/ provision of services and imports of goods are
subject to VAT.
• Taxable transactions do not include services provided or work completed outside
Azerbaijan.
Taxation of non-residents
• VAT applies to payments made by persons without tax registration to non-residents who
are not registered for VAT purposes in Azerbaijan for works and services supplied via e-
commerce (with the exception of purchasing airline tickets and booking hotel
accommodation services outside of Azerbaijan).
• VAT from the amount to be paid to the non-resident must be calculated and paid by the
tax agent.
• The timing of the taxable transaction is considered the time when the payment is made.
• When a payment is made before a transaction, the taxable transaction will be
considered to have been made at the time of payment.
Taxation of non-residents

• VAT applies to payments made by persons without tax registration to non-

residents who are not registered for VAT purposes in Azerbaijan
• Local company A - makes a payment for works and services supplied via e-
commerce – 50 000 AZN to the foreign Company`s bank account.
• Local company A (consumer)– 50 000 x 18% = 9 000 AZN –VAT – acting as Tax
agent.
• Local company A – transfers 9 000 AZN as VAT to Azerbaijani budget.
• Final stage - a payment for works and services - 59 000 AZN – expenses of
Company A.
• 59 000 AZN = 50 000 (to the foreign Company`s bank account) + 9 000 AZN
(Azerbaijani budget).
 VAT rate
•
The current VAT rate
is 18 percent
(Azerbaijan).
 Electronic invoice

• Any taxpayer who carries out a taxable transaction is required to issue

an electronic invoice to the person receiving the goods or services.
• The taxpayer must draw up and issue an electronic invoice to the
purchaser of the goods either at the shipping time of goods or within
five days from the date of issuance of the document confirming delivery
of goods.
• The taxpayer must draw up and issue an electronic invoice to the
purchaser of works/ services within five days from the date of
performance of works/services.
• It is not allowed to issue electronic invoices for advance payments.
• The registration and administration of electronic invoices are carried
out online by the tax authorities.
 Time of recognition of VAT liability
• Output VAT must be recognized at the time when the payment for
goods (services/ works) is made.
• In case the payment is made before the delivery of the goods (works,
services), the timing of the taxable transaction shall be the date of the
payment.
• If two or more payments are made for a taxable transaction, each
payment is treated as a separate transaction.
 VAT administration
• VAT on domestic supplies and service imports is administered by the tax authorities.
• VAT on the import of goods is administered by the customs authorities.
• Registered VAT payers should assess the amount of VAT to be remitted to the budget by
subtracting input VAT credit from its output VAT liability.

• VAT Deposit Account

• All input VAT must be paid through a VAT Deposit Account ("VDA"), a type of escrow bank
account administered by the government.
• The purpose of introducing VDAs, according to official sources, is to combat VAT fraud.
• Regulations require every VAT payer to have a VAT sub-account ("VSA"). VSAs are part of a VDA.
• Only VAT paid to the supplier via VDAs is recoverable.

• Registered VAT payers must submit VAT returns and pay VAT due on a monthly basis by the 20th
day of the following month.
 VAT deposit account
Scope of application: Administration of VAT
Introduction date: 1 January 2008
General information:
To improve VAT administration and prevent tax evasion, VAT deposit accounts and relevant
software were introduced in 2008. According to the Tax Code, the persons purchasing goods
(works, services), shall pay the cost of the goods to the settlement account of the Seller in the
bank, while the VAT payment will be transferred to a separate deposit account, a VAT sub-account.
Taxpayers can pay taxes to the VAT deposit account, transfer the VAT payment on tax invoices
presented by other taxpayers, and VAT payments on import to the VAT deposit account as well.
This system has allowed tax authorities to exercise an effective control over VAT movements and
VAT offsetting, as well as all transactions of taxpayers relating to VAT payment to the state budget.
Key objectives:
- improve VAT administration;
- prevent tax evasion on VAT;
- introduce modern information and communication technologies into the tax system etc. –
- prevent illegal activities relating to VAT offsetting
 VAT refund

• The VAT reporting period is a calendar month.

• The amount of input VAT remaining after offsetting it against a taxpayer's
output VAT in any given month is automatically carried over and can be
offset against the other tax liabilities.
• Taxpayers have the right to offset VAT receivables against liabilities for
other taxes, interest charges for late tax payments, financial sanctions,
and administrative penalties.
 VAT refund (continued)
• If input VAT is not fully offset, the remaining amount must be refunded to the
taxpayer within four months of the taxpayer’s submission of an application to
the tax authorities.
• The daily interest of 0.1 percent is payable by the tax authorities if the
amount of tax due to the taxpayer is not repaid within four months.
• The taxpayer can recover input VAT up to three years after it becomes due.
• The right of a taxpayer to claim overpaid taxes is limited to five years from the
end of the tax reporting period.
• Azerbaijan tax authorities and the Ministry of Finance are collaborating to
approve VAT refund applications.
Excise tax
 Excise tax
• All individuals and legal entities producing or importing excisable goods in Azerbaijan
pay excise taxes.
• Tobacco products, alcoholic beverages, energy drinks and petroleum products are
subject to excise tax at fixed rates, e.g. AZN 3.2 per liter of spirits or AZN 35 per
1,000 cigarettes produced in Azerbaijan.
• Imports of passenger cars, buses, leisure and sport yachts are subject to excise tax at
diferent rates depending on the size of their engines.
• Imported platinum, gold, and jewelry, and other products made of them, processed,
graded, framed and hardened diamonds are exempt from excise tax for 3 years
starting from 1 January 2021. Imported fur/leather products are subject to excise tax
at a rate of 10 percent of its wholesale price.
• The export of excisable goods is taxed at a zero percent rate.
Thanks for your attention!