Azernews.Az

By Amina Nazarli

Income tax and value added tax (VAT) rates for small and medium-sized enterprises engaged in production will be reduced in Azerbaijan.

This remark was made by Deputy Taxes Minister Ilkin Valiyev at a press conference dedicated to execution of the Azerbaijani president’s order, dated back on August 4 “On improvement of tax administration and approval of directions of reforms in taxation in 2016” held in Baku on August 10.

Valiyev emphasized that in this context, it is planned to amend Azerbaijan’s legislation and simplify tax administration.

He said that one of the main goals is to reduce tax burden, which currently is 39.8 percent.

“This figure is less than in other countries of the Organization for Economic Cooperation and Development (OECD), but slightly higher than in the countries of the region,” he noted. “Thus, we plan to optimize and somehow reduce the tax burden.”

Azerbaijan applies a single VAT rate of 18 percent, and the rate of the income tax is 20 percent.

Small businesses in the country are the businesses, which have up to 25 employees and an annual turnover of up to 200,000 manats ($123,565), while the medium-sized businesses are the enterprises, which have an annual turnover of 200,000-1.25 million manats ($123,565-$772,000) and 25-125 employees.

Valiyev also stressed that the government plans to decrease tax rates in order to encourage non-cash payments in Azerbaijan.

“Stimulating cashless payments and limitation of cash payments will lead to a rise in the number of POS-terminals and transparency in tax payment. We've already had a few suggestions in connection with the expansion of cashless payments. One of the proposals means that any payments in excess of 1,000 manats ($617) a day must be carried out by cashless payment. In addition, we have proposed to reduce the VAT or any other tax to promote cashless payments," Valiyev explained.

Central Bank of Azerbaijan reports that payment cards turnover in the country through ATMs and POS-terminals amounted to 1.05 billion manats ($648,720) in June 2016 (6.2 percent increase compared to the same period of 2015), and the total number of operations made up 6.99 million (0.5 percent decrease). Number of payment cards in Azerbaijan amounted to 5.47 million, which downed by 0.5 percent for a year.

The deputy minister also informed reporters about strengthening the control operations of Azerbaijani citizens in offshore zones.

He added that corresponding amendments will be made to Azerbaijan’s legislation in order to impose taxes on profits from operations of Azerbaijani companies abroad, including in offshore zones, and by using transfer prices.

Moreover, he said, it is planned to create effective mechanisms of control over the operations of enterprises created by Azerbaijani residents in offshore zones. These mechanisms will be used to identify people evading taxes and to impose income tax on their profit.

“Currently, we have agreements with a number of countries on cooperation in this sphere and we plan to increase their number in the future,” added Valiyev. “We provide those countries with information about their companies operating in Azerbaijan, and they, in turn, provide us with information about Azerbaijani companies there.”

These agreements will also allow enhancing control over Azerbaijani companies in offshore zones, said the deputy minister.

The deputy minister also touched upon the recently approved Tax Free system in the country, saying that more than 104 million manats (about $64,000) of VAT have been refunded to citizens of 45 countries since the introduction of the system on June 16.

“This demonstrates that the system is in a very high demand,” Valiyev said. “Currently, it operates only at the Baku Heydar Aliyev International Airport, but soon it will be used at all other checkpoints of Azerbaijan.”

Head of Taxpayers’ Services Main Department Mahir Rafiyev told reporters that the extended use of Tax Free system doesn’t mean the inclusion of persons and goods, with regard to which the Tax Free is not applicable.

“The extended use of this system means that it will be used at all checkpoints of Azerbaijan,” said Rafiyev adding that the list of persons and goods, with regard to which the Tax Free is not applicable, won’t be changed.

Foreign citizens can benefit from tax free system, if the cost of purchased goods per one e-tax invoice is not less than 300 Azerbaijani manats, including VAT. The goods should be taken out of Azerbaijan’s territory within 90 days from the date of purchase.

Standard VAT rate in Azerbaijan is 18 percent. Regardless of the transfer method, foreign citizens will be refunded the amount of VAT paid for the purchased goods after withholding 20 percent service fee.

How to benefit from Tax Free?

To benefit from Tax Free system, a customer must shop at Tax Free labeled shops. Customers can refund the VAT paid for the goods they purchased at Tax Free labeled shops during their departure at the airport.

While purchasing goods at Tax Free labeled shops customers need to inform a salesperson about the intention to benefit from Tax Free, show a passport confirming citizenship, and have the salesperson to fill in the electronic tax invoice enabling VAT refund. The salesperson, upon filling in the passport details, will provide the customer with two copies of signed and stamped e-tax invoice. The e-tax invoice, along with other information, will contain the amount of paid VAT, as well as the expiry date of VAT refund.

While departing from Azerbaijan, it is necessary to present purchased goods and e-tax invoice along with a passport to the customs checkpoint located at the airport. Customs staff will certify the e-tax invoice with a stamp and return it back to the customer after making relevant notes on it. Finally, the custom’s tax invoice should be presented to an authorized bank. The refund can be made both in cash and non-cash (after 10 days) way.

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Amina Nazarli is AzerNews’ staff journalist, follow her on Twitter: @amina_nazarli

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