A resident enterprise is any legal entity established in accordance with the legislation of Azerbaijan and performing entrepreneurial activity or any entity that is effectively managed in Azerbaijan.
Permanent establishment (PE)
A PE of a foreign legal entity is subject to taxation with respect to the income attributable to such PE. A PE is an establishment of a foreign legal entity, through which it fully or partially performs commercial activities (for these purposes, a PE may be considered a management unit, office bureau, agency, construction site, etc.) for 90 cumulative days or more within any 12-month period.
Activities of an auxiliary or preparatory nature (e.g. exclusively storing or exhibiting goods or products belonging to a non-resident, purchasing goods) do not create a PE, such as:
- storing and demonstration of goods and products belonging to non-resident enterprise;
- storing stocks of goods or products belonging to a non-resident enterprise for eventual processing and subsequent export from the Republic of Azerbaijan by a third party;
- any other preparatory or auxiliary activity for non-resident enterprise itself;
- purchase of goods or gathering the information for non-resident enterprise’s own needs;
- joint implementation of any above stated activities
Notwithstanding the foregoing, the above listed activities (auxiliary and preparatory) shall be considered as creating a permanent establishment, if:
- the joint implementation of those activities by a non-resident and its interdependent persons in the Republic of Azerbaijan are for entrepreneurial purposes or, if
- the results of a coherent implementation of any of those activities are not of a preparatory or auxiliary nature and (or)
- the activities of such persons are complementary to other activities as part of a single business process.
Moreover, according to the PE Amendments to the Tax Code, persons authorized to compile a customer base and organize work with clients for non-residents are also deemed to constitute a PE considering time threshold prescribed above.