Compliance requirements for financial institutions
Provisions on tax monitoring by financial institutions were introduced to the Tax Code in December 2016. In accordance with international treaties on exchange of information, financial institutions must submit information about financial transactions in Azerbaijan to the competent authorities of foreign countries by submitting e-reports.
Information on transactions carried out through the accounts of VAT-registered taxpayers should be submitted by the banks to the respective executive authority by the 10th day of each month.
According to new changes to the law on non-cash settlements, taxpayers are subject to financial sanctions for failure to conduct the below-listed operations cashless (i.e. for receiving in cash):
- Receipt of money by leasing providers and loan issuers.
- Payment of insurance payments and receipt of insurance premiums by insurer or reinsurer.
- Receipt of service fees and other levies by state authorities, state entities, budgetary organisations, and public entities.
- Receipt of stationary phone charges and utilities.
- Receipt of tuition fees.
- Receipt of fees for tourism agency services.
Furthermore, taxpayers are also subject to financial sanctions for failure to conduct the below-listed operations cashless (i.e. for paying in cash):
- Up to AZN 30,000 per calendar month for VAT-registered taxpayers and taxpayers engaged in trade and/or public catering services whose taxable supplies exceed AZN 200,000 in any 12-month period.
- Up to AZN 15,000 per calendar month for other taxpayers.
- Any payments over AZN 15,000 per calendar month by other taxpayers.
- Payment of salary and other relevant compensations to employees (not applicable to those engaged in retail trading, public catering, and service industry whose taxable supply are below AZN 200,000 in any month [months] of a consecutive 12-month period).
- Any payments out of funds earned from state procurement contracts.
Risky taxpayers and transaction without substance
The concept of risky taxpayers and transaction without substance was newly introduced and became effective from 1 January 2020.
A non-commodity transaction is an operation discovered in the course of tax control, designed to disguise another transaction, and in fact is formalised to generate profit without the provision of goods, works, and services.
The Law envisages the followings with regards to the taxation of risky taxpayers:
- Information about risky taxpayers is not to be considered as a trade secret.
- The tax authority has the right to perform an extraordinary tax audit and operative tax control.
- Extension of period for refund of the overpaid tax from the state budget without consideration of the full completion of the operative tax control.
Documents related with the transactions without substance as well as electronic delivery notes issued by a risky taxpayer will not be treated as a basis for recovery of VAT from the state budget.
For profit tax purposes, the value of goods delivered by risky taxpayers will be calculated based on the market price and related information.