Azerbaijan

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 following 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 value-added tax (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.

Exemptions

Beginning from 1 January 2019, new exemptions with respect to personal income tax (PIT) were introduced into the Tax Code.

One of the major exemptions affected employment income. The income in the amount up to 8,000 Azerbaijani manats (AZN) of employees involved in other than oil and gas and government sectors is exempt from PIT.

Some other exemptions were granted with respect to taxation of individuals, such as:

• Dividend income of shareholders of a resident legal entity not registered as a VAT payer and the revenue not exceeding AZN 200,000 in any consecutive 12-month period.
• Income from writing-off tax debts to the state budget.
• 50% of taxpayer’s income from disposal of shares and participating interests owned for at least three years.
• Up to AZN 10 of winnings received from lotteries.