Amendments To The Legislation Of The Republic Of Azerbaijan Establishing Tax And Other Incentives In Relation To Activities In The Liberated Territories Of Azerbaijan Will Take Effect – Tax Authorities

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From 1 January 2023, a number of amendments to the laws of the Republic of Azerbaijan establishing tax and other incentives related to activities in the liberated territory of Azerbaijan will come into effect.

Due to the amendments to the Tax Code of the Republic of Azerbaijan (hereinafter referred to as the “Tax Code”), legal entities and individuals registered with the tax authorities of the liberated territories and operating in these territories will be eligible for ten years from January 1, 2023, The following benefits are stipulated. Territory (“Freed Territory Resident”)

  • Exemption from corporate income tax, personal income tax including non-business income, and simplified taxation.

  • property tax exemption;

  • Land tax exemption;

  • VAT exemption on the import of raw materials for certain manufacturing activities.

  • Tax exemption on dividend income of shareholders (participants) of legal entities who are residents of liberated territories.

The expected tax exemption does not apply to the following activities and businesses:

  1. activities in the field of financial service provision;

  2. road freight transport services;

  3. Provision of goods (works, services) by contractors (excluding permanent contractors carrying out manufacturing activities within the liberated territory) at the expense of the state budget.

The above exemptions apply subject to the following conditions:

  1. Tax exemptions on manufacturing, processing and extraction activities apply to taxpayers registered for tax purposes in the liberated territories and carrying out these activities in these territories. Duty exemption applies to income derived from the manufacture, processing and extraction of goods supplied within and outside the liberated territory, as well as income exported from the territory of the Republic of Azerbaijan.

  2. Duty exemption in the field of wholesale trade, construction and services (except services provided to residents) applies to residents of the liberated territory who provide goods (work, services) to residents of the liberated territory . Tax exemption does not apply when goods (works, services) are provided to persons carrying out activities outside the liberated territory, including when goods (works, services) are exported from the territory of the Republic of Azerbaijan.

  3. Exemptions from taxation in the fields of tourism, retail trade, catering and other services to residents apply to residents of liberated territories carrying out activities in these territories.

  4. If residents of the liberated territory carry out the activities specified in items i, ii and iii above outside the liberated territory (within the territory of the Republic of Azerbaijan), the prescribed tax exemption shall not apply to them. Hmm.

  5. Residents of the liberated territories engaged in the activities referred to in items i, ii and iii above carry out other activities outside this territory, including outside the Republic of Azerbaijan, to the activities carried out in these territories. Accounting for related income and expenses Other activities conducted outside these areas shall be conducted separately for each type of activity.

Also, an amendment to the Presidential Decree on “Increase Social Security” will give professionals working in areas liberated from occupation a one-off allowance of 600 manat to maintain basic living conditions. These changes are valid until January 1, 2028.

According to amendments made to the law of the Republic of Azerbaijan on “Social Insurance”, mandatory state social insurance contributions paid by insurance companies (insured persons) of the non-governmental sector not operating in the oil and gas sector. The next part of the liberated territories of the Republic of Azerbaijan will be subsidized from the state budget (excluding residential contractors, performing activities in the field of financial and road freight transport services at the expense of the state budget and producing goods (work and (excluding contractors supplying services)) carrying out manufacturing activities in liberated territories):

  1. From 01/01/2023 to 01/01/2026 – 100%.

  2. From 01.01.2026 to 01.01.2029 – 80%.

  3. From 01.01.2029 to 01.01.2031 – 60%.

  4. From 01.01.2031 to 01.01.2033 – 40%.

The content of this article is intended to provide a general guide on the subject. You should seek professional advice for your particular situation.

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