Ministry of Taxes of the Republic of Azerbaijan 

SIMPLIFIED TAX

The provisions of this booklet do not apply to persons implementing passenger or cargo transport by automobile transport means, including taxis.

Taxpayers

Persons who are not registered for VAT purposes and whose volume of taxable operations for the previous three months period does not exceed 22,500 manats are entitled to be taxpayers for the purposes of simplified tax. Such taxpayers must submit tax returns or written notification about relinquishment to exercise this right to the tax authority at which they are registered no later than April 20 and apply selected method until the end of the year.
Following persons are not entitled to be taxpayers for the purposes of simplified tax:

• persons producing excise goods;
• crediting and insurance entities, investment funds, professional security market participants, pawn-shops;
• non-governmental pension funds;
• persons obtaining income from the lease of property or royalty,
• persons possessing fixed assets other than motor transports whose residual value as of the beginning of the year exceeds 1,000,000 (1 million) manats.

Taxable base

The gross volume of cash flow obtained for goods (works, services) and property provided by the taxpayer, as well as non-sale incomes within reporting period is taxable base.
Legal entities paying simplified tax do not pay VAT, profit tax and property tax, and physical persons involved in entrepreneurial activity without establishment of legal entity do not pay income tax and VAT on subject activity.

Tax rates

The simplified tax is calculated based on the amount of funds (gross volume of cash flow) obtained from provision of goods, implementation of works, rendering of services by taxpayers and non-sale profits at the following rates:

• for Baku: 4 percent
• for other regions and cities, Nakhchivan Autonomous Republic: 2 percent

For taxpayers involved in activities in other cities and regions of the Azerbaijan Republic, including Nakhchivan Autonomous Republic with exception of Baku, the established tax rate is applied only when taxpayers are engaged in activities in these territories using their own production facilities, property and labour.
Payers of simplified tax registered in cities and regions of the Azerbaijan Republic, in Nakhchivan Autonomous Republic but engaged in activities in the city of Baku are subject to payment of simplified tax at the rates established for the city of Baku.
Incomes liable to taxation at various tax rates must be recorded separately. The highest tax rate is applied in the event of failure to maintain such record.

Procedure for calculation of simplified tax, period of payment and submission of tax return

The amount of simplified tax for the reporting period is calculated by multiplying the established tax rate to the gross volume of cash flow for reporting period.
Example:
You are engaged in retail trade and you had a quarterly turnover of 12.000 manats:
If you operate in Baku city the tax to be paid by you is: 12.000 x 4% = 480 manats
If you operate in other cities and regions or in Nakhchivan Autonomous Republic it is: 12.000 x 2% = 240 manats.
Reporting period for simplified tax is a quarter.
Payers of simplified tax must submit tax return on the amount of tax to be paid to tax authorities before 20th day of each month following the reporting period, and make the tax payment to the state budget within the same period.
If the legal entity being a taxpayer for the purposes of the simplified tax is abolished or the activities of the physical persons involved in entrepreneurial activity without establishment of legal entity is terminated, the tax return is to be submitted within 30 days. In this case the tax period is the period from the beginning of the accounting period until the date of termination of activities.

Withholding of tax at the source of payment

All legal entities who are being taxpayers for the purposes of the simplified tax and physical persons being taxpayers for the purposes of the simplified tax and making payments to persons employed by them, are obliged to withhold the income tax at the source of payment and transmit it to the state budget.
Taxpayers for the simplified tax which withhold taxes at source are obliged to submit the return on withheld taxes to the tax authorities not later than 20th day of the month following the accounting quarter.

Financial Sanctions

A financial sanction is imposed on a taxpayer for late submission of tax return without valid reasons based on the decision of the head (deputy) of the tax authority at the value of 40 manats.
In case the amount of tax (including withholding tax) indicated on tax report is less than the amount to be indicated on the report and if taxpayer fails to submit tax report and evades to pay the required tax amount to the budget, the financial sanction shall be imposed on the taxpayer at the rate of 25 percent of understated or evaded tax amount.
For failure to pay the tax within the specified period, the interest at the rate of 0,1% of outstanding tax amount shall be imposed on the taxpayer for each day of delay.
For violation of rules for maintenance of cash settlements, thus implementing of cash settlements with population without application of cash registers or issuance with indication of amount lower than paid actually the financial sanctions shall be applied as follows:
if such violation occurred for the first time during the year— the amount of 400 manats;
if such violation occurred for the second time during the year— the amount of 800 manats;
if such violation occurred for the third or more times during the year — the amount of 1200 manats.
For hiding of raw materials, semi-manufactured goods, finished products and other valuables, as well as funds, at the size of more than 1000 manats or their non-registration, the following financial sanctions shall apply to taxpayer:
for the portion exceeding 1000 manats of total amount of these valuables or funds, hidden or unregistered,— at the rate of 5 percent;
should such event reoccur during the year, for the portion exceeding 1000 manats of total funds of these valuables and funds hidden or unregistered,— at the rate of 10 percent.
In case if simplified tax has not been paid on time 0,1 percent interest is applied for each day of delay.

Administrative penalties

Taxpayers for the simplified tax are punished by administrative penalties for the following violations:

• attraction of physical persons for doing works without conclusion of the labour contract

-    legal persons – from 220 to 330 manats
-    officials – from 77 to 99 manats

• acceptance of currency values as means of payment:
• physical persons – from 16,5 to 44 manats

-    officials – from 44 to 88 manats

• sale or maintenance for sale without excise marks of the goods to be marked by such marks:

-physical persons – from 38,5 to 44 manats
-officials – from 88 to 99 manats
-legal persons – from 220 to 330 manats
By confiscation of non marked excese goods.