AZERBAIJAN - VAT reforms in 2019 and 2020

March 2019

On 20 December 2018 the President of the Republic of Azerbaijan approved the Law “On Amendments to the Tax Code of the Republic of Azerbaijan” dated 30 November 2018 (Law) and signed a decree (Decree) in relation to application of the Law. The Law introduced a variety of changes in the tax landscape effective 1 January 2019, including amendments to provisions related to VAT. This article provides an overview of the major amendments.

Output VAT timing

The Decree includes a significant change in VAT administrative policy that many businesses have been waiting a long time for. Under the new policy, which is to be implemented beginning 1 January 2020, for tax filing purposes, output VAT in relation to the supply of goods and services shall be recognised on the date the supplier receives cash for the good or service.

Tax exemption

The VAT exemption period applicable to agricultural producers’ sale of their own output (including industrially produced output) has been extended by another five years so that it will now expire on 1 January 2024.

New, noteworthy exemptions effective 1 January 2019 include:

The import of liquefied gas-powered buses designed to carry more than 10 people, including the driver. This exemption will begin 1 January 2019 and run for five years.
The import of machinery, technological equipment, and facilities for production or processing purposes by a Small and Medium-size Enterprise (SME) cluster company will be exempt from the date of registration as an SME cluster company and will run for seven years. To qualify, the taxpayer must have a confirmation document issued by the Agency for Development of Small and Medium-Sized Enterprises.
The import of cars powered only by an electric engine.

Partial VAT refund to individual consumers

The Cabinet of Ministers has been instructed to issue rules for the refund of VAT paid by individual consumers in respect of goods (except for oil and gas products) received from persons engaged in retail or catering businesses. The amount refundable will be 15% of the value of VAT paid in on a transaction that is not paid for in cash and 10% of the value of VAT paid on a transaction paid for using cash.

To qualify for the partial refund of VAT, it is critical that the receipts include the following information:

Name of the entrepreneur/entity making the supply
Supplier’s Tax ID number
Date and hour the receipt generated
Name of the business site, its tax registration code, and location
Description of the supply, including the unit of measure or quality of the commodity supplied, price per unit, and total amount (including VAT)
Quantity and number of receipts issued for that day by the supplier
Brand name and serial number of the cash register
Fiscal regime label applicable to the cash register
Commodity’s Quick Response Code for the item supplied

Input VAT

A new, significant provision was introduced in respect of refundable input VAT related to taxpayers who carry on both VAT taxable and VAT exempt transactions. Going forward, adhering to input VAT general recognition rules, such taxpayers will be entitled to claim in full input VAT paid on goods and services related to VAT taxable transactions if they keep documentation about the goods or services and information about how they have allocated the input VAT as between VAT taxable and VAT exempt transactions.

A taxpayer cannot claim input VAT on goods and services it purchases to the extent that the input VAT relates to goods or services the taxpayer supplies to the government, even if the taxpayer’s supply to the government is subject to VAT.

Azer Akbarov
aakbarov@bdo.az