Law of Azerbaijan Republic

About Value Added Tax

Clause 1. General Value added tax is the form of withdrawal to the budget of part of added value formed in the course of production of commodities, works, services and paid to the budget as they are being sold. Clause 2. Tax payers 1. The following are value added tax payers: a) enterprises and organisations which according to legislation of Azerbaijan Republic have the status of legal entities including enterprises with foreign investments exercising productive and other commercial activity;

b) joint stock companies selling commodities and services on their own behalf;

c) individual (family) private companies exercising productive and other commercial activity;

d) branches, subsidiaries and various other divisions of the enterprises located at the territory of Azerbaijan Republic and selling goods, works, services independently;

e) international companies and foreign legal entities exercising productive and other commercial activity at the territory of Azerbaijan Republic.

Clause 3. Object of taxation 1. Turnovers on sale of commodities including those of industrial-technical purpose, accomplished works and services rendered at the territory of the Azerbaijan Republic are object of taxation.

2. According to the present Law turnovers on sale of all commodities, both produced locally and purchased from outside are considered object of taxation, and also:

a) turnovers on sale of commodities (works, services) within the enterprise for own use (expenditures as per these are not ascribed to production costs /turnover costs/) and also sale to own employees;

b) turnovers on sale of commodities (works, services) without payment of cost in exchange to other commodities (works, services);

c) turnovers on free of charge transfer, or transfer with partial payment, of commodities (works, services) to other enterprises or physical persons and also on sums obtained by the enterprises in the form of gratuitous financial assistance (except centralised fund obtained from the budget, ministry, organisation).

Clause 4. Estimation of taxable turnover 1. For estimation of the taxable turnover cost of sold commodities (works, services) calculated based on existing prices and tariffs is taken as a basis, without inclusion of VAT.

When estimating taxable turnover on commodities which are subject to withdrawal of excises, sum of excise is included thereto.

In case of exchange of commodities (works, services), with their transfer both free of charge and with partial payment, taxable turnover is estimated based on the level of prices existing at the date of exchange or transfer.

Whenever commodities of the enterprise’ own production (works, services) are being used within the latter (if expenditures in connection with these are not ascribed to production costs and turnover cost) then cost of these or similar commodities (works, services) estimated based on used prices (tariffs) is taken as a basis for estimation of taxable turnover; if said prices (tariffs) are absent actual production cost is taken as a basis for estimation of taxable profit.

When the goods are being produced from returnable raw material (in the form of ready products) then cost of their processing represents taxable turnover. Cost of returnable tare (boxes) is not included into taxable turnover, except cases when such tare is being sold by enterprises-producers.

3. When the enterprises accomplish intermediatory services then sum of profits obtained in the form of extra payments, bonuses and charges constitutes taxable turnover. will be taxable turnover.

For enterprises of retail trade taxable profit when selling commodities is determined as difference between their selling prices and sums paid to suppliers, including sum of VAT.

The same is procedure of estimation of taxable turnover for commodities sold at auctions and also for procurement, supply-trade, wholesale and other organisations - whenever they sell commodities at prices exceeding buying prices.

Clause 5. Exemption from tax 1. The following are exempted from payment of VAT: a) cost of the property redeemed in the course of privatisation of property of state enterprises and also rental payment for rented enterprises established on the base of state property;

b) operations on insurance and reinsurance, granting and transfer of subsidies and also operations with money contributions, current and other accounts;

c) operations in connection with circulation of currency, money, banknotes being legal payment means (except those used with numismatic objectives) and also securities (bonds, shares, certificates, bills, etc.);

d) sale of post stamps (except collector’ pieces), postcards with stamps, envelopes, lottery tickets;

e) actions accomplished by authorised bodies that are subject to state taxes and also services rendered by members of lawyers’ association and interpreters of foreign languages;

f) turnovers of casino, slot-machines, winnings from races;

g) services in the sphere of public education related to educational-productive process, payment for education of children and teenagers in groups, studios, for use of sport facilities and also services on keeping children in kindergartens, services in connection with nursing ill and aged people;

h) issue, transfer and receiving patents, author’s certificates, licenses;

i) services of undertaker’s offices, cemeteries, accomplishment of ritual ceremonies by religious organisations;

j) services of cultural and artistic companies, religious organisations, theatre performances, concerts, sport, cultural-educational events including demonstration of video-tapes;

k) scientific-research, design-research and experimental-design works accomplished at the expense of budget of Azerbaijan Republic and works accomplished by institutions of the sphere of public education on contractual basis (for third parties);

l) commodities (works, services) produced by enterprises, organisations and co-operatives of societies of disabled people;

m) profits of canteens in educational institutions.

n) commodities, services sold by legal and physical entities, paying tax in an order envisaged by the Azerbaijan Republic in the form of license obtaining;

o) works on fulfilment of social-cultural programs (projects) on house-building, erection of objects of housing, service purpose, infrastructure, house-building integrated plants and technological lines at the expense of gratuitous financial assistance, credits and loans, allocated by international organisations, governments of foreign states, and also foreign legal and physical entities on the basis of interstate and intergovernmental agreements, on rendering of services by consulting enterprises of foreign countries and Azerbaijan Republic, and also on delivery of materials and equipment;

p) turnovers on sale of newspapers and magazines.

2. The following commodities (works, services) are subject to value added tax payment at a rate of «0» (zero) percent: a) commodities (works, services) exported outside states - CIS members;

b) commodities and services intended for official use of foreign diplomatic representations, organisations equated with them and also their diplomatic and administrative-technical personnel;

c) services of city public transport (except taxi) and also services on passenger transportation using local (suburban) trains and buses;

d) text-books for secondary schools, literature for children;

e) rental payments for apartments and hostels.

3. List of commodities (works, services) exempted from VAT is one and the same all over the territory of Azerbaijan Republic.
Clause 6. Tax rates 1. Value added tax is being paid at the rate of 20 and 16.67 percents..

When selling commodities (works, services) at controlled prices (tariffs) including value added tax, rate at the amount of 21.88% is applied.

2. To protect economic interests of the Azerbaijan Republic, authorised executive power body may establish other rates of value added tax for some kinds of raw materials and materials imported to states - CIS members on legal basis.

Clause 7. Procedure of tax estimation 1. Sale of commodities (works, services) to citizens is accomplished at rates and tariffs including sum of VAT at specified rate.

2. Tax on purchased raw materials, materials, fuel, parts and other items used in production is not ascribed to production costs and turnover. Value added tax paid for capital investments and purchase of non-materials assets are not ascribed to their balance cost.

Sum of tax to be transferred to the budget is determined as the difference between sums of tax obtained for sold commodities (works, services) and sums of tax paid to suppliers for material resources, fuel, works, services cost of which is included into production and turnover costs.

Tax paid to suppliers shall not be excluded from tax sum obtained from the buyers in the following cases:

a) on commodities (works, services) used for non-productive needs. Tax on commodities (works, services) used for non-productive needs is paid at the expense of respective sources of financing;

b) on commodities (works, services) used in the course of implementation of operations which are not liable to taxation according to paragraph 1 of Article 5 of the present Law. Sums of tax paid to the suppliers for such commodities (works, services) are ascribed to production and turnover costs.

3. Whenever sums of tax paid to suppliers for purchased commodities and material values exceed sums of tax estimated for sale of commodities (works, services) resulted difference is accounted for in forthcoming payments; in case of shortage it should be compensated at the expense of regular payments of this tax, monthly, not later than on 15th day of month following the report month.

Similar procedure of accounting (registration) or compensation of sums of tax paid to suppliers is used also when selling commodities (works, services) which are liable to payment of value added tax at a rate of «0» (zero) percent according to paragraph 2 of the Article 5 of the present Law.

Clause 8. Terms of tax payment 1. Day of entry of money for commodities (works, services) into bank accounts, and when settlements are accomplished in cash - day of money entry into cash-box is considered the date of accomplishment of turnover.

With free transfer or exchange of commodities (works, services) day of their transfer (accomplishment) is considered the date of accomplishment of turnover.

2. Term of presentation of tax accounts (settlements) to taxation bodies and term of budgetary payments are established by Main State Tax Inspection of the Azerbaijan Republic on agreement with the Ministry of Finances of Azerbaijan Republic.

3. Imported commodities produced outside the states - CIS members are subject to payment of value added tax in an established order to the Custom when crossing the state border of the Azerbaijan Republic.

List of imported commodities, exempted from value added tax by custom bodies are established by the Cabinet of Ministers of the Azerbaijan Republic.

Clause 9. Responsibility of taxpayers and control of taxation bodies 1. Taxpayers and officials of their organisations are responsible for adequate and timely payment of tax to the budget.

2. Taxation bodies exercise control over payment of taxes according to legislation of Azerbaijan Republic.

Clause 10. Instruction on application Instruction on application of the present Law is issued by the Main State Tax Inspection of Azerbaijan Republic on agreement with the Ministry of Finances of Azerbaijan Republic.

President of Azerbaijan Republic

A. Mutalibov.

Baku, December 31, 1991.

No 42.

With amendments dated 16 May, 1992, N 126, 12 August, 1992, N 269, 21 October, 1992, N 346, 30 December, 1992, N 433, 14 April, 1994, N 797, 29 July, 1994, N873, 2 February, 1995, N 969, 24 December, 1996, N 216-1GD.

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