Investment Promotion Certificate

The tax code provides for a 50% exemption from profit tax for legal entities holding an investment promotion certificate. The exemption is valid for 7 years from the date of obtaining the certificate. Certain other incentives also may be available for legal entities and individuals holding an investment promotion certificate.

Incentives for Agricultural Producers

Taxpayers producing agriculture products are exempt from profit tax, VAT, and property tax until 1 January 2024 (effective 1 January 2019). Effective 1 January 2022, for a period of 3 years, mark-ups applied on both wholesale and retail sale of agricultural products (produced in or outside Azerbaijan) are subject to VAT. Previously, only mark-ups applied in the retail sale of agricultural products produced in Azerbaijan were subject to VAT.

The following transactions are not subject to VAT:

Import and sale of wheat, as well as production and sale of flour and bread, for a period of 7 years beginning from 1 January 2017;
Sale of animal and poultry meat for a period of 4 years beginning from 1 January 2020;
Production and sale of bran for a period of 5 years beginning from 1 January 2019; and
Sales of feed and feed additives used in livestock and poultry farms for a period of 4 years beginning from 1 January 2020.

Incentives for Food Production

Effective 1 January 2023, a 50% corporate tax exemption, and a 100% exemption from property and land taxes apply to taxpayers engaged in production of food products listed under the approved list of locally manufactured products that replace imported products. The exemption applies for a period of 7 years beginning from the year of approval.

Incentives for Residents of Industrial and Technology Parks

Businesses operating in industrial and technology parks are eligible for certain tax privileges and exemptions for a period of 10 years beginning from the year of registration. Effective 1 January 2023, eligible activities also include system integration, software upgradation and development activities, even if the activities are carried out outside Azerbaijan.

The incentives include:

Exemption from corporate income tax, land tax and property tax;
Exemption from withholding tax on dividends paid;
VAT exemption for import of equipment for construction, scientific research works, and other activities in these parks, depending on the nature of these activities;
Employers can make social security contributions of an amount equal to 4 times the minimum monthly salary, instead of the standard rates; and
Foreign nationals and stateless residents engaged by these taxpayers are exempt from social insurance.

The Law on the Special Economic Regime for Export-Oriented Oil and Gas Activities

Contractors and subcontractors (excluding foreign subcontractors without PE in Azerbaijan) can avail the following tax incentives:

Local companies can choose between (i) profit tax at a rate of 20% or (ii) 5% withholding tax on gross revenues;
Foreign subcontractors are taxable only by a 5% withholding tax;
0% VAT rate;
Exemption from dividend withholding tax and taxation on the branch’s net profits; and
Exemption from customs duties, property tax and land tax.

The taxpayer is required to obtain a special confirmation certificate from the Ministry of Industry and Energy.

The Law on Special Economic Zones (SEZs)

The companies operating in SEZs are eligible for following tax benefits:

A 0.5% tax levied on overall turnover from supplied goods, performed services, or works;
A 0% VAT rate; and
Customs exemptions.

For operating in an SEZ, a special residency certificate is necessary, except certain companies operating in specified industries such as companies producing or processing oil and gas, companies producing alcoholic beverages and tobacco, and television or radio broadcasting companies.

The Law on Free Economic Zone of Alat

On 4 June 2018, the government implemented the legislation for the establishment of the Free Economic Zone of Alat.

Companies carrying on activities in the Free Economic Zone of Alat are eligible for the following incentives:

An exemption from all taxes, including for companies operating in the zone and their employees;
An exemption from withholding tax on payments made by companies outside the zone for services provided by companies operating in the zone;
An exemption from customs duties;
No restrictions on foreign ownership; and
No restrictions on the transfer of funds or the currencies used.

In case the goods, works, or services are provided to other areas of Azerbaijan, the standard tax provisions are applicable.

Incentives for Liberated Territories

Effective 1 January 2023, the following incentives are provided for a period of 10 years for registered taxpayers directly carrying on qualifying activities in liberated territories:

An exemption from corporate income tax, property tax, land tax and simplified tax;
VAT exemption on import of raw material for manufacturing activities; and
Dividend income received from companies that are resident of the liberated territories.

Qualifying activities include:

Production of goods in liberated territories, including those that are processed or extracted and then provided within or outside the liberated territory, or exported from the territory of the Republic of Azerbaijan;
Wholesale trade, construction and services (other than public services). However, goods or services that are provided to residents outside the liberated territories do not qualify for the incentive; and
Tourism, retail trade, public catering and other services rendered in liberated territories.

The taxpayer will cannot benefit from the incentive if it is carrying out same or similar activities, as above, outside the liberated territories.

Excluded activities are as follows:

Financial services;
Cargo transportation services; and
Sale of goods or services, funded by the Government.

Incentives for Small and Medium Entrepreneurship Cluster Companies and Participants

Effective 1 January 2019, certain incentives have been introduced for Small and Medium Entrepreneurship (SME) cluster companies and SME cluster participants, which are as follows:

Exemption from profit tax, property tax and land tax for 7 years from the date of registration as SME;
Machinery, technological equipment, and devices imported for the purpose of production and processing are exempted from VAT for 7 years from the date of their registration as an SME;
Revenue generated by SME cluster participant from the supply of goods, work, or services to SME cluster company is exempt from profit tax for 7 years, provided such goods, works or services are capital expenditure for SME cluster company; and
Accelerated depreciation at 1.5 times the standard depreciation.

The size-based classification thresholds for enterprises are as follows:

Micro-enterprises – 1 to 10 average number of employees and annual revenue up to AZN 200,000;
Small-enterprises - 11 to 50 average number of employees and annual revenue over AZN 200,000 up to AZN 3 million;
Medium-enterprises - 51 to 250 average number of employees and annual revenue over AZN 3 million up to AZN 30 million; and
Large-enterprises - 251 or more average number of employees and annual revenue over AZN 30 million.

As per the above-listed classification, if an enterprise meets the threshold of employee and annual revenue classification under different categories, the enterprise will be classified under a larger-size category.

Other Corporate Tax Exemptions (effective from 1 January 2019)

A 25% reduction in corporate tax on payments received via POS terminals by entities engaged in retail and catering for a period of 3 years;
75% of the profit generated by micro-entrepreneurs from entrepreneurial activity, is exempt from profit tax; and
A profit tax exemption is introduced for small innovative start-ups for a period of 3 years following their date of certification.

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