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 seven 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). Only mark-ups applied in the retail sale of agricultural products produced in Azerbaijan are subject to VAT. There are certain transactions not subject to VAT for three years from 1 January 2017.
Incentives for Residents of Industrial and Technology Parks
Businesses operating in industrial and technology parks are eligible for following privileges and exemptions:
- Exemption for seven years from profit/income, land, and property tax
- VAT exemption for import of equipment for construction, scientific research works, and other activities in these parks for seven years or more, depending on the nature of these activities
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% WHT on gross revenues
- Foreign subcontractors are taxable only by a 5% WHT
- 0% VAT rate
- Exemption from dividend WHT and taxation on the branch’s net profits
- 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
- Customs exemptions
For operating in an SEZ, a special residency certificate is necessary, except certain companies operating in specified industries.
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 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 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;
- 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.