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Azerbaijan’s new tax code and the 2019 budget

Who wins and who loses out

Azerbaijan’s tax code has been changed in accordance with the country’s 2019 budget.

What has changed?

To summarize, the ratio of the tax burden between the employee and the employer will change. Employers will be motivated to sign contracts with employees as they will be exempt from paying taxes on wages for seven years – meanwhile, freelancers offering services to organizations will find that things will become more difficult for them.

An individual entrepreneur will not face difficulties if his or her business is small, and they only sell goods and services to the public and not to organisations. For such small businesses, the tax rate has been reduced from four per cent to two.

However, many will lose their privileges and instead of taxes under the simplified scheme, they will pay both VAT (value-added tax) and income tax – which is 18 and 20 per cent respectively.

Nothing will change for state-owned enterprises and enterprises in the oil sector.

Aims of the reform

These and other changes, as declared by the Ministry of Taxes, are aimed at increasing the transparency of wages and bringing wages out from the shadow economy.

This is a common practice in Azerbaijan: wages in contracts generally only slightly exceed the minimum wage, but workers receive several times more money. The amount saved by a private entrepreneur is enough to bribe a tax inspector.

However, when the income tax – which the employer also pays – is no longer necessary, there is a chance that it will be unprofitable to evade paying taxes.

New taxes will also “force” small businessmen to keep accounts, which they previously could not do.

There are also “discounts” that merchants will receive for using POS (point-of sale) terminals, given that the government wants to encourage non-cash payments.

Budget

The money that the treasury will lose as a result of the tax breaks will be compensated for by:

An increase in excise taxes on the importation of cars and energy drinks, and fines for tax evasion.


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