Becoming a VAT Payer

Value Added Tax (VAT) is one of the indirect taxes applied in the Republic of Azerbaijan. It is primarily calculated during the sale of goods, provision of services, and import operations. Although effectively paid by the consumer, it is transferred to the state budget by the seller or service provider.

VAT is applied to the added value generated at all stages of the production-sales chain, and the tax base is formed based on this principle.

According to Article 153 of the Tax Code, the VAT payable by the entrepreneur to the state is calculated based on the difference between the VAT collected from sales and the VAT paid during purchases.

Example:

• A company sold a product for 500 AZN + 18% VAT → VAT = 90 AZN
• It bought the product for 300 AZN + 18% VAT → VAT = 54 AZN
• The difference to be paid to the state: 90 AZN − 54 AZN = 36 AZN

This mechanism is called “the right to offset VAT” and is regulated by Article 175 of the Tax Code.

To which operations is VAT applied?

• Sale of goods (including import)
• Provision of services
• Contract, repair, lease, and other contract-based works
• Products imported into the customs territory of Azerbaijan (TC, Article 164)

The main tax rate is 18%. However, some products and services are at 0% or exempt from VAT (TC, Articles 165–166).

How is VAT Registration carried out?

The VAT registration process is carried out digitally through the taxpayer’s Electronic Tax System (e-taxes.gov.az). This procedure covers both mandatory and voluntary registration cases.

1. Legal Basis for Registration (Tax Code, Article 158)

• Mandatory registration: If a taxpayer’s taxable turnover for 12 consecutive months exceeds 200,000 AZN, they are automatically included in VAT registration.
• Voluntary registration: Any entrepreneur or legal entity can apply for VAT registration on their own initiative, even if they do not exceed this limit.

2. Steps for VAT Registration

1. Log in to the e-taxes.gov.az portal.
2. Access your personal cabinet and select the “ƏDV qeydiyyatı” (VAT registration) section.
3. Enter your information (actual address, turnover, field of activity, etc.).
4. Confirm the application.
5. After verification by the system, your VAT registration is confirmed and your VAT code is activated.

3. Required Documents

• For legal entities: charter, state registration document.
• Electronic signature (e-signature).
• Turnover certificate for the last 12 months (if mandatory registration).
• Justification information regarding the field of activity.

4. Effective Date of Registration

• Mandatory registration: Automatically becomes effective from the date the turnover limit is exceeded.
• Voluntary application: Becomes effective from the date confirmed by the tax authority.

5. Results of Registration

• The VAT code is activated in the system.
• The right to submit electronic invoice-receipts arises.
• VAT declaration and payment obligations commence.

Rights and Obligations of a VAT Payer

Taxpayers registered for VAT have both special rights and are obliged to fulfill duties established by law. These obligations ensure proper VAT accounting, timely payment, and transparent tax behavior.

1. Main Obligations (Tax Code, Articles 175–177)

• Submit electronic invoice-receipts: An e-invoice must be issued for every taxable transaction. Without this document, VAT offset is not possible.
• Submit a monthly VAT declaration: After the end of each month, the VAT return must be submitted electronically by the 20th of the following month.
• Pay VAT to the state budget: If the VAT collected from sales is greater than the VAT paid on purchases, the difference must be paid to the budget.
• Maintain tax accounting and documentation: All VAT indicators for sales, purchase, and import operations must be correctly reflected and archived in accounting documents.
• Use electronic systems: VAT accounting and reporting are conducted only through digital platforms (e-taxes.gov.az, e-qaimə system, etc.).

2. Rights of a VAT Payer

• Right to offset VAT: Only the difference is paid to the state after subtracting the VAT paid on purchases from the VAT collected during sales.
• Use tax reliefs and exemptions: It is possible to benefit from the right to VAT exemption for goods and services specified by law.
• Receive information about additional inspections: If a tax inspection is scheduled, the entrepreneur must receive an electronic notification in advance.
• Right to cancel VAT registration: If the turnover for 12 consecutive months is less than 100,000 AZN (Tax Code, Article 159.2), an application can be made for cancellation of VAT status.

By adhering to these rights and obligations, the taxpayer is considered to operate as a transparent and responsible business entity within the framework of the law.

VAT Declaration and Payment Regime

VAT payers must submit a declaration for their operations each month and pay VAT to the state budget (Tax Code, 175–177).

1. Submission of the Declaration

• At the end of each month, the VAT turnover and the amount of offset are calculated.
• The declaration is submitted on the e-taxes.gov.az portal by the 20th of the following month.

2. Payment Period and Procedure

• The calculated VAT amount must be paid to the state budget along with the declaration.
• Payment is made via bank or e-banking.
• If the VAT paid on purchases is greater, the difference can be:
  • Carried forward to the next period.
  • Or an application for a refund can be made (Tax Code, 176–177).

3. Delays and Sanctions (Tax Code, 58)

• If tax is evaded: According to Article 58.1, 50% of the evaded amount is applied as a sanction.
• If submission is delayed: In accordance with Articles 58.7–58.9 of the Tax Code, a fine and penalty are calculated (0.1% daily).

Timely and correct fulfillment of these obligations is of particular importance for avoiding tax penalties, reducing audit risks, and protecting the company’s tax reputation.

Is it possible to cancel VAT registration?

Yes. A taxpayer has the right to cancel VAT registration based on Articles 159.2 and 160 of the Tax Code.

Main condition:

• If the taxable turnover for 12 consecutive months is less than 100,000 AZN, the taxpayer can apply electronically.

Procedure:

1. An application is submitted on the e-taxes.gov.az portal.
2. The 12-month turnover is confirmed with documentation.
3. The tax authority makes a decision, and the status in the personal cabinet is canceled.

Result:

• The VAT code becomes deactivated.
• VAT declarations are not submitted.
• The right to offset and refund VAT is suspended.

Advantages of Being a VAT Payer

Entering VAT registration provides the following advantages:

• VAT offset – reduction of the tax burden.
• Right to participate in tenders – essential for state and large projects.
• Systematization of financial accounting.
• Image of official and transparent activity.
• Expansion of tax planning opportunities.

Frequently Asked Questions

Conclusion and Recommendation

Obtaining Value Added Tax (VAT) registration is not just a legal requirement — it is also one of the key indicators of a transparent and competitive business. By correctly integrating into the VAT system, you will:

• Avoid penalties.
• Benefit from offsets and concessions.
• Strengthen your business at an institutional level.

SGF Consulting recommends:

Before initiating VAT registration, consult with a specialist in tax law. This is crucial for both legal security and financial efficiency.

SGF Consulting – Your reliable partner in tax law.

Do you need support with VAT registration, reporting, and planning?
The SGF Consulting team is ready to provide you with professional legal and accounting services in this area.

Our services include:

• VAT registration and de-registration
• Preparation of monthly VAT declarations
• Management of offset and refund processes
• Analysis and optimization of tax risks