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Tax payments for Azerbaijani micro-entrepreneurs in 2024

As of January 1, 2024, significant changes have been made to the Tax Code. Based on these changes, the income tax for micro-entrepreneurs has increased from 5% to 20%. According to official data from the State Statistics Committee, as of 2022, there are 335,306 business entities and micro-enterprises in Azerbaijan. Similar to the new changes, 75% of these entrepreneurs` income was previously exempt from tax. From this year onwards, this exemption applies to micro-entrepreneurs with at least 3 employees. However, the majority of micro-entrepreneurs strongly oppose this new change. According to many entrepreneurs in this group, the business structure and income system do not allow them to retain 3 employees.

According to the new changes, the Cabinet of Ministers will determine the rules and conditions for inclusion and removal from the list of risky taxpayers. Additionally, new additional sanctions will be applied to subjects identified as risky taxpayers. The following financial penalties will apply if a decision is made for a taxpayer to be a risky taxpayer within a calendar year due to ineffective operations conducted within tax control measures:

- When such cases occur for the first time within a calendar year, a penalty of 10% of the amount of the ineffective operation conducted.

- When such cases occur for the second time within a calendar year, a penalty of 20% of the amount of the ineffective operation conducted.

- When such cases occur three or more times within a calendar year, a penalty of 40% of the amount of the ineffective operation conducted.

These sanctions for risky taxpayers are applied from the time the criteria specified in the above paragraphs are met.

If the income collected by the taxpayer is not formalized, but information related to expenses deducted from income is available, the taxable benefit (income) will be calculated based on a profitability level of 50%. Additionally, when determining the taxable benefit, the actual income formalized with documents will be determined with a profitability level not exceeding 50% until January 1, 2025. After this period, the taxable benefit (income) will be determined based on formalized actual incomes and expenses.

If it is not possible to directly determine the income obtained by the taxpayer, Article 83.9, which provides for calculation based on rules determined by the Cabinet of Ministers (20% profitability rule), will be abolished.

When taxes are calculated based on information related to income and analogous taxpayers, the amount of tax will be determined by multiplying the income or expenses deducted from income by the factor showing the specific gravity of tax in the income or expenses of the taxpayer engaged in similar activities during the reporting period.

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