Study of Small and Medium Enterprises in Azerbaijan - IFC

Main Findings
• According to the IFC survey, 95 percent of individual entrepreneurs and 60
percent of SMEs prefer to operate according to the simplified tax regime;
• The move from simplified tax regime to standard tax regime (VAT) leads to
a significant increase of tax burden, encouraging tax evasions;
• Under the Tax Code, an SME or individual entrepreneur operating under the
simplified tax regime is taxed at 2-4 percent of its taxable turnover;
• Under the Tax Code, an SME operating in the standard tax regime must
pay, among other taxes, 22 percent corporate profit tax and 10 percent
dividend tax;
• Under the Tax Code, an individual entrepreneur operating in the standard
tax regime must pay, among other taxes, 14 and 35 percent personal income
tax;
• As the 2009 Doing Business results indicate, in one year Azerbaijani
businesses have to make on average 23-34 payments 38 and dedicate 376
hours to comply with the tax requirements; according to the IFC survey,
every year Azerbaijani businesses make seven visits to the tax authorities.
7.1 Taxation: the legal framework
The Tax Code is the central instrument for regulating tax issues. It sets forth the
powers and duties of the tax authorities, the rights and obligations of the taxpayers,
the penalties for violation of tax legislation, rules for appealing against the actions and
inactions of tax authorities, tax administration procedures, and regulations for all types
of taxes collected in Azerbaijan.
The tax issues that need more detailed regulation are governed by legislative acts of
the state authorities at different levels, primarily the Cabinet of Ministers and the
Ministry of Taxes (MoT).
The Azerbaijani tax system are collected at three levels (i) state, (ii) the Nakhchivan
Autonomous Republic, and (iii) municipal/local:
1. Personal Income Tax (PIT);
2. Corporate Profit Tax (CPT);
3. Value Added Tax (VAT);
4. Excise Tax;
5. Corporate Property Tax;
6. Corporate Land Tax;
7. Road Tax;
8. Mining Tax;
9. Simplified Tax;
10. Individual Property Tax;
11. Individual Land Tax.
38
Under the Tax Code, VAT must be paid by the 20th day of the month following the end of the reporting
period. That is, the number of VAT payments depend on the taxpayer’s VAT obligations. Methodologically,
when payments can be made electronically, it counts as a single payment according to the Doing Business tax
methodology.
112
St u d y o f Sma l l a n d Me d i u m Ent e r p r i s es in Az e r b a i j a n