BAKU, Azerbaijan, January 15. Starting this year, Azerbaijan implemented a method for refunding VAT on factoring operations, the State Tax Service under the Ministry of Economy of Azerbaijan told Trend.
Flexible crediting of business transactions via factoring instruments is actively used, providing a significant boost to the market in terms of decreasing the financial strain on businesses and enhancing liquidity. The cost of items sold by producers and entities engaged in wholesale trade activities is typically recovered within 2-3 months, but in some situations later. This results in a lack of cash for the activities of producers and wholesale trade firms. Banks use factoring instruments to provide financial liquidity to businesses and minimize obstacles associated with receiving cash from buyers.
According to the Tax Code, to refund VAT, the principal cost of purchased goods, works, and services should be sent to the seller's bank account, and the VAT amount should be deposited in the VAT deposit account. However, the principal value of factoring transactions is paid to the applicable credit institution rather than the seller. Meanwhile, restrictions on VAT refunds are imposed as mandated by the Tax Code. Because factoring is a privilege derived from civil law and provided to commercial entities, it has become imperative to clearly incorporate it in tax legislation as well. With the most recent Tax Code revisions, the possibility of refunding VAT amounts paid when using a factoring instrument was incorporated into the legislation to boost the attractiveness of financial instruments and ensure good business continuity.
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