How should micro-entrepreneurs pay taxes in Azerbaijan in 2019?
Baku, Azerbaijan, Jan. 4
By Sara Israfilbayova – Trend:
Since January 1, 2019, amendments to tax legislation have entered into force in Azerbaijan, which include the changes in the tax payment for micro-entrepreneurs, the Azerbaijani Ministry of Taxes told Trend.
The questions about the tax payment procedure from this year have arisen. The Azerbaijani Ministry of Taxes clarified the new tax payment procedure and benefits which will micro-entrepreneurs, who until this year were simplified tax payers, will receive.
Moreover, before the changes, there was no need for the simplified tax payers to register their income and expenses as the tax on goods (work and services) was calculated without deducting expenses and therefore, the accounting was not conducted properly.
The main purpose of the simplified tax is to reduce the tax burden for those engaged in small entrepreneurship, as well as reduce the administrative burden and avoid additional documentation.
However, the ministry stressed that some entrepreneurs have recently used a simplified tax to pay less.
"A number of big enterprises divided their business into several smaller companies to become simplified tax payers, and thus avoiding paying other taxes [legal entities are exempt from VAT, profit tax and property tax, while individuals do not pay VAT and income tax]," the ministry said.
In some cases, entrepreneurs working in Baku [the simplified tax rate was four percent in Baku until 2019] registered their business in the regions to pay two percent [simplified tax rate for the regions]. Thus, they created big problems for tax accounting.
"As a result, presently, more than 90 percent of taxpayers registered in the country are tax payers,” the ministry said. “The share of this tax in tax revenues is slightly above five percent, while in many countries this figure is about 40 percent."
To prevent such abuses, changes were made to the Tax Code and new provisions that limited the number of simplified tax payers were included.
Thus, according to the changes, since 2019, individuals who have more than ten employees who are engaged in the wholesale trade of gold, golden jewelry and other household goods, leather goods, as well as individuals engaged in licensed activity (except for the construction of buildings) can not be simplified tax payers. From this year, these taxpayers will pay income tax.
How should those working on a contractual basis pay taxes?
Individual entrepreneurs, working on the basis of civil law contracts, will pay taxes on income, taking into account benefits starting from this year, the ministry said. Namely, 75 percent of the income and profits of microentrepreneurs are exempt from taxes.
For example, income of an individual microentrepreneur providing translation services is 3,000 manats and expenses are 1,000 manats.
If expenses are deducted from income, a net income of 2,000 manats emerges. The tax from this amount is calculated as follows:
2,000-2,000*75 percent [a part that is exempt from tax] = 500 manats*20 percent=100 manats
Thus, tax deductions will be 100 manats.
Earlier, until 2019, these persons were payers of a simplified tax, and the rate on this tax was 4 percent in Baku (2 percent from 2019).
That is, a person providing translation services, previously had to pay a simplified tax of 120 manats from the same income of 3,000 manats. The tax was calculated according to the following formula:
3,000*4 percent=120 manats
The ministry noted that starting from this year entrepreneurs will be able to take advantage of a 75 percent benefit, even if they haven’t documented their expenses. Another important advantage is that taxpayers will need to submit tax reports only once a year (until now it was necessary to submit tax reports every quarter of the year).
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