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trShould a person providing design services to foreign individuals pay simplified tax or income tax?
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Should a person providing design services to foreign individuals pay simplified tax or income tax?
The income of a resident taxpayer consists of income earned both within the Republic of Azerbaijan and outside the country. Providing design services is considered entrepreneurial activity; therefore, an individual must register for tax purposes and obtain a TIN (VÖEN) before starting the activity.
When registering for tax purposes, the taxpayer may choose the applicable taxation system. If the simplified tax system is selected, a 2% simplified tax is calculated on the total revenue from services, without deducting expenses.
However, the volume of transactions related to services provided to non-residents must also be taken into account. If, during a quarter, transactions that are required to be documented by an electronic invoice, including services provided to non-resident individuals based on an invoice, do not exceed 30% of the total volume of transactions related to services and works, the right to apply the simplified tax remains.
If this threshold is exceeded, the taxpayer may lose the right to apply the simplified tax and may be required to switch to the income tax regime. Under the income tax regime, income tax is calculated at a rate of 20% on the income remaining after deducting documented expenses related to earning that income.
In addition, individual entrepreneurs classified as micro-entrepreneurship entities may benefit from the 75% income tax exemptions provided for under Articles 102.1.30 and 102.1.30-1 of the Tax Code. Since 2025, for individuals engaged in the types of activities specified in Article 102.1.30-1, 75% of income is exempt from income tax if annual income from such activities does not exceed AZN 45,000.
Legal basis: Articles 33.4, 102.1.30, 102.1.30-1 and 220 of the Tax Code.
The income of a resident taxpayer consists of income earned both within the Republic of Azerbaijan and outside the country. Providing design services is considered entrepreneurial activity; therefore, an individual must register for tax purposes and obtain a TIN (VÖEN) before starting the activity.
When registering for tax purposes, the taxpayer may choose the applicable taxation system. If the simplified tax system is selected, a 2% simplified tax is calculated on the total revenue from services, without deducting expenses.
However, the volume of transactions related to services provided to non-residents must also be taken into account. If, during a quarter, transactions that are required to be documented by an electronic invoice, including services provided to non-resident individuals based on an invoice, do not exceed 30% of the total volume of transactions related to services and works, the right to apply the simplified tax remains.
If this threshold is exceeded, the taxpayer may lose the right to apply the simplified tax and may be required to switch to the income tax regime. Under the income tax regime, income tax is calculated at a rate of 20% on the income remaining after deducting documented expenses related to earning that income.
In addition, individual entrepreneurs classified as micro-entrepreneurship entities may benefit from the 75% income tax exemptions provided for under Articles 102.1.30 and 102.1.30-1 of the Tax Code. Since 2025, for individuals engaged in the types of activities specified in Article 102.1.30-1, 75% of income is exempt from income tax if annual income from such activities does not exceed AZN 45,000.
Legal basis: Articles 33.4, 102.1.30, 102.1.30-1 and 220 of the Tax Code.