en
az
ru
tr
Gratuitous and barter transactions: How is VAT calculated?
One of the issues frequently encountered by taxpayers in their day-to-day activities is the VAT treatment and documentation of transactions involving the provision of goods, works and services to employees or other persons, as well as barter transactions. Specialist Shams Hummatova provides clarification on the matter.
According to Article 159.4 of the Tax Code, the provision of goods, performance of works or provision of services by a taxpayer to its employees or other persons, whether for consideration or free of charge, as well as barter transactions, are considered taxable transactions for VAT purposes.
Example 1: “XX” LLC is a VAT payer and provides its employee with goods having a market value of AZN 500 (excluding VAT). Since the transaction is subject to VAT, VAT must be calculated on this amount.
500 × 18% = AZN 90 VAT
Thus, AZN 90 in VAT is calculated on goods worth AZN 500.
Are goods provided free of charge also subject to VAT?
The free-of-charge provision of goods, performance of works or provision of services by a taxpayer to its employees or other persons is also considered a taxable transaction for VAT purposes.
Example 2: A company registered as a VAT payer provides goods with a total market value of AZN 2,000 (excluding VAT) free of charge to 5 of its employees. In this case, VAT must be calculated on this amount:
2,000 × 18% = AZN 360 (VAT amount).
Therefore, when accounting for gifts, bonuses and other free-of-charge provisions to employees, companies should also take into account the VAT implications of such transactions.
Calculation of VAT on barter transactions
Barter means the exchange of goods, works or services not for monetary payment, but for other goods, works or services. For example, one company provides goods to another company and, in return, receives services from that company. Although no monetary payment is made between the parties, the respective VAT obligations must still be fulfilled by both parties.
According to Article 14.3.1 of the Tax Code, barter transactions are among the transactions for which market value is taken into account for taxation purposes.
How is VAT credit applied in a barter transaction?
In a barter transaction, each party must calculate VAT on the goods, works or services it provides.
Under the rules set out in Article 175.1 of the Tax Code, the relevant conditions must be met for VAT to be credited. Since no monetary payment is made in a barter transaction, the VAT component of the value of the goods, works or services must be mutually paid in order for the VAT to be credited.
Example 3: Suppose “X” LLC agrees with “Y” LLC, which is a VAT payer, to provide goods worth AZN 20,000. In return, “Y” LLC provides “X” LLC with repair services worth AZN 20,000. In this case, both parties must calculate VAT on the goods or services they provide.
For the goods provided by “X” LLC:
20,000 × 18% = AZN 3,600 (VAT amount).
For the services provided by “Y” LLC:
20,000 × 18% = AZN 3,600 (VAT amount).
If the transactions carried out by both parties are subject to VAT, each party calculates its respective VAT liability on its own transaction and may exercise its right to claim VAT credit in accordance with the requirements of the legislation.
How should a barter transaction be documented?
Proper documentation is particularly important for barter transactions. Each party must document the goods, works or services it provides using the relevant electronic invoice. In other words, the fact that a transaction is carried out as a barter transaction does not eliminate the requirement to issue an electronic invoice.
One of the issues frequently encountered by taxpayers in their day-to-day activities is the VAT treatment and documentation of transactions involving the provision of goods, works and services to employees or other persons, as well as barter transactions. Specialist Shams Hummatova provides clarification on the matter.
According to Article 159.4 of the Tax Code, the provision of goods, performance of works or provision of services by a taxpayer to its employees or other persons, whether for consideration or free of charge, as well as barter transactions, are considered taxable transactions for VAT purposes.
Example 1: “XX” LLC is a VAT payer and provides its employee with goods having a market value of AZN 500 (excluding VAT). Since the transaction is subject to VAT, VAT must be calculated on this amount.
500 × 18% = AZN 90 VAT
Thus, AZN 90 in VAT is calculated on goods worth AZN 500.
Are goods provided free of charge also subject to VAT?
The free-of-charge provision of goods, performance of works or provision of services by a taxpayer to its employees or other persons is also considered a taxable transaction for VAT purposes.
Example 2: A company registered as a VAT payer provides goods with a total market value of AZN 2,000 (excluding VAT) free of charge to 5 of its employees. In this case, VAT must be calculated on this amount:
2,000 × 18% = AZN 360 (VAT amount).
Therefore, when accounting for gifts, bonuses and other free-of-charge provisions to employees, companies should also take into account the VAT implications of such transactions.
Calculation of VAT on barter transactions
Barter means the exchange of goods, works or services not for monetary payment, but for other goods, works or services. For example, one company provides goods to another company and, in return, receives services from that company. Although no monetary payment is made between the parties, the respective VAT obligations must still be fulfilled by both parties.
According to Article 14.3.1 of the Tax Code, barter transactions are among the transactions for which market value is taken into account for taxation purposes.
How is VAT credit applied in a barter transaction?
In a barter transaction, each party must calculate VAT on the goods, works or services it provides.
Under the rules set out in Article 175.1 of the Tax Code, the relevant conditions must be met for VAT to be credited. Since no monetary payment is made in a barter transaction, the VAT component of the value of the goods, works or services must be mutually paid in order for the VAT to be credited.
Example 3: Suppose “X” LLC agrees with “Y” LLC, which is a VAT payer, to provide goods worth AZN 20,000. In return, “Y” LLC provides “X” LLC with repair services worth AZN 20,000. In this case, both parties must calculate VAT on the goods or services they provide.
For the goods provided by “X” LLC:
20,000 × 18% = AZN 3,600 (VAT amount).
For the services provided by “Y” LLC:
20,000 × 18% = AZN 3,600 (VAT amount).
If the transactions carried out by both parties are subject to VAT, each party calculates its respective VAT liability on its own transaction and may exercise its right to claim VAT credit in accordance with the requirements of the legislation.
How should a barter transaction be documented?
Proper documentation is particularly important for barter transactions. Each party must document the goods, works or services it provides using the relevant electronic invoice. In other words, the fact that a transaction is carried out as a barter transaction does not eliminate the requirement to issue an electronic invoice.