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trWhat taxes must an individual entrepreneur providing software development services to foreign companies pay?
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What taxes must an individual entrepreneur providing software development services to foreign companies pay?
What tax regime can an individual entrepreneur with no employees choose when providing remote software development services (Java/backend) to legal entities registered in the United States and other countries? How do simplified tax, income tax, VAT and social insurance obligations apply to this activity?
It has been stated that the activity in question is considered entrepreneurial activity and that registration as a taxpayer is required before commencing operations.
Since the individual entrepreneur receives income exclusively from legal entities registered as taxpayers and provides services under B2B agreements, they are not eligible for the 2% simplified tax regime. In this case, the entrepreneur must operate as an income tax payer.
Income tax is calculated at a rate of 20% on the amount remaining after deducting documented business expenses related to generating the income from the total income earned through entrepreneurial activities.
According to Article 102.1.30-1 of the Tax Code, if the annual income of individuals providing software development services does not exceed AZN 45,000 (before deducting expenses), 75% of that income is exempt from income tax. If annual income exceeds AZN 45,000, the conditions for applying this tax relief are not considered to have been met.
Regarding VAT, registration becomes mandatory if the volume of taxable transactions exceeds AZN 200,000 in any month during a consecutive 12-month period. Under Article 168.1.5 of the Tax Code, for services provided through electronic networks, the place of supply is considered to be the location or place of registration of the customer. Accordingly, relevant electronic services provided to non-resident legal entities are treated as exports of services and are subject to VAT at the zero rate (0%).
As of January 1, 2026, compulsory state social insurance contributions are calculated at 2% of income before deducting expenses. However, the monthly social insurance contribution cannot be less than 15% or exceed 100% of the minimum monthly wage.
The compulsory health insurance contribution for individual entrepreneurs is set at 4% of the minimum monthly wage.
It is noted that the determination of specific tax obligations depends on the nature of the services provided and the relevant primary documents. Therefore, entrepreneurs are advised to contact the tax authority with which they are registered for further clarification.
What tax regime can an individual entrepreneur with no employees choose when providing remote software development services (Java/backend) to legal entities registered in the United States and other countries? How do simplified tax, income tax, VAT and social insurance obligations apply to this activity?
It has been stated that the activity in question is considered entrepreneurial activity and that registration as a taxpayer is required before commencing operations.
Since the individual entrepreneur receives income exclusively from legal entities registered as taxpayers and provides services under B2B agreements, they are not eligible for the 2% simplified tax regime. In this case, the entrepreneur must operate as an income tax payer.
Income tax is calculated at a rate of 20% on the amount remaining after deducting documented business expenses related to generating the income from the total income earned through entrepreneurial activities.
According to Article 102.1.30-1 of the Tax Code, if the annual income of individuals providing software development services does not exceed AZN 45,000 (before deducting expenses), 75% of that income is exempt from income tax. If annual income exceeds AZN 45,000, the conditions for applying this tax relief are not considered to have been met.
Regarding VAT, registration becomes mandatory if the volume of taxable transactions exceeds AZN 200,000 in any month during a consecutive 12-month period. Under Article 168.1.5 of the Tax Code, for services provided through electronic networks, the place of supply is considered to be the location or place of registration of the customer. Accordingly, relevant electronic services provided to non-resident legal entities are treated as exports of services and are subject to VAT at the zero rate (0%).
As of January 1, 2026, compulsory state social insurance contributions are calculated at 2% of income before deducting expenses. However, the monthly social insurance contribution cannot be less than 15% or exceed 100% of the minimum monthly wage.
The compulsory health insurance contribution for individual entrepreneurs is set at 4% of the minimum monthly wage.
It is noted that the determination of specific tax obligations depends on the nature of the services provided and the relevant primary documents. Therefore, entrepreneurs are advised to contact the tax authority with which they are registered for further clarification.