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How are tax liabilities calculated for goods written off for personal use?
My question concerns the write-off of goods purchased by a taxpayer for resale and subsequently used for personal purposes. For example, “AA” LLC purchases goods for resale, paying AZN 2,000 as the principal amount and AZN 360 in VAT, which it subsequently claims as input VAT credit. Later, a portion of these goods worth AZN 1,000 is written off for personal use. I would appreciate clarification on whether tax liabilities arise in this case in terms of VAT and corporate income tax, and whether the value of the written-off goods can be treated as an expense deductible from income.
The State Tax Service under the Ministry of Economy has stated that, pursuant to Article 159.5 of the Tax Code, if a taxpayer acquires goods (works, services) subject to VAT and receives or is entitled to the corresponding VAT credit, the use of such goods (works, services) for non-commercial purposes is considered a taxable transaction, except for losses resulting from emergencies, spoilage within the natural loss limits established by law, and similar shortages.
According to AZE Finance, pursuant to Article 166.2 of the Tax Code, where Article 159.5 of the Code applies, the time when goods (works, services) are transferred for non-commercial purposes is considered the time of the taxable transaction.
Based on the above, the subsequent use for personal (non-commercial) purposes of goods purchased by an enterprise for resale, on which VAT was paid and claimed as input VAT credit, is considered a VAT-taxable transaction. In this case, VAT must be calculated on the value of the goods allocated for personal use at the rate of 18% established by the Tax Code and paid to the state budget in accordance with the applicable procedures.
At the same time, pursuant to Article 109.2 of the Tax Code, the value of goods used by an enterprise for non-commercial purposes is not recognized as an expense deductible from income for corporate income tax purposes.
Legal basis: Articles 109, 159 and 175 of the Tax Code.
My question concerns the write-off of goods purchased by a taxpayer for resale and subsequently used for personal purposes. For example, “AA” LLC purchases goods for resale, paying AZN 2,000 as the principal amount and AZN 360 in VAT, which it subsequently claims as input VAT credit. Later, a portion of these goods worth AZN 1,000 is written off for personal use. I would appreciate clarification on whether tax liabilities arise in this case in terms of VAT and corporate income tax, and whether the value of the written-off goods can be treated as an expense deductible from income.
The State Tax Service under the Ministry of Economy has stated that, pursuant to Article 159.5 of the Tax Code, if a taxpayer acquires goods (works, services) subject to VAT and receives or is entitled to the corresponding VAT credit, the use of such goods (works, services) for non-commercial purposes is considered a taxable transaction, except for losses resulting from emergencies, spoilage within the natural loss limits established by law, and similar shortages.
According to AZE Finance, pursuant to Article 166.2 of the Tax Code, where Article 159.5 of the Code applies, the time when goods (works, services) are transferred for non-commercial purposes is considered the time of the taxable transaction.
Based on the above, the subsequent use for personal (non-commercial) purposes of goods purchased by an enterprise for resale, on which VAT was paid and claimed as input VAT credit, is considered a VAT-taxable transaction. In this case, VAT must be calculated on the value of the goods allocated for personal use at the rate of 18% established by the Tax Code and paid to the state budget in accordance with the applicable procedures.
At the same time, pursuant to Article 109.2 of the Tax Code, the value of goods used by an enterprise for non-commercial purposes is not recognized as an expense deductible from income for corporate income tax purposes.
Legal basis: Articles 109, 159 and 175 of the Tax Code.