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Are the revenues of a resident engaged in international freight transportation subject to VAT?
Are the revenues of a resident engaged in international freight transportation subject to VAT?
Question 1: Is the income earned by a resident entity engaged in cargo transportation activities outside the borders of the Republic of Azerbaijan subject to VAT? At the same time, if the resident entity, in order to expand its cargo transportation activities, enters into a service contract with a non-resident operating in Turkmenistan for market research, and the non-resident conducts market research in their own country for a monthly service fee to identify business opportunities related to cargo transportation, does the resident entity have any tax obligations (source tax or VAT) when paying the service fee to the non-resident?
According to the State Tax Service under the Ministry of Economy, based on Article 96.1 of the Tax Code, the taxable income for residents is the difference between the total income of residents for the tax year and the amount determined by this Code for that period.
The term "all income" of a taxpayer refers to the income obtained both within and outside the borders of the Republic of Azerbaijan.
It is noted that according to Article 127.1 of the Tax Code, the amounts of income tax or profit tax paid on income from sources outside the Republic of Azerbaijan are considered when tax is paid in Azerbaijan.
Services and works provided by an VAT-registered entity of the Republic of Azerbaijan outside the country are not subject to VAT. However, according to Article 168.1.5 of the Tax Code, the place of service provision is considered as the location of the recipient of the services, not the provider. Therefore, the service mentioned in the inquiry is not subject to VAT.
Question 2: In response, it was noted that according to Article 125.1 of the Tax Code, tax is levied on the gross income of a non-resident, as defined by Article 13.2.16 of the Code, obtained from sources in Azerbaijan, without deducting expenses at the source.
The income obtained by the non-resident mentioned in the inquiry is not considered income from Azerbaijani sources under Article 13.2.16 of the Tax Code, and no tax is withheld at the source.
Additionally, according to Article 169.1 of the Tax Code, if a non-resident not registered for VAT provides services or performs work for a VAT agent mentioned in Articles 169.2 or 169.5 of the Code within the territory of Azerbaijan (excluding services related to hotel reservations and airline tickets ordered outside the Republic of Azerbaijan), such services or work are subject to VAT for the purposes of this section.
Based on this provision, it is indicated that the service mentioned in the inquiry is not a taxable object for VAT purposes since it is not provided within the territory of the Republic of Azerbaijan.
References: Articles 96, 125, 127, 168, 169 of the Tax Code.
Question 1: Is the income earned by a resident entity engaged in cargo transportation activities outside the borders of the Republic of Azerbaijan subject to VAT? At the same time, if the resident entity, in order to expand its cargo transportation activities, enters into a service contract with a non-resident operating in Turkmenistan for market research, and the non-resident conducts market research in their own country for a monthly service fee to identify business opportunities related to cargo transportation, does the resident entity have any tax obligations (source tax or VAT) when paying the service fee to the non-resident?
According to the State Tax Service under the Ministry of Economy, based on Article 96.1 of the Tax Code, the taxable income for residents is the difference between the total income of residents for the tax year and the amount determined by this Code for that period.
The term "all income" of a taxpayer refers to the income obtained both within and outside the borders of the Republic of Azerbaijan.
It is noted that according to Article 127.1 of the Tax Code, the amounts of income tax or profit tax paid on income from sources outside the Republic of Azerbaijan are considered when tax is paid in Azerbaijan.
Services and works provided by an VAT-registered entity of the Republic of Azerbaijan outside the country are not subject to VAT. However, according to Article 168.1.5 of the Tax Code, the place of service provision is considered as the location of the recipient of the services, not the provider. Therefore, the service mentioned in the inquiry is not subject to VAT.
Question 2: In response, it was noted that according to Article 125.1 of the Tax Code, tax is levied on the gross income of a non-resident, as defined by Article 13.2.16 of the Code, obtained from sources in Azerbaijan, without deducting expenses at the source.
The income obtained by the non-resident mentioned in the inquiry is not considered income from Azerbaijani sources under Article 13.2.16 of the Tax Code, and no tax is withheld at the source.
Additionally, according to Article 169.1 of the Tax Code, if a non-resident not registered for VAT provides services or performs work for a VAT agent mentioned in Articles 169.2 or 169.5 of the Code within the territory of Azerbaijan (excluding services related to hotel reservations and airline tickets ordered outside the Republic of Azerbaijan), such services or work are subject to VAT for the purposes of this section.
Based on this provision, it is indicated that the service mentioned in the inquiry is not a taxable object for VAT purposes since it is not provided within the territory of the Republic of Azerbaijan.
References: Articles 96, 125, 127, 168, 169 of the Tax Code.