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Under what circumstances can a taxpayer cancel their VAT registration?
Under what circumstances can a taxpayer cancel their VAT registration?
According to Article 158.1 of the Tax Code, a taxpayer, including individuals specified in Article 218.1.2 of the Tax Code (except for cases described in Article 16.3 of the Tax Code), is obligated to submit an application for the cancellation of VAT registration if they cease to carry out VAT-taxable transactions. In this case, the cancellation of VAT registration for tax purposes takes effect on the day the taxpayer completely stops their taxable transactions. Individuals specified in Article 218.4.1 of the Tax Code can apply for VAT registration cancellation at any time after 3 years from the date the last registration became effective. Tax expert Ismail Bagirov explains this legislative requirement.
Based on the requirements of Article 158.1 of the Tax Code, a taxpayer can exit VAT registration, but there are specific conditions and limitations. Firstly, to exit VAT registration, the taxpayer must cease all VAT-taxable transactions. That is, if a taxpayer is registered as a VAT payer, then transactions resulting from their activities will also be subject to VAT. If they temporarily suspend their activities, this does not count as a full cessation of activities, and thus, registration cancellation does not apply in this case. Therefore, the taxpayer must completely halt their activities to also stop VAT-taxable transactions. Consequently, when a VAT payer is deregistered, their transactions are considered to be ceased, and an application for deregistration should be submitted.
Individuals who carry out passenger and freight transportation (including by taxi) on the territory of the Republic of Azerbaijan using their own or leased vehicles, or perform such transportation through other parties under a contract, may apply for VAT registration cancellation at any time after 3 years from the date the last registration became effective.
Example 1: A company decided to suspend its activities for 4 years starting from July 1, 2012, and submitted an application to the tax authorities. Additionally, an application for VAT deregistration was submitted. The tax authorities did not accept the application. In practice, operations at the company have ceased. Firstly, the suspension of activities is temporary. Secondly, the tax authorities do not know for certain if the company that filed the application and declared a temporary suspension actually has any ongoing activities. Therefore, this does not count as a cessation of operations for VAT deregistration. In this case, despite the submission of the suspension application, the company will remain registered as a VAT payer.
Example 2: The founders of an LLC decided to liquidate the company starting from August 1, 2017, completed the relevant documentation, and published an announcement in a newspaper. The LLC was registered as a liquidating company in the tax authority’s registration department, and a notification was provided. At this point, the LLC should apply for VAT deregistration in accordance with Article 158.1 of the Tax Code. The application should specify August 1, 2017, as the date of deregistration.
According to Article 158.2 of the Tax Code, VAT registration can be cancelled if the total amount of VAT-taxable transactions of the taxpayer does not exceed 100,000 manats in the previous full 12 calendar months. Except for the cases specified in Article 158.1 of the Tax Code, if the total amount of VAT-taxable transactions of the taxpayer is less than 100,000 manats in the previous full 12 calendar months, the taxpayer can apply for VAT deregistration at any time after one year from the date the last registration became effective. In this case, the cancellation of VAT registration for tax purposes takes effect from the day the application for deregistration is submitted to the tax authority.
The tax authority must send the information about the cancellation of VAT registration to the relevant executive authority (Ministry of Finance of the Republic of Azerbaijan) within one business day.
Example 3: In March 2022, the taxpayer was registered for VAT purposes. From May of that year to May 2023, the total amount of VAT-taxable transactions was 90,000 manats. On May 15, 2023, the taxpayer applied to the tax authority for VAT deregistration. The deregistration for VAT purposes takes effect from that same day.
It should be noted that the conditional example described does not fall under the cases specified in Article 158.1 of the Tax Code. For instance, if a company whose VAT registration became effective on September 1, 2022, completely ceases VAT-taxable transactions from May 1, 2023 (for example, if it is liquidated as a legal entity), then the taxpayer must apply for VAT deregistration without waiting for the specified one-year period. The deregistration for VAT purposes takes effect from the day the taxpayer completely ceases their VAT-taxable transactions (in our example, May 1, 2023).
According to Article 158.3 of the Tax Code, the tax authority must remove the name and other details of the person whose VAT registration has been cancelled from the VAT payer registry and withdraw the issued registration notification.
According to Article 158.1 of the Tax Code, a taxpayer, including individuals specified in Article 218.1.2 of the Tax Code (except for cases described in Article 16.3 of the Tax Code), is obligated to submit an application for the cancellation of VAT registration if they cease to carry out VAT-taxable transactions. In this case, the cancellation of VAT registration for tax purposes takes effect on the day the taxpayer completely stops their taxable transactions. Individuals specified in Article 218.4.1 of the Tax Code can apply for VAT registration cancellation at any time after 3 years from the date the last registration became effective. Tax expert Ismail Bagirov explains this legislative requirement.
Based on the requirements of Article 158.1 of the Tax Code, a taxpayer can exit VAT registration, but there are specific conditions and limitations. Firstly, to exit VAT registration, the taxpayer must cease all VAT-taxable transactions. That is, if a taxpayer is registered as a VAT payer, then transactions resulting from their activities will also be subject to VAT. If they temporarily suspend their activities, this does not count as a full cessation of activities, and thus, registration cancellation does not apply in this case. Therefore, the taxpayer must completely halt their activities to also stop VAT-taxable transactions. Consequently, when a VAT payer is deregistered, their transactions are considered to be ceased, and an application for deregistration should be submitted.
Individuals who carry out passenger and freight transportation (including by taxi) on the territory of the Republic of Azerbaijan using their own or leased vehicles, or perform such transportation through other parties under a contract, may apply for VAT registration cancellation at any time after 3 years from the date the last registration became effective.
Example 1: A company decided to suspend its activities for 4 years starting from July 1, 2012, and submitted an application to the tax authorities. Additionally, an application for VAT deregistration was submitted. The tax authorities did not accept the application. In practice, operations at the company have ceased. Firstly, the suspension of activities is temporary. Secondly, the tax authorities do not know for certain if the company that filed the application and declared a temporary suspension actually has any ongoing activities. Therefore, this does not count as a cessation of operations for VAT deregistration. In this case, despite the submission of the suspension application, the company will remain registered as a VAT payer.
Example 2: The founders of an LLC decided to liquidate the company starting from August 1, 2017, completed the relevant documentation, and published an announcement in a newspaper. The LLC was registered as a liquidating company in the tax authority’s registration department, and a notification was provided. At this point, the LLC should apply for VAT deregistration in accordance with Article 158.1 of the Tax Code. The application should specify August 1, 2017, as the date of deregistration.
According to Article 158.2 of the Tax Code, VAT registration can be cancelled if the total amount of VAT-taxable transactions of the taxpayer does not exceed 100,000 manats in the previous full 12 calendar months. Except for the cases specified in Article 158.1 of the Tax Code, if the total amount of VAT-taxable transactions of the taxpayer is less than 100,000 manats in the previous full 12 calendar months, the taxpayer can apply for VAT deregistration at any time after one year from the date the last registration became effective. In this case, the cancellation of VAT registration for tax purposes takes effect from the day the application for deregistration is submitted to the tax authority.
The tax authority must send the information about the cancellation of VAT registration to the relevant executive authority (Ministry of Finance of the Republic of Azerbaijan) within one business day.
Example 3: In March 2022, the taxpayer was registered for VAT purposes. From May of that year to May 2023, the total amount of VAT-taxable transactions was 90,000 manats. On May 15, 2023, the taxpayer applied to the tax authority for VAT deregistration. The deregistration for VAT purposes takes effect from that same day.
It should be noted that the conditional example described does not fall under the cases specified in Article 158.1 of the Tax Code. For instance, if a company whose VAT registration became effective on September 1, 2022, completely ceases VAT-taxable transactions from May 1, 2023 (for example, if it is liquidated as a legal entity), then the taxpayer must apply for VAT deregistration without waiting for the specified one-year period. The deregistration for VAT purposes takes effect from the day the taxpayer completely ceases their VAT-taxable transactions (in our example, May 1, 2023).
According to Article 158.3 of the Tax Code, the tax authority must remove the name and other details of the person whose VAT registration has been cancelled from the VAT payer registry and withdraw the issued registration notification.