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The opportunity provided to micro-entrepreneurs to benefit from tax concessions
The opportunity provided to micro-entrepreneurs to benefit from tax concessions
Since January 1 of the current year, there have been various opinions about whether micro-enterprises benefit from the 75% tax reduction on profit (income) tax, due to changes in the Tax Code. To clarify a number of issues related to this, Altay Cəfərov has provided answers:
Article 106.1.20 of the Tax Code states that for legal entities that are micro-enterprise subjects, the 75% of the profit earned from their business activity is exempt from income (profit) tax, provided that the average number of monthly employees in the respective year is no less than 3, and they have no debts regarding compulsory state social insurance fees. The average number of employees for the respective year is determined by summing the number of employees over the calendar year and dividing it by 12.
If the taxpayer does not meet the conditions set out in this article and switches from a micro-enterprise subject to another category of business entity in the following reporting year, the tax reduction is applied based on the 75% of the profit tax that was calculated and paid over the previous 3 calendar years as a micro-enterprise, and is deducted from the profit tax liability in the periods as another business entity. If the taxpayer conducts non-commercial transactions, the tax reduction outlined in this article does not apply to the income generated from non-commercial transactions.
Additionally, it should be noted that the essence and result of Article 102.1.30 of the Tax Code are identical to those of Article 106.1.20. However, Article 106.1.20 applies to legal entities, while Article 102.1.30 applies to individuals. Therefore, to qualify for the tax reduction mentioned above, the first requirement is that the average number of employees should not be less than 3. This is calculated based on the average number of employees during the calendar year. The second requirement is that there should be no outstanding debts regarding compulsory state social insurance (CSSI) fees.
So, which period does the absence of CSSI debt refer to? As mentioned earlier, the period for calculating the average number of employees is taken as the calendar year. To determine the average number of employees, the calendar year must end before the calculation is made. Only after this can micro-enterprises meeting both the first and second requirements be identified. In other words, the CSSI debt requirement is reviewed after the calendar year has ended and determined accordingly.
Does this requirement also apply to debts related to unemployment insurance and mandatory health insurance? As noted, the requirement for no debts applies only to CSSI fees. CSSI is regulated by the "Social Insurance Law," and this law does not cover unemployment insurance or mandatory health insurance fees. The collection of unemployment insurance and mandatory health insurance fees is regulated by other normative acts.
Example 1: The micro-enterprise "AA" LLC had a total of 40 employees as of the end of December 2024 (the total number of employees from January to December). The company also paid its CSSI debts for the first and second quarters in November. However, the LLC paid all its CSSI debts for 2024 by December 31, 2024, with no outstanding debt. However, as of December 31, 2024, the company still had debts related to unemployment insurance and mandatory health insurance.
Example 2: "AA1" LLC is in the same situation as the previous example, except it paid its CSSI debts for the period from January to November by December 31, 2024, and paid its December debt on January 10, 2025.
Example 3: "AA2" LLC is in the same situation as Example 2, but it paid all of its annual CSSI debt on January 10, 2025.
Example 4: "AA3" LLC settled its debts from January to November by December 31, 2024, but paid its December debt on January 20, 2025. Can the LLC use the 75% profit tax reduction in these cases?
As I stated earlier, the first requirement is that the annual average number of employees should be at least 3. In all the examples, since the number of employees is 40 : 12 months = 3.33 employees on average, which is more than 3, the first requirement is fully met.
In the first example, even though the LLC did not pay its CSSI debts on time for the quarters, it will still be eligible for the reduction because the annual figures are considered for the calculations. Since the LLC has no outstanding CSSI debt at the end of the year, it qualifies for the 75% reduction.
In the second example, the company will also be able to benefit from the 75% reduction because the January-November debts were paid by December 31, 2024, and the December debt was paid by January 15 of the following month. As mentioned, CSSI debts should be paid by the 15th of the next month, so the company is considered to have paid its debt on time and can use the 75% reduction.
In the third example, the LLC must be more cautious. It paid all its 2024 debts on January 10. However, as explained earlier, the debt for the current month should be paid by the 15th of the following month. In this case, the tax authorities may notify the taxpayer that the 75% tax reduction does not apply to them. In this case, the taxpayer must provide valid and reasonable explanations.
In the fourth example, the LLC will not be able to use the 75% tax reduction because it did not pay its CSSI debts on time. This constitutes a basis for not applying the reduction.
Finally, it is worth noting that we are already halfway through the reporting year, and taxpayers should be attentive to these issues. It is recommended that CSSI debts be paid on time to be eligible for the aforementioned reduction.
Since January 1 of the current year, there have been various opinions about whether micro-enterprises benefit from the 75% tax reduction on profit (income) tax, due to changes in the Tax Code. To clarify a number of issues related to this, Altay Cəfərov has provided answers:
Article 106.1.20 of the Tax Code states that for legal entities that are micro-enterprise subjects, the 75% of the profit earned from their business activity is exempt from income (profit) tax, provided that the average number of monthly employees in the respective year is no less than 3, and they have no debts regarding compulsory state social insurance fees. The average number of employees for the respective year is determined by summing the number of employees over the calendar year and dividing it by 12.
If the taxpayer does not meet the conditions set out in this article and switches from a micro-enterprise subject to another category of business entity in the following reporting year, the tax reduction is applied based on the 75% of the profit tax that was calculated and paid over the previous 3 calendar years as a micro-enterprise, and is deducted from the profit tax liability in the periods as another business entity. If the taxpayer conducts non-commercial transactions, the tax reduction outlined in this article does not apply to the income generated from non-commercial transactions.
Additionally, it should be noted that the essence and result of Article 102.1.30 of the Tax Code are identical to those of Article 106.1.20. However, Article 106.1.20 applies to legal entities, while Article 102.1.30 applies to individuals. Therefore, to qualify for the tax reduction mentioned above, the first requirement is that the average number of employees should not be less than 3. This is calculated based on the average number of employees during the calendar year. The second requirement is that there should be no outstanding debts regarding compulsory state social insurance (CSSI) fees.
So, which period does the absence of CSSI debt refer to? As mentioned earlier, the period for calculating the average number of employees is taken as the calendar year. To determine the average number of employees, the calendar year must end before the calculation is made. Only after this can micro-enterprises meeting both the first and second requirements be identified. In other words, the CSSI debt requirement is reviewed after the calendar year has ended and determined accordingly.
Does this requirement also apply to debts related to unemployment insurance and mandatory health insurance? As noted, the requirement for no debts applies only to CSSI fees. CSSI is regulated by the "Social Insurance Law," and this law does not cover unemployment insurance or mandatory health insurance fees. The collection of unemployment insurance and mandatory health insurance fees is regulated by other normative acts.
Example 1: The micro-enterprise "AA" LLC had a total of 40 employees as of the end of December 2024 (the total number of employees from January to December). The company also paid its CSSI debts for the first and second quarters in November. However, the LLC paid all its CSSI debts for 2024 by December 31, 2024, with no outstanding debt. However, as of December 31, 2024, the company still had debts related to unemployment insurance and mandatory health insurance.
Example 2: "AA1" LLC is in the same situation as the previous example, except it paid its CSSI debts for the period from January to November by December 31, 2024, and paid its December debt on January 10, 2025.
Example 3: "AA2" LLC is in the same situation as Example 2, but it paid all of its annual CSSI debt on January 10, 2025.
Example 4: "AA3" LLC settled its debts from January to November by December 31, 2024, but paid its December debt on January 20, 2025. Can the LLC use the 75% profit tax reduction in these cases?
As I stated earlier, the first requirement is that the annual average number of employees should be at least 3. In all the examples, since the number of employees is 40 : 12 months = 3.33 employees on average, which is more than 3, the first requirement is fully met.
In the first example, even though the LLC did not pay its CSSI debts on time for the quarters, it will still be eligible for the reduction because the annual figures are considered for the calculations. Since the LLC has no outstanding CSSI debt at the end of the year, it qualifies for the 75% reduction.
In the second example, the company will also be able to benefit from the 75% reduction because the January-November debts were paid by December 31, 2024, and the December debt was paid by January 15 of the following month. As mentioned, CSSI debts should be paid by the 15th of the next month, so the company is considered to have paid its debt on time and can use the 75% reduction.
In the third example, the LLC must be more cautious. It paid all its 2024 debts on January 10. However, as explained earlier, the debt for the current month should be paid by the 15th of the following month. In this case, the tax authorities may notify the taxpayer that the 75% tax reduction does not apply to them. In this case, the taxpayer must provide valid and reasonable explanations.
In the fourth example, the LLC will not be able to use the 75% tax reduction because it did not pay its CSSI debts on time. This constitutes a basis for not applying the reduction.
Finally, it is worth noting that we are already halfway through the reporting year, and taxpayers should be attentive to these issues. It is recommended that CSSI debts be paid on time to be eligible for the aforementioned reduction.