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Which expenses are limited by law when deducted from income?
Which expenses are limited by law when deducted from income?
It is reported that, according to the provisions of Article 108 of the Tax Code, with the exception of expenses that are not deductible under Chapter X of the Code, all expenses related to the generation of income, as well as mandatory payments provided by law, are deductible from income.
According to Article 109.3 of the Tax Code, with the exception of the expenses provided for in Article 119.2 of the Tax Code, social expenses for employees and their family members, as well as entertainment expenses, are not deductible from income.
Please note that Article 119.2 of the Tax Code specifies representative expenses, housing and food expenses for employees, as well as expenses related to providing medical and prophylactic meals, milk, and other products equivalent to milk and substances for employees working in harmful, hazardous, and underground conditions.
The norms for deducting representative expenses, housing and food expenses for employees, as well as expenses for medical and prophylactic meals, milk, and other products equivalent to milk for employees working in harmful, hazardous, and underground conditions for taxation purposes were approved by the Cabinet of Ministers of the Republic of Azerbaijan in its Decision No. 492 of November 22, 2024.
According to Section 2.1 of the Regulation, food expenses for employees, as well as expenses for medical and prophylactic meals, milk, and other products equivalent to milk for employees working in harmful, hazardous, and underground conditions, are considered deductible expenses for taxation purposes within the prescribed limits.
According to the regulation, 50% of the representative expenses incurred by the taxpayer during the tax year, but not exceeding 1% of the annual income, are deductible from income for taxation purposes.
In order for the representative expenses incurred by the taxpayer during the tax year to be deducted, they must be incurred through non-cash transactions, substantiated, and documented in accordance with the procedures established by the Tax Code.
Additionally, the procedure for reimbursing the business trip expenses of employees sent by the employer is regulated by the Decision No. Q-01 of the Collegium of the Ministry of Finance of the Republic of Azerbaijan, dated January 18, 2012, and registered in the State Register of Legal Acts of the Republic of Azerbaijan under No. 15201201180001 on January 30, 2012, titled "Rules for Employee Business Trips."
According to this Decision, transportation expenses include expenses for traveling to and from the business trip destination, domestic transportation expenses (except for taxi use) for traveling to other locations, such as railway stations, ports (ferries), airports, and other locations within the country. These expenses are reimbursed based on the submitted documents.
Based on the above, business trip expenses paid to employees during business trips abroad in accordance with the norms established by the Cabinet of Ministers of the Republic of Azerbaijan in Decision No. 14 of January 25, 2008, are considered deductible expenses, as well as transportation expenses paid to the employee based on documents confirming the travel expenses to and from the business trip destination.
Furthermore, the daily norms for business trip expenses, both for domestic and foreign trips, are determined by the Cabinet of Ministers of the Republic of Azerbaijan's Decision No. 14 of January 25, 2008, "On the Norms for Business Trip Expenses."
Additionally, we recommend that you contact the tax authority where the taxpayer is registered for a more specific response regarding the issues raised in the request, including the actual circumstances of the transaction and the relevant supporting documents.
It is reported that, according to the provisions of Article 108 of the Tax Code, with the exception of expenses that are not deductible under Chapter X of the Code, all expenses related to the generation of income, as well as mandatory payments provided by law, are deductible from income.
According to Article 109.3 of the Tax Code, with the exception of the expenses provided for in Article 119.2 of the Tax Code, social expenses for employees and their family members, as well as entertainment expenses, are not deductible from income.
Please note that Article 119.2 of the Tax Code specifies representative expenses, housing and food expenses for employees, as well as expenses related to providing medical and prophylactic meals, milk, and other products equivalent to milk and substances for employees working in harmful, hazardous, and underground conditions.
The norms for deducting representative expenses, housing and food expenses for employees, as well as expenses for medical and prophylactic meals, milk, and other products equivalent to milk for employees working in harmful, hazardous, and underground conditions for taxation purposes were approved by the Cabinet of Ministers of the Republic of Azerbaijan in its Decision No. 492 of November 22, 2024.
According to Section 2.1 of the Regulation, food expenses for employees, as well as expenses for medical and prophylactic meals, milk, and other products equivalent to milk for employees working in harmful, hazardous, and underground conditions, are considered deductible expenses for taxation purposes within the prescribed limits.
According to the regulation, 50% of the representative expenses incurred by the taxpayer during the tax year, but not exceeding 1% of the annual income, are deductible from income for taxation purposes.
In order for the representative expenses incurred by the taxpayer during the tax year to be deducted, they must be incurred through non-cash transactions, substantiated, and documented in accordance with the procedures established by the Tax Code.
Additionally, the procedure for reimbursing the business trip expenses of employees sent by the employer is regulated by the Decision No. Q-01 of the Collegium of the Ministry of Finance of the Republic of Azerbaijan, dated January 18, 2012, and registered in the State Register of Legal Acts of the Republic of Azerbaijan under No. 15201201180001 on January 30, 2012, titled "Rules for Employee Business Trips."
According to this Decision, transportation expenses include expenses for traveling to and from the business trip destination, domestic transportation expenses (except for taxi use) for traveling to other locations, such as railway stations, ports (ferries), airports, and other locations within the country. These expenses are reimbursed based on the submitted documents.
Based on the above, business trip expenses paid to employees during business trips abroad in accordance with the norms established by the Cabinet of Ministers of the Republic of Azerbaijan in Decision No. 14 of January 25, 2008, are considered deductible expenses, as well as transportation expenses paid to the employee based on documents confirming the travel expenses to and from the business trip destination.
Furthermore, the daily norms for business trip expenses, both for domestic and foreign trips, are determined by the Cabinet of Ministers of the Republic of Azerbaijan's Decision No. 14 of January 25, 2008, "On the Norms for Business Trip Expenses."
Additionally, we recommend that you contact the tax authority where the taxpayer is registered for a more specific response regarding the issues raised in the request, including the actual circumstances of the transaction and the relevant supporting documents.