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These expenses are recognized as profit-reducing factors - CRITERIA
These expenses are recognized as profit-reducing factors - CRITERIA
The topic is commented on by the expert Vugar Mirheydarov. According to Article 106.1.18 of the Tax Code, except for public legal entities established on behalf of the state, the portion of the taxpayer's profit obtained during the reporting year, not exceeding 15 percent, which is transferred to organizations operating in the fields of science, education, health, sports, and culture, as well as to funds established for public and social purposes approved by the relevant executive authority, is exempt from taxation.
To implement this article, the Cabinet of Ministers of the Republic of Azerbaijan, by its Decision No. 88 of 12.03.2020, approved the "Criteria for organizations operating in the fields of science, education, health, sports, and culture for the purposes of tax exemption in accordance with Article 106.1.18 of the Tax Code of the Republic of Azerbaijan." https://e-qanun.az/framework/44775. One of the main requirements of the document is that funds must be transferred only through non-cash methods, and documents confirming that the transferred funds are spent according to their intended purpose must be submitted.
According to item 7.3 of the criteria, the organization receiving the payment must submit documents confirming that the received funds were spent for their intended purpose (purchase-sale contracts, delivery acts, payment orders, statements from payment service providers, etc.) to the person who transferred the funds within 1 month after the end of the reporting period.
Example: Let’s assume that a company engaged in wine production in Shamakhi transferred 100,000 manats for the reconstruction of the training base of a football team participating in the Azerbaijan Premier League. Previously, this amount could not be deducted from the income, so it was subject to tax at the rate of 20%. However, after the implementation of Article 106.1.18 of the Tax Code, the company will compare 15% of its annual profit with the transferred amount, and if the transferred amount is within this limit, it will indicate it in line 29 of Part 2 of Supplement 5 of the profit declaration. As a result, the company’s profit will decrease by 100,000 manats, and it will pay 20,000 manats less in profit tax.
It should be noted that the 100,000 manat amount cannot be shown in the expenses section. The Tax Code allows this amount to be recognized not as an expense but as a reduction in profit, because according to Article 109.2 of the Tax Code, expenses related to non-commercial activities cannot be deducted from income.
The topic is commented on by the expert Vugar Mirheydarov. According to Article 106.1.18 of the Tax Code, except for public legal entities established on behalf of the state, the portion of the taxpayer's profit obtained during the reporting year, not exceeding 15 percent, which is transferred to organizations operating in the fields of science, education, health, sports, and culture, as well as to funds established for public and social purposes approved by the relevant executive authority, is exempt from taxation.
To implement this article, the Cabinet of Ministers of the Republic of Azerbaijan, by its Decision No. 88 of 12.03.2020, approved the "Criteria for organizations operating in the fields of science, education, health, sports, and culture for the purposes of tax exemption in accordance with Article 106.1.18 of the Tax Code of the Republic of Azerbaijan." https://e-qanun.az/framework/44775. One of the main requirements of the document is that funds must be transferred only through non-cash methods, and documents confirming that the transferred funds are spent according to their intended purpose must be submitted.
According to item 7.3 of the criteria, the organization receiving the payment must submit documents confirming that the received funds were spent for their intended purpose (purchase-sale contracts, delivery acts, payment orders, statements from payment service providers, etc.) to the person who transferred the funds within 1 month after the end of the reporting period.
Example: Let’s assume that a company engaged in wine production in Shamakhi transferred 100,000 manats for the reconstruction of the training base of a football team participating in the Azerbaijan Premier League. Previously, this amount could not be deducted from the income, so it was subject to tax at the rate of 20%. However, after the implementation of Article 106.1.18 of the Tax Code, the company will compare 15% of its annual profit with the transferred amount, and if the transferred amount is within this limit, it will indicate it in line 29 of Part 2 of Supplement 5 of the profit declaration. As a result, the company’s profit will decrease by 100,000 manats, and it will pay 20,000 manats less in profit tax.
It should be noted that the 100,000 manat amount cannot be shown in the expenses section. The Tax Code allows this amount to be recognized not as an expense but as a reduction in profit, because according to Article 109.2 of the Tax Code, expenses related to non-commercial activities cannot be deducted from income.