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Tax obligations for transportations not considered international
Tax obligations for transportations not considered international
Various companies registered in Azerbaijan provide transportation services between foreign countries. In such cases, certain tax obligations may arise for these companies. However, in some instances, the services provided by these companies are not considered international transportation. So, are such services subject to taxation in these cases? Elxan Babayev comments on the issue.
According to Article 13.2.33 of the Tax Code, international transportation refers to the transportation of cargo, passengers, luggage, and mail based on transportation documents, using various means of transport, between a dispatch (or destination) point located in the Republic of Azerbaijan and a destination (or dispatch) point located in another country.
Based on this definition, if both the point of origin and the destination are located in foreign countries, the transportation in question is not considered international transportation.
Example: In January 2025, “AA” LLC made a payment of 70,000 Russian rubles to a company “X” based in Russia for transporting goods from Istanbul, Turkey to Tbilisi, Georgia. In this case, is “AA” LLC required to withhold tax at the source when making the payment to the Russian company for this transportation service?
According to Article 125.1.4 of the Tax Code, payments made by a resident entity or entrepreneur for transportation carried out between dispatch and destination points located outside the borders of the Republic of Azerbaijan — including transit transportation through Azerbaijan — are not considered as taxable income at the source of payment. Based on this legal provision, it can be concluded that the payment of 70,000 rubles to the Russian company is not subject to withholding tax. Therefore, “AA” LLC does not incur a tax obligation in this case.
In conclusion, if the transportation does not meet the definition of international transportation and both the origin and destination points are located in foreign countries, payments made for such transportation services by residents of the Republic of Azerbaijan are not subject to withholding tax. In practice, this can be regarded as a significant tax relief for business entities.
Various companies registered in Azerbaijan provide transportation services between foreign countries. In such cases, certain tax obligations may arise for these companies. However, in some instances, the services provided by these companies are not considered international transportation. So, are such services subject to taxation in these cases? Elxan Babayev comments on the issue.
According to Article 13.2.33 of the Tax Code, international transportation refers to the transportation of cargo, passengers, luggage, and mail based on transportation documents, using various means of transport, between a dispatch (or destination) point located in the Republic of Azerbaijan and a destination (or dispatch) point located in another country.
Based on this definition, if both the point of origin and the destination are located in foreign countries, the transportation in question is not considered international transportation.
Example: In January 2025, “AA” LLC made a payment of 70,000 Russian rubles to a company “X” based in Russia for transporting goods from Istanbul, Turkey to Tbilisi, Georgia. In this case, is “AA” LLC required to withhold tax at the source when making the payment to the Russian company for this transportation service?
According to Article 125.1.4 of the Tax Code, payments made by a resident entity or entrepreneur for transportation carried out between dispatch and destination points located outside the borders of the Republic of Azerbaijan — including transit transportation through Azerbaijan — are not considered as taxable income at the source of payment. Based on this legal provision, it can be concluded that the payment of 70,000 rubles to the Russian company is not subject to withholding tax. Therefore, “AA” LLC does not incur a tax obligation in this case.
In conclusion, if the transportation does not meet the definition of international transportation and both the origin and destination points are located in foreign countries, payments made for such transportation services by residents of the Republic of Azerbaijan are not subject to withholding tax. In practice, this can be regarded as a significant tax relief for business entities.