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Non-taxable transactions: conditions, regulations
Non-taxable transactions: conditions, regulations
According to Article 160.1 of the Tax Code, the transfer of an enterprise by one taxpayer to another within the framework of a single transaction is not considered a taxable transaction. This requirement of the legislation is commented on by expert Ismayil Baghirov.
According to Article 160.2 of the Tax Code, in the case mentioned in Article 160.1, the person receiving or acquiring the enterprise assumes the rights and obligations related to the enterprise as specified in this chapter. However, this provision does not exempt the transferring party from the obligation to pay taxes, interest, or financial sanctions for previous tax periods.
Example 1: Enterprise "A" is acquired by enterprise "B" within a single transaction for 1,000,000 manats. The parties submit written notification to the tax authority within 7 days of the transfer. In this case, enterprise "B" assumes all rights and obligations of enterprise "A". However, enterprise "A" is not exempt from the responsibility to pay any taxes, interest, or penalties related to previous tax periods.
In this case, the transaction is not considered a taxable operation for VAT purposes.
According to Article 160.3 of the Tax Code, this provision applies only if both parties—the transferring and the receiving enterprises—submit written notification to the tax authority no later than 10 days after the transfer, stating their intent to apply the provisions of this article.
Thus, one of the operations exempt from VAT is the transfer of an enterprise. Let’s clarify what “transfer of an enterprise” means. This includes cases such as mergers, sales, and divisions of legal entities as defined by the Civil Code. Suppose an enterprise is a VAT payer and owns a large volume of goods and fixed assets. If its founders decide to sell their shares to another person, the ownership changes and the enterprise is transferred from one person to another. In this case, the goods recorded on the enterprise's balance sheet are not treated as sales and are not subject to VAT. This also applies to mergers, consolidations, and divisions.
Example 2: “Araz” LLC (names are hypothetical), a VAT payer, has 250,000 manats worth of goods on its balance sheet. The founders sold their shares to “Dayaq” LLC. In this case, the goods worth 250,000 manats are not treated as a sale and are not subject to VAT.
Another case: suppose “Araz” LLC and “Dayaq” LLC decide to merge. Both companies have goods on their balance sheets. As a result of the merger, a new LLC is established. In this case as well, the goods are not subject to VAT. The same rules apply in the case of a consolidation.
As can be seen, such transactions are not subject to VAT. However, there is a requirement that, when enterprises are transferred in this way, both parties must notify the tax authority in writing within 10 days of the transaction. Otherwise, the goods on the balance sheet may be subject to VAT.
According to Article 160.4 of the Tax Code, the gratuitous transfer of movable and immovable property, intangible assets, or an enterprise as a property complex to state authorities or institutions, or to public and social-purpose foundations approved by the President of the Republic of Azerbaijan, is not considered a taxable transaction.
Example 3: A VAT-paying LLC gratuitously transfers a building worth 100,000 manats on its balance sheet to the Department of Education. This transfer is not considered a sale and is not subject to VAT.
Example 4: For the purpose of improving the living conditions of the families of fallen military servicemen, an enterprise donates an apartment worth 90,000 manats to a foundation established for social purposes and included in the list approved by the President of the Republic of Azerbaijan. According to Article 13.2.10 of the Tax Code, the donation of goods is considered a form of supply. Let’s examine whether this donation is subject to tax.
Based on Article 160.4 of the Tax Code, the gratuitous transfer of the 90,000-manat apartment by the enterprise to a foundation established for social purposes is not treated as a property sale and is not subject to VAT.
According to Article 160.1 of the Tax Code, the transfer of an enterprise by one taxpayer to another within the framework of a single transaction is not considered a taxable transaction. This requirement of the legislation is commented on by expert Ismayil Baghirov.
According to Article 160.2 of the Tax Code, in the case mentioned in Article 160.1, the person receiving or acquiring the enterprise assumes the rights and obligations related to the enterprise as specified in this chapter. However, this provision does not exempt the transferring party from the obligation to pay taxes, interest, or financial sanctions for previous tax periods.
Example 1: Enterprise "A" is acquired by enterprise "B" within a single transaction for 1,000,000 manats. The parties submit written notification to the tax authority within 7 days of the transfer. In this case, enterprise "B" assumes all rights and obligations of enterprise "A". However, enterprise "A" is not exempt from the responsibility to pay any taxes, interest, or penalties related to previous tax periods.
In this case, the transaction is not considered a taxable operation for VAT purposes.
According to Article 160.3 of the Tax Code, this provision applies only if both parties—the transferring and the receiving enterprises—submit written notification to the tax authority no later than 10 days after the transfer, stating their intent to apply the provisions of this article.
Thus, one of the operations exempt from VAT is the transfer of an enterprise. Let’s clarify what “transfer of an enterprise” means. This includes cases such as mergers, sales, and divisions of legal entities as defined by the Civil Code. Suppose an enterprise is a VAT payer and owns a large volume of goods and fixed assets. If its founders decide to sell their shares to another person, the ownership changes and the enterprise is transferred from one person to another. In this case, the goods recorded on the enterprise's balance sheet are not treated as sales and are not subject to VAT. This also applies to mergers, consolidations, and divisions.
Example 2: “Araz” LLC (names are hypothetical), a VAT payer, has 250,000 manats worth of goods on its balance sheet. The founders sold their shares to “Dayaq” LLC. In this case, the goods worth 250,000 manats are not treated as a sale and are not subject to VAT.
Another case: suppose “Araz” LLC and “Dayaq” LLC decide to merge. Both companies have goods on their balance sheets. As a result of the merger, a new LLC is established. In this case as well, the goods are not subject to VAT. The same rules apply in the case of a consolidation.
As can be seen, such transactions are not subject to VAT. However, there is a requirement that, when enterprises are transferred in this way, both parties must notify the tax authority in writing within 10 days of the transaction. Otherwise, the goods on the balance sheet may be subject to VAT.
According to Article 160.4 of the Tax Code, the gratuitous transfer of movable and immovable property, intangible assets, or an enterprise as a property complex to state authorities or institutions, or to public and social-purpose foundations approved by the President of the Republic of Azerbaijan, is not considered a taxable transaction.
Example 3: A VAT-paying LLC gratuitously transfers a building worth 100,000 manats on its balance sheet to the Department of Education. This transfer is not considered a sale and is not subject to VAT.
Example 4: For the purpose of improving the living conditions of the families of fallen military servicemen, an enterprise donates an apartment worth 90,000 manats to a foundation established for social purposes and included in the list approved by the President of the Republic of Azerbaijan. According to Article 13.2.10 of the Tax Code, the donation of goods is considered a form of supply. Let’s examine whether this donation is subject to tax.
Based on Article 160.4 of the Tax Code, the gratuitous transfer of the 90,000-manat apartment by the enterprise to a foundation established for social purposes is not treated as a property sale and is not subject to VAT.