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If fixed assets are transferred free of charge to government institutions or funds, is the VAT amount deductible?
If fixed assets are transferred free of charge to government institutions or funds, is the VAT amount deductible?
According to the legislation, no tax is calculated on property donated to state authorities and social funds. However, the issue of whether the VAT paid on the acquisition of such property can be deducted remains relevant. The topic is commented on by expert Mahmud Abasquliyev.
According to Article 160.4 of the Tax Code, the free-of-charge transfer of movable and immovable property, intangible assets, as well as enterprises as property complexes, by legal and physical persons to state authorities (institutions), as well as to foundations established for public and social purposes and approved by a competent executive authority, is not considered a taxable transaction.
One of the key issues that concerns entrepreneurs is whether the VAT paid on the acquisition of such fixed assets can be deducted when carrying out this process. So, is this possible?
According to Article 175.6 of the Tax Code, even if fixed assets (movable and immovable property) acquired during the current year are transferred free of charge to state institutions and foundations established for public purposes, the 18% VAT paid to the seller may still be deducted.
Example: In August 2025, a company purchased a vehicle in accordance with the law, paying a base price of 100,000 AZN and 18,000 AZN in VAT. The vehicle was then transferred free of charge to a state authority in the same month.
VAT declaration for the month of August:
Appendix 3, Section 2
Non-taxable amount for VAT = 100,000 AZN (fields for supply and acquisition)
Amount deductible (Field 318) = 18,000 AZN
According to the legislation, no tax is calculated on property donated to state authorities and social funds. However, the issue of whether the VAT paid on the acquisition of such property can be deducted remains relevant. The topic is commented on by expert Mahmud Abasquliyev.
According to Article 160.4 of the Tax Code, the free-of-charge transfer of movable and immovable property, intangible assets, as well as enterprises as property complexes, by legal and physical persons to state authorities (institutions), as well as to foundations established for public and social purposes and approved by a competent executive authority, is not considered a taxable transaction.
One of the key issues that concerns entrepreneurs is whether the VAT paid on the acquisition of such fixed assets can be deducted when carrying out this process. So, is this possible?
According to Article 175.6 of the Tax Code, even if fixed assets (movable and immovable property) acquired during the current year are transferred free of charge to state institutions and foundations established for public purposes, the 18% VAT paid to the seller may still be deducted.
Example: In August 2025, a company purchased a vehicle in accordance with the law, paying a base price of 100,000 AZN and 18,000 AZN in VAT. The vehicle was then transferred free of charge to a state authority in the same month.
VAT declaration for the month of August:
Appendix 3, Section 2
Non-taxable amount for VAT = 100,000 AZN (fields for supply and acquisition)
Amount deductible (Field 318) = 18,000 AZN