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Income tax exemptions for individual entrepreneurs: key criteria and requirements
Income tax exemptions for individual entrepreneurs: key criteria and requirements
Tax benefits for individuals engaged in entrepreneurial activity, particularly the 75% exemption from income tax, are among the most widely discussed topics and often raise frequent questions. The tax incentives applied in this area are of great importance both for reducing the tax burden and for promoting entrepreneurship. Expert Farid Zalov provides commentary on the subject.
According to Articles 102.1.30 and 102.1.30-1 of the Tax Code of the Republic of Azerbaijan, individual entrepreneurs may be eligible for a 75% income tax exemption. However, there are specific conditions and criteria for applying this exemption.
Under Article 102.1.30-1, the exemption applies only in the following cases:
The activity of the individual entrepreneur must fall within the fields listed in Article 102.1.30-1 of the Tax Code. These include software, translation, advertising, research, education, design, and other professional services;
The annual income (before deducting expenses) from such activity must not exceed 45,000 manats;
If the entrepreneur is engaged in multiple activities, at least 50% of the total income must come from the activities included in the above list.
If these conditions are met, 75% of the income derived from the individual’s activity is exempt from taxation. If the income exceeds 45,000 manats or the activity does not qualify, the exemption is not granted under this provision.
According to Article 102.1.30, if a taxpayer does not meet the conditions for applying the exemption, and in the following reporting year transitions from the category of micro-entrepreneurship to another business category, then 75% of the income tax paid during the previous three calendar years as a micro-entrepreneur is considered a tax benefit and deducted from future income tax liabilities as an entrepreneur in another category. In other words, if in the next reporting year the taxpayer is no longer considered a micro-entrepreneur, 75% of the income tax paid during the previous three years in micro-entrepreneur status is deducted from future income tax obligations.
To apply this exemption in the following year, at least one of the following criteria must be met:
The average monthly number of employees exceeds 10;
or
Annual income (turnover) exceeds 200,000 manats.
In such cases, the entrepreneur moves into the category of small or medium-sized business, and this transition forms the basis for the exemption.
Example 1:
• Year: 2024
• Number of employees: 5
• Turnover: 800,000 manats
Analysis: Since turnover exceeds 200,000 manats, the entrepreneur is no longer considered micro but is classified as a small business entity.
Conclusion: The 75% tax exemption applies.
Example 2:
• Year: 2024
• Number of employees: 13
• Turnover: 170,000 manats
Analysis: Since the number of employees exceeds 10, the entrepreneur loses micro status.
Conclusion: The right to exemption arises.
Example 3:
• Year: 2024
• Number of employees: 5
• Turnover: 170,000 manats
Analysis: Neither the number of employees nor the turnover exceeds the required thresholds, so the entrepreneur retains micro status.
Conclusion: The 75% exemption does not apply.
Let us assume an entrepreneur is not engaged in the activities specified in Article 102.1.30-1 of the Tax Code and does not have an average of three employees per year, but operates only as an individual entrepreneur. Can such a person benefit from the 75% exemption?
Such an entrepreneur may only qualify if in the following year he or she is no longer considered a micro-entrepreneur. That is, the number of employees must exceed 10, or the annual turnover must be above 200,000 manats. Otherwise, the exemption does not apply.
Tax benefits for individuals engaged in entrepreneurial activity, particularly the 75% exemption from income tax, are among the most widely discussed topics and often raise frequent questions. The tax incentives applied in this area are of great importance both for reducing the tax burden and for promoting entrepreneurship. Expert Farid Zalov provides commentary on the subject.
According to Articles 102.1.30 and 102.1.30-1 of the Tax Code of the Republic of Azerbaijan, individual entrepreneurs may be eligible for a 75% income tax exemption. However, there are specific conditions and criteria for applying this exemption.
Under Article 102.1.30-1, the exemption applies only in the following cases:
The activity of the individual entrepreneur must fall within the fields listed in Article 102.1.30-1 of the Tax Code. These include software, translation, advertising, research, education, design, and other professional services;
The annual income (before deducting expenses) from such activity must not exceed 45,000 manats;
If the entrepreneur is engaged in multiple activities, at least 50% of the total income must come from the activities included in the above list.
If these conditions are met, 75% of the income derived from the individual’s activity is exempt from taxation. If the income exceeds 45,000 manats or the activity does not qualify, the exemption is not granted under this provision.
According to Article 102.1.30, if a taxpayer does not meet the conditions for applying the exemption, and in the following reporting year transitions from the category of micro-entrepreneurship to another business category, then 75% of the income tax paid during the previous three calendar years as a micro-entrepreneur is considered a tax benefit and deducted from future income tax liabilities as an entrepreneur in another category. In other words, if in the next reporting year the taxpayer is no longer considered a micro-entrepreneur, 75% of the income tax paid during the previous three years in micro-entrepreneur status is deducted from future income tax obligations.
To apply this exemption in the following year, at least one of the following criteria must be met:
The average monthly number of employees exceeds 10;
or
Annual income (turnover) exceeds 200,000 manats.
In such cases, the entrepreneur moves into the category of small or medium-sized business, and this transition forms the basis for the exemption.
Example 1:
• Year: 2024
• Number of employees: 5
• Turnover: 800,000 manats
Analysis: Since turnover exceeds 200,000 manats, the entrepreneur is no longer considered micro but is classified as a small business entity.
Conclusion: The 75% tax exemption applies.
Example 2:
• Year: 2024
• Number of employees: 13
• Turnover: 170,000 manats
Analysis: Since the number of employees exceeds 10, the entrepreneur loses micro status.
Conclusion: The right to exemption arises.
Example 3:
• Year: 2024
• Number of employees: 5
• Turnover: 170,000 manats
Analysis: Neither the number of employees nor the turnover exceeds the required thresholds, so the entrepreneur retains micro status.
Conclusion: The 75% exemption does not apply.
Let us assume an entrepreneur is not engaged in the activities specified in Article 102.1.30-1 of the Tax Code and does not have an average of three employees per year, but operates only as an individual entrepreneur. Can such a person benefit from the 75% exemption?
Such an entrepreneur may only qualify if in the following year he or she is no longer considered a micro-entrepreneur. That is, the number of employees must exceed 10, or the annual turnover must be above 200,000 manats. Otherwise, the exemption does not apply.