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Rules for VAT taxpayer registration
Rules for VAT taxpayer registration
One of the issues that concerns entrepreneurs is registration as a value-added tax (VAT) payer. According to legislation, registration as a VAT payer may be voluntary or mandatory. Tax expert Ismayil Baghirov explains the requirements and conditions related to this.
According to Article 157.1 of the Tax Code, an application for mandatory or voluntary registration for VAT purposes must be submitted in the form determined by the relevant executive authority. Article 157.2 of the Code stipulates that when a person registers for VAT purposes, the tax authority must enter that person into the state register of VAT payers and, within no later than 5 business days after submission of the application, issue a registration notice in the form determined by the State Tax Service. This notice must indicate the taxpayer’s name and other relevant information, the effective date of registration, and the TIN.
The VAT payer’s registration notice is issued once and kept by the VAT payer. If the notice is lost or becomes unusable, a duplicate is issued upon the taxpayer’s request.
According to Article 157.3 of the Tax Code, registration becomes effective on one of the following dates, depending on which event occurs first:
In case of mandatory registration:
If the volume of taxable transactions in any month (or months) of a consecutive 12-month period exceeds 200,000 manats – on the first day of the following month.
Example 1: In January 2024, a taxpayer’s turnover for the past 12 months amounted to 230,000 manats. In this case, the taxpayer must apply to the tax authorities within 10 days to be registered as a VAT payer starting from February 1, 2024, and must be registered for VAT purposes from that date.
If the total value of a single transaction or contract subject to VAT exceeds 200,000 manats – before the date the transaction is carried out.
Example 2: Suppose the simplified taxpayer “XX” LLC concluded a contract with Company B in January 2024 to provide services (or goods) worth 215,000 manats. The service (or goods) will be delivered by “XX” LLC in February of the same year. In this case, “XX” LLC must register as a VAT payer before providing the service (goods). That is, it must apply to the tax authorities before the transaction takes place.
For persons engaged in activities specified in Article 154.6 of the Tax Code – on the day of state registration or tax registration, or, if such activities commence later, on the day they actually begin these activities.
Note: Article 154.6 of the Tax Code refers to producers of excisable goods, goods subject to mandatory labeling, and persons engaged in construction of buildings.
Example 3: In January 2022, a person intending to engage in the production of excisable goods applies to the tax authority for registration. At the same time, that person is obliged to submit an application for VAT registration. If the taxpayer subsequently begins production of excisable goods on May 10, 2022, then on that same date – May 10 – he must also submit an application for VAT registration.
In case of voluntary registration – on the first day of the reporting period following the month in which the application was submitted.
In voluntary registration, the taxpayer must submit an application. In this case, the taxpayer is registered as a VAT payer from the 1st day of the month following the month in which the application was submitted.
Example 4: A legal entity paying profit tax applied to the tax authority in May 2024 to be registered for VAT purposes. However, the application did not specify the date from which it wished to become a VAT payer. In this case, the registration for VAT purposes becomes effective from the first day of the reporting period following the month in which the application was submitted – i.e., June 1.
Example 5: “XX” LLC decided to register as a VAT payer starting from May 2024. In this case, the application must be submitted in April of that year. The exact date of submission in April does not matter. In all cases, the company’s VAT registration will be effective from May 1, 2024.
According to Article 85.4 of the Tax Code, within a period not exceeding 3 years, the registration date shall be the one indicated in the taxpayer’s application.
Example 6: In November 2024, a taxpayer who had no obligation to register voluntarily submitted an application to the tax authority to be registered as a VAT payer starting from May 2022. In this case, the taxpayer’s registration date is deemed effective from May 1, 2022.
If a taxpayer has no registration obligation, they may voluntarily submit an application to be registered as a VAT payer for any month within the preceding 3-year period. In this case, the taxpayer’s registration date becomes effective from the 1st day of the month indicated in the application.
After the 3-year period specified in Article 85.4 of the Tax Code has expired, the taxpayer is not allowed to make adjustments or claim offsets for VAT relating to that period.
Example 7: In January 2025, a VAT payer wishes to adjust VAT for December 2020. However, since the 3-year period has expired, the taxpayer cannot submit a revised return for that period.
The provisions of this article do not apply to the persons listed in Article 218.4.1 of the Tax Code, nor to those engaged in freight transport within Azerbaijan before January 1, 2024. Persons engaged in passenger transport (including taxi services) or freight transport within Azerbaijan using vehicles they own or operate (except international passenger transport) cannot voluntarily apply for VAT registration for the previous 3-year period.
According to Article 157.4 of the Tax Code, the tax authority is obliged to maintain the register of VAT payers. When taxpayers are included in the VAT register, the information provided in their registration applications is used.
Article 157.5 states that if a taxpayer is required to register for VAT purposes but fails to submit an application, the tax authority registers them on its own initiative and sends them the corresponding registration notice.
Example 8: In May 2023, “AA” LLC had a turnover of 210,000 AZN but was unaware of this and submitted a simplified tax return for the 2nd quarter of 2023. The LLC did not submit the required VAT registration application in June 2023. Once the simplified return for the 2nd quarter was filed, the tax authorities identified that “AA” LLC should have been registered as a VAT payer from June 2023. The tax authority then sent a notification letter to the company, informing it that its turnover exceeded the threshold and requiring an urgent registration application. “AA” LLC must submit the application, indicating June 1, 2023 as the registration date. If the LLC fails to submit the application, the tax authority itself registers the company as a VAT payer effective June 1, 2023 and issues the registration notice.
According to Article 157.6 of the Tax Code, any changes in the information of VAT payers must be reflected in the state register. Under Article 157.8, in cases prescribed by the Tax Code, an official extract from the VAT register shall be provided to the applicant upon request.
Voluntary Registration Requirements
Under Article 156.1 of the Tax Code, a person engaged in entrepreneurial activity who is not required to register may voluntarily submit an application to the tax authority for VAT registration.
Example 9: November 2023, an individual taxpayer without a registration obligation voluntarily submitted an application to be registered as a VAT payer starting from July 2023. In this case, the registration date is effective from July 1, 2023.
If a person has no registration obligation, they may voluntarily apply for VAT registration starting from July of the previous year. In such cases, the registration date becomes effective from the 1st day of July of the year indicated in the application.
According to Article 156.1-1 of the Tax Code, persons who receive payment for services in a non-cash form (except for taxi operators) as specified in Article 218.4.1 are entitled to exercise the right provided by Article 156.
Persons engaged in passenger transport (excluding international passenger transport and taxi services) within Azerbaijan using vehicles they own or operate, and who receive payment for their services in a non-cash form, may voluntarily submit an application to the tax authority for VAT registration.
One of the issues that concerns entrepreneurs is registration as a value-added tax (VAT) payer. According to legislation, registration as a VAT payer may be voluntary or mandatory. Tax expert Ismayil Baghirov explains the requirements and conditions related to this.
According to Article 157.1 of the Tax Code, an application for mandatory or voluntary registration for VAT purposes must be submitted in the form determined by the relevant executive authority. Article 157.2 of the Code stipulates that when a person registers for VAT purposes, the tax authority must enter that person into the state register of VAT payers and, within no later than 5 business days after submission of the application, issue a registration notice in the form determined by the State Tax Service. This notice must indicate the taxpayer’s name and other relevant information, the effective date of registration, and the TIN.
The VAT payer’s registration notice is issued once and kept by the VAT payer. If the notice is lost or becomes unusable, a duplicate is issued upon the taxpayer’s request.
According to Article 157.3 of the Tax Code, registration becomes effective on one of the following dates, depending on which event occurs first:
In case of mandatory registration:
If the volume of taxable transactions in any month (or months) of a consecutive 12-month period exceeds 200,000 manats – on the first day of the following month.
Example 1: In January 2024, a taxpayer’s turnover for the past 12 months amounted to 230,000 manats. In this case, the taxpayer must apply to the tax authorities within 10 days to be registered as a VAT payer starting from February 1, 2024, and must be registered for VAT purposes from that date.
If the total value of a single transaction or contract subject to VAT exceeds 200,000 manats – before the date the transaction is carried out.
Example 2: Suppose the simplified taxpayer “XX” LLC concluded a contract with Company B in January 2024 to provide services (or goods) worth 215,000 manats. The service (or goods) will be delivered by “XX” LLC in February of the same year. In this case, “XX” LLC must register as a VAT payer before providing the service (goods). That is, it must apply to the tax authorities before the transaction takes place.
For persons engaged in activities specified in Article 154.6 of the Tax Code – on the day of state registration or tax registration, or, if such activities commence later, on the day they actually begin these activities.
Note: Article 154.6 of the Tax Code refers to producers of excisable goods, goods subject to mandatory labeling, and persons engaged in construction of buildings.
Example 3: In January 2022, a person intending to engage in the production of excisable goods applies to the tax authority for registration. At the same time, that person is obliged to submit an application for VAT registration. If the taxpayer subsequently begins production of excisable goods on May 10, 2022, then on that same date – May 10 – he must also submit an application for VAT registration.
In case of voluntary registration – on the first day of the reporting period following the month in which the application was submitted.
In voluntary registration, the taxpayer must submit an application. In this case, the taxpayer is registered as a VAT payer from the 1st day of the month following the month in which the application was submitted.
Example 4: A legal entity paying profit tax applied to the tax authority in May 2024 to be registered for VAT purposes. However, the application did not specify the date from which it wished to become a VAT payer. In this case, the registration for VAT purposes becomes effective from the first day of the reporting period following the month in which the application was submitted – i.e., June 1.
Example 5: “XX” LLC decided to register as a VAT payer starting from May 2024. In this case, the application must be submitted in April of that year. The exact date of submission in April does not matter. In all cases, the company’s VAT registration will be effective from May 1, 2024.
According to Article 85.4 of the Tax Code, within a period not exceeding 3 years, the registration date shall be the one indicated in the taxpayer’s application.
Example 6: In November 2024, a taxpayer who had no obligation to register voluntarily submitted an application to the tax authority to be registered as a VAT payer starting from May 2022. In this case, the taxpayer’s registration date is deemed effective from May 1, 2022.
If a taxpayer has no registration obligation, they may voluntarily submit an application to be registered as a VAT payer for any month within the preceding 3-year period. In this case, the taxpayer’s registration date becomes effective from the 1st day of the month indicated in the application.
After the 3-year period specified in Article 85.4 of the Tax Code has expired, the taxpayer is not allowed to make adjustments or claim offsets for VAT relating to that period.
Example 7: In January 2025, a VAT payer wishes to adjust VAT for December 2020. However, since the 3-year period has expired, the taxpayer cannot submit a revised return for that period.
The provisions of this article do not apply to the persons listed in Article 218.4.1 of the Tax Code, nor to those engaged in freight transport within Azerbaijan before January 1, 2024. Persons engaged in passenger transport (including taxi services) or freight transport within Azerbaijan using vehicles they own or operate (except international passenger transport) cannot voluntarily apply for VAT registration for the previous 3-year period.
According to Article 157.4 of the Tax Code, the tax authority is obliged to maintain the register of VAT payers. When taxpayers are included in the VAT register, the information provided in their registration applications is used.
Article 157.5 states that if a taxpayer is required to register for VAT purposes but fails to submit an application, the tax authority registers them on its own initiative and sends them the corresponding registration notice.
Example 8: In May 2023, “AA” LLC had a turnover of 210,000 AZN but was unaware of this and submitted a simplified tax return for the 2nd quarter of 2023. The LLC did not submit the required VAT registration application in June 2023. Once the simplified return for the 2nd quarter was filed, the tax authorities identified that “AA” LLC should have been registered as a VAT payer from June 2023. The tax authority then sent a notification letter to the company, informing it that its turnover exceeded the threshold and requiring an urgent registration application. “AA” LLC must submit the application, indicating June 1, 2023 as the registration date. If the LLC fails to submit the application, the tax authority itself registers the company as a VAT payer effective June 1, 2023 and issues the registration notice.
According to Article 157.6 of the Tax Code, any changes in the information of VAT payers must be reflected in the state register. Under Article 157.8, in cases prescribed by the Tax Code, an official extract from the VAT register shall be provided to the applicant upon request.
Voluntary Registration Requirements
Under Article 156.1 of the Tax Code, a person engaged in entrepreneurial activity who is not required to register may voluntarily submit an application to the tax authority for VAT registration.
Example 9: November 2023, an individual taxpayer without a registration obligation voluntarily submitted an application to be registered as a VAT payer starting from July 2023. In this case, the registration date is effective from July 1, 2023.
If a person has no registration obligation, they may voluntarily apply for VAT registration starting from July of the previous year. In such cases, the registration date becomes effective from the 1st day of July of the year indicated in the application.
According to Article 156.1-1 of the Tax Code, persons who receive payment for services in a non-cash form (except for taxi operators) as specified in Article 218.4.1 are entitled to exercise the right provided by Article 156.
Persons engaged in passenger transport (excluding international passenger transport and taxi services) within Azerbaijan using vehicles they own or operate, and who receive payment for their services in a non-cash form, may voluntarily submit an application to the tax authority for VAT registration.