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How are dividends earned from passenger transportation activities distributed?
How are dividends earned from passenger transportation activities distributed?
According to the requirements of the Tax Code, passenger transportation activities are operations subject to the simplified tax regime. But are such persons required to file a tax return? How are dividends distributed and formalized in this case? Altay Jafarov clarifies these issues.
According to Article 221.4.5 of the Tax Code, taxpayers engaged in passenger transportation by motor vehicles are not required to submit a tax return to the tax authorities for this activity, unless otherwise provided by the Code. In addition, Article 219.5 of the Tax Code states that a legal entity paying the simplified tax is not considered a payer of VAT or profit tax, and an individual (including an individual entrepreneur operating without establishing a legal entity) is not considered a payer of income tax or VAT.
It is also clear from the article that although payers of the simplified tax are not subject to VAT or profit tax, they are not exempt from withholding tax when paying dividends to their founders. However, micro-entrepreneurs are an exception.
Furthermore, under Article 221.6 of the Tax Code, persons specified in Article 218.4 of the Code must maintain separate records of income and expenses for each type of activity. The profit (or loss) from one type of activity cannot be attributed to the profit (or loss) of another type of activity. Therefore, taxpayers must keep their income and expenses separately for each activity. According to the requirements of the article, both the profit from passenger transportation and the profit (or loss) from other activities must be recorded separately and not mixed. Consequently, profit or loss obtained from each activity can be distributed independently.
Under tax legislation, if there is a profit from passenger transportation activities but a loss from other activities, the net profit from passenger transportation can be distributed. However, from an accounting standpoint, this is incorrect because, in accounting, net profit is calculated based on the overall result of all activities combined. Therefore, entrepreneurs are advised to distribute dividends based on the overall net profit of all activities, not only passenger transportation, to avoid potential questions and accounting discrepancies.
Income or expenses from passenger transportation are not reflected in the profit tax return. However, the net profit or loss from this activity is indicated in Annex 1.
Example: Suppose an LLC has a loss of 100,000 manats from its main activity in 2024 and a net profit of 50,000 manats from passenger transportation.
The company decides to pay 50,000 manats as dividends to its founders. In this case, it must withhold and pay 5,000 manats (50,000 × 5% = 5,000 manats) in dividend tax to the budget. This will be reflected in the tax return for the quarter in which the payment is made.
In Annex 1 of the profit tax return, the 50,000-manat net profit from passenger transportation should be recorded in the “incoming” column. The 50,000 manats paid as dividends should be recorded in the “deducted” column. The 100,000-manat loss should be reflected in the “other assets” section under assets.
As a result, the year-end net profit balance will be 0.00. Typically, in such cases, no discrepancies arise during desk audits by tax authorities, as the 5% dividend tax has been declared and paid. If a discrepancy occurs, it can be clarified and resolved.
If both activities result in losses (e.g., a 50,000-manat loss from passenger transportation and a 100,000-manat loss from the main activity), both combined losses will be recorded under “other assets” in Annex 1.
According to the requirements of the Tax Code, passenger transportation activities are operations subject to the simplified tax regime. But are such persons required to file a tax return? How are dividends distributed and formalized in this case? Altay Jafarov clarifies these issues.
According to Article 221.4.5 of the Tax Code, taxpayers engaged in passenger transportation by motor vehicles are not required to submit a tax return to the tax authorities for this activity, unless otherwise provided by the Code. In addition, Article 219.5 of the Tax Code states that a legal entity paying the simplified tax is not considered a payer of VAT or profit tax, and an individual (including an individual entrepreneur operating without establishing a legal entity) is not considered a payer of income tax or VAT.
It is also clear from the article that although payers of the simplified tax are not subject to VAT or profit tax, they are not exempt from withholding tax when paying dividends to their founders. However, micro-entrepreneurs are an exception.
Furthermore, under Article 221.6 of the Tax Code, persons specified in Article 218.4 of the Code must maintain separate records of income and expenses for each type of activity. The profit (or loss) from one type of activity cannot be attributed to the profit (or loss) of another type of activity. Therefore, taxpayers must keep their income and expenses separately for each activity. According to the requirements of the article, both the profit from passenger transportation and the profit (or loss) from other activities must be recorded separately and not mixed. Consequently, profit or loss obtained from each activity can be distributed independently.
Under tax legislation, if there is a profit from passenger transportation activities but a loss from other activities, the net profit from passenger transportation can be distributed. However, from an accounting standpoint, this is incorrect because, in accounting, net profit is calculated based on the overall result of all activities combined. Therefore, entrepreneurs are advised to distribute dividends based on the overall net profit of all activities, not only passenger transportation, to avoid potential questions and accounting discrepancies.
Income or expenses from passenger transportation are not reflected in the profit tax return. However, the net profit or loss from this activity is indicated in Annex 1.
Example: Suppose an LLC has a loss of 100,000 manats from its main activity in 2024 and a net profit of 50,000 manats from passenger transportation.
The company decides to pay 50,000 manats as dividends to its founders. In this case, it must withhold and pay 5,000 manats (50,000 × 5% = 5,000 manats) in dividend tax to the budget. This will be reflected in the tax return for the quarter in which the payment is made.
In Annex 1 of the profit tax return, the 50,000-manat net profit from passenger transportation should be recorded in the “incoming” column. The 50,000 manats paid as dividends should be recorded in the “deducted” column. The 100,000-manat loss should be reflected in the “other assets” section under assets.
As a result, the year-end net profit balance will be 0.00. Typically, in such cases, no discrepancies arise during desk audits by tax authorities, as the 5% dividend tax has been declared and paid. If a discrepancy occurs, it can be clarified and resolved.
If both activities result in losses (e.g., a 50,000-manat loss from passenger transportation and a 100,000-manat loss from the main activity), both combined losses will be recorded under “other assets” in Annex 1.