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In which cases will registration for VAT purposes be mandatory?
In which cases will registration for VAT purposes be mandatory?
One of the issues recently discussed is the proposed additions and amendments to the Tax Code, which are planned to take effect from 2026. According to the new legislative draft, the threshold for taxable transactions for VAT registration purposes will be raised from 200,000 AZN to 400,000 AZN.
Expert Anar Bayramov, who advises against a one-sided approach to this issue, has commented on the key aspects of the proposed changes.
According to Article 155.1 of the Tax Code, individuals engaged in entrepreneurial activity whose taxable transactions exceed 200,000 AZN in any month of a consecutive 12-month period are required to register as VAT payers. According to the proposed amendment, when determining the volume of taxable transactions under Article 155.1, the turnover of the taxpayer generated from retail sales and services provided to individuals not registered with the tax authorities, which are paid cashless via POS-terminal, will be considered with a 0.5 coefficient.
For example, a taxpayer engaged in retail sales of electrical goods has a taxable transaction volume of 250,000 AZN over the last 12 months. Of this, 180,000 AZN was paid via POS-terminal, and 70,000 AZN was paid in cash. Under the current legislation, the taxpayer would be required to submit an application to register as a VAT payer starting from the 1st of the following month. However, if the proposed amendment comes into force, the 180,000 AZN portion will be considered as 90,000 AZN:
180,000 × 0.5 = 90,000 AZN.
As a result, the taxpayer’s total turnover will be considered as 160,000 AZN. Thus, even though the taxpayer’s actual turnover is 250,000 AZN, they will be able to continue operating without being registered as a VAT payer.
The widely discussed 400,000 AZN threshold will apply only if the entire turnover from retail sales or services provided to the public is paid via POS-terminal. In that case, the 400,000 AZN turnover will be counted as 200,000 AZN using the 0.5 coefficient, and only then does the increase of the threshold to 400,000 AZN become effective. Otherwise, if a taxpayer has 300,000 AZN in retail turnover, with 180,000 AZN through POS-terminal and 120,000 AZN in cash, their turnover for VAT registration purposes will be 90,000 AZN (180,000 × 0.5) + 120,000 AZN = 210,000 AZN. This obliges the taxpayer to register for VAT starting from the 1st of the following month.
As can be seen, there is no change or increase in the 200,000 AZN threshold required for VAT registration. This threshold will remain in effect next year as well. It is important to note that this rule applies only to turnover via POS-terminal. Turnover generated through cash sales will not be considered. Moreover, this amendment will apply only to turnover from retail sales and services provided to the public.
Will the portion of turnover made via POS-terminal in 2025 be taken into account for VAT registration purposes under the additions and amendments to the Tax Code starting next year?
Suppose a simplified taxpayer engaged in retail trade has a taxable turnover of 230,000 AZN over the last 12 months as of July 2026. Of this, 160,000 AZN was paid via POS-terminal, and 70,000 AZN was paid in cash.
As noted above, starting from January 1, 2026, according to the proposed amendments to the Tax Code, turnover made via POS-terminal will be considered with a 0.5 coefficient. That is, 160,000 AZN of turnover via POS-terminal will be counted as 80,000 AZN. If we also include the 70,000 AZN cash turnover, the total turnover will be considered as 150,000 AZN. Thus, even though the total turnover over the last 12 months is 230,000 AZN, the taxpayer may assume that their turnover is considered as 150,000 AZN, and therefore they will not be required to register for VAT compulsorily.
However, one point should be noted. Of the 160,000 AZN turnover via POS-terminal, 120,000 AZN was generated in 2025, and 40,000 AZN in 2026. As a result, only the turnover generated via POS-terminal in 2026 will be counted using the 0.5 coefficient, while the turnover generated via POS-terminal in 2025 will be fully taken into account.
Therefore, for VAT registration purposes, the taxpayer’s turnover will be considered as follows: 70,000 AZN from cash sales, 120,000 AZN from POS-terminal sales in 2025, and 20,000 AZN from POS-terminal sales in 2026 (after applying the 0.5 coefficient), totaling 210,000 AZN. Based on this taxable turnover, the taxpayer will be required to submit a VAT registration application and register starting from August 2026.
One of the issues recently discussed is the proposed additions and amendments to the Tax Code, which are planned to take effect from 2026. According to the new legislative draft, the threshold for taxable transactions for VAT registration purposes will be raised from 200,000 AZN to 400,000 AZN.
Expert Anar Bayramov, who advises against a one-sided approach to this issue, has commented on the key aspects of the proposed changes.
According to Article 155.1 of the Tax Code, individuals engaged in entrepreneurial activity whose taxable transactions exceed 200,000 AZN in any month of a consecutive 12-month period are required to register as VAT payers. According to the proposed amendment, when determining the volume of taxable transactions under Article 155.1, the turnover of the taxpayer generated from retail sales and services provided to individuals not registered with the tax authorities, which are paid cashless via POS-terminal, will be considered with a 0.5 coefficient.
For example, a taxpayer engaged in retail sales of electrical goods has a taxable transaction volume of 250,000 AZN over the last 12 months. Of this, 180,000 AZN was paid via POS-terminal, and 70,000 AZN was paid in cash. Under the current legislation, the taxpayer would be required to submit an application to register as a VAT payer starting from the 1st of the following month. However, if the proposed amendment comes into force, the 180,000 AZN portion will be considered as 90,000 AZN:
180,000 × 0.5 = 90,000 AZN.
As a result, the taxpayer’s total turnover will be considered as 160,000 AZN. Thus, even though the taxpayer’s actual turnover is 250,000 AZN, they will be able to continue operating without being registered as a VAT payer.
The widely discussed 400,000 AZN threshold will apply only if the entire turnover from retail sales or services provided to the public is paid via POS-terminal. In that case, the 400,000 AZN turnover will be counted as 200,000 AZN using the 0.5 coefficient, and only then does the increase of the threshold to 400,000 AZN become effective. Otherwise, if a taxpayer has 300,000 AZN in retail turnover, with 180,000 AZN through POS-terminal and 120,000 AZN in cash, their turnover for VAT registration purposes will be 90,000 AZN (180,000 × 0.5) + 120,000 AZN = 210,000 AZN. This obliges the taxpayer to register for VAT starting from the 1st of the following month.
As can be seen, there is no change or increase in the 200,000 AZN threshold required for VAT registration. This threshold will remain in effect next year as well. It is important to note that this rule applies only to turnover via POS-terminal. Turnover generated through cash sales will not be considered. Moreover, this amendment will apply only to turnover from retail sales and services provided to the public.
Will the portion of turnover made via POS-terminal in 2025 be taken into account for VAT registration purposes under the additions and amendments to the Tax Code starting next year?
Suppose a simplified taxpayer engaged in retail trade has a taxable turnover of 230,000 AZN over the last 12 months as of July 2026. Of this, 160,000 AZN was paid via POS-terminal, and 70,000 AZN was paid in cash.
As noted above, starting from January 1, 2026, according to the proposed amendments to the Tax Code, turnover made via POS-terminal will be considered with a 0.5 coefficient. That is, 160,000 AZN of turnover via POS-terminal will be counted as 80,000 AZN. If we also include the 70,000 AZN cash turnover, the total turnover will be considered as 150,000 AZN. Thus, even though the total turnover over the last 12 months is 230,000 AZN, the taxpayer may assume that their turnover is considered as 150,000 AZN, and therefore they will not be required to register for VAT compulsorily.
However, one point should be noted. Of the 160,000 AZN turnover via POS-terminal, 120,000 AZN was generated in 2025, and 40,000 AZN in 2026. As a result, only the turnover generated via POS-terminal in 2026 will be counted using the 0.5 coefficient, while the turnover generated via POS-terminal in 2025 will be fully taken into account.
Therefore, for VAT registration purposes, the taxpayer’s turnover will be considered as follows: 70,000 AZN from cash sales, 120,000 AZN from POS-terminal sales in 2025, and 20,000 AZN from POS-terminal sales in 2026 (after applying the 0.5 coefficient), totaling 210,000 AZN. Based on this taxable turnover, the taxpayer will be required to submit a VAT registration application and register starting from August 2026.