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Tax Code Update: Limits for VAT Deregistration Are Increased
Tax Code Update: Limits for VAT Deregistration Are Increased
The proposed amendments to the Tax Code significantly update the rules for VAT registration in the retail trade and public service sectors. Under the current legislation, if the amount of taxable transactions exceeds 200,000 manats over a consecutive 12-month period, the taxpayer must be compulsorily registered for VAT.
From 2026 onwards, the VAT registration threshold will be doubled to 400,000 manats, with a 0.5 coefficient applied to cashless transactions conducted through POS terminals.
The same approach will also apply when a taxpayer deregisters from VAT. According to the current provisions of the Tax Code, if the volume of taxable transactions in the previous 12 months did not exceed 100,000 manats, the taxpayer could apply for VAT deregistration. From January 1, 2026, when calculating the total volume of taxable transactions for deregistration, cashless payments made via POS terminals for services provided to retail customers and persons not registered with the tax authorities will be considered with a 0.5 coefficient.
What does the 0.5 coefficient for cashless transactions mean?
Mehdi Babayev stated that the amendment aims to encourage cashless payments.
“A 0.5 coefficient is applied to cashless payments made via POS terminals for retail trade and services provided to persons not registered with the tax authorities. This means that the turnover is considered at half its value for VAT registration purposes.”
“This approach allows entrepreneurs to account for cashless transactions for VAT purposes at a lower value than the actual turnover.”
The implementation of the new rules provides tangible tax benefits for entrepreneurs. For example, if an individual entrepreneur has 300,000 manats of cashless turnover via POS terminals and an additional 40,000 manats of cash turnover in a year, the total turnover would be 340,000 manats, which under current rules triggers compulsory VAT registration. However, under the new mechanism, the cashless turnover is multiplied by the 0.5 coefficient, so the 300,000 manats of cashless turnover counts as 150,000 manats for VAT purposes. Combined with the cash turnover, the entrepreneur’s VAT-relevant turnover becomes 190,000 manats, which is below the 200,000-manat mandatory VAT registration threshold, and the entrepreneur is not required to register for VAT.
“As a result of these changes, entrepreneurs can effectively conduct 400,000 manats of cashless turnover without becoming a VAT payer. This mechanism will provide significant support to entrepreneurs operating under the simplified tax system.”
Changes also apply to the VAT deregistration process
Under the current legislation, a taxpayer can apply for VAT deregistration if their turnover for 12 consecutive months does not exceed 100,000 manats.
“The new approach also creates more favorable conditions for entrepreneurs in the VAT deregistration process. For example, if an entrepreneur has 50,000 manats of cash turnover and 90,000 manats of cashless turnover via POS terminals over a year, the total turnover would be 140,000 manats, which under current rules would not allow the entrepreneur to apply for deregistration. However, with the new mechanism, the cashless turnover is multiplied by the 0.5 coefficient, so the 90,000 manats of cashless turnover is counted as 45,000 manats for VAT purposes. Combined with the cash turnover, the entrepreneur’s VAT-relevant turnover becomes 95,000 manats, allowing them to apply for deregistration.”
In conclusion, the 0.5 coefficient mechanism for cashless transactions reduces the tax burden for entrepreneurs and enables them to conduct financial operations more transparently and systematically. This reform encourages cashless turnover, facilitates business operations, and aligns with the government’s strategic goals of expanding the cashless economy.
The proposed amendments to the Tax Code significantly update the rules for VAT registration in the retail trade and public service sectors. Under the current legislation, if the amount of taxable transactions exceeds 200,000 manats over a consecutive 12-month period, the taxpayer must be compulsorily registered for VAT.
From 2026 onwards, the VAT registration threshold will be doubled to 400,000 manats, with a 0.5 coefficient applied to cashless transactions conducted through POS terminals.
The same approach will also apply when a taxpayer deregisters from VAT. According to the current provisions of the Tax Code, if the volume of taxable transactions in the previous 12 months did not exceed 100,000 manats, the taxpayer could apply for VAT deregistration. From January 1, 2026, when calculating the total volume of taxable transactions for deregistration, cashless payments made via POS terminals for services provided to retail customers and persons not registered with the tax authorities will be considered with a 0.5 coefficient.
What does the 0.5 coefficient for cashless transactions mean?
Mehdi Babayev stated that the amendment aims to encourage cashless payments.
“A 0.5 coefficient is applied to cashless payments made via POS terminals for retail trade and services provided to persons not registered with the tax authorities. This means that the turnover is considered at half its value for VAT registration purposes.”
“This approach allows entrepreneurs to account for cashless transactions for VAT purposes at a lower value than the actual turnover.”
The implementation of the new rules provides tangible tax benefits for entrepreneurs. For example, if an individual entrepreneur has 300,000 manats of cashless turnover via POS terminals and an additional 40,000 manats of cash turnover in a year, the total turnover would be 340,000 manats, which under current rules triggers compulsory VAT registration. However, under the new mechanism, the cashless turnover is multiplied by the 0.5 coefficient, so the 300,000 manats of cashless turnover counts as 150,000 manats for VAT purposes. Combined with the cash turnover, the entrepreneur’s VAT-relevant turnover becomes 190,000 manats, which is below the 200,000-manat mandatory VAT registration threshold, and the entrepreneur is not required to register for VAT.
“As a result of these changes, entrepreneurs can effectively conduct 400,000 manats of cashless turnover without becoming a VAT payer. This mechanism will provide significant support to entrepreneurs operating under the simplified tax system.”
Changes also apply to the VAT deregistration process
Under the current legislation, a taxpayer can apply for VAT deregistration if their turnover for 12 consecutive months does not exceed 100,000 manats.
“The new approach also creates more favorable conditions for entrepreneurs in the VAT deregistration process. For example, if an entrepreneur has 50,000 manats of cash turnover and 90,000 manats of cashless turnover via POS terminals over a year, the total turnover would be 140,000 manats, which under current rules would not allow the entrepreneur to apply for deregistration. However, with the new mechanism, the cashless turnover is multiplied by the 0.5 coefficient, so the 90,000 manats of cashless turnover is counted as 45,000 manats for VAT purposes. Combined with the cash turnover, the entrepreneur’s VAT-relevant turnover becomes 95,000 manats, allowing them to apply for deregistration.”
In conclusion, the 0.5 coefficient mechanism for cashless transactions reduces the tax burden for entrepreneurs and enables them to conduct financial operations more transparently and systematically. This reform encourages cashless turnover, facilitates business operations, and aligns with the government’s strategic goals of expanding the cashless economy.