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Who is eligible to be a simplified tax payer?
Who is eligible to be a simplified tax payer?
One of the main issues of interest to entrepreneurs is determining in which cases they are entitled to become payers of the simplified tax. According to the latest amendments to the Tax Code, in certain cases a taxpayer does not lose the right to be a payer of the simplified tax even if their turnover reaches up to 400,000 manats. The relevant requirements and conditions are explained by tax expert Ismayil Bagirov.
Pursuant to Article 218.1.1 of the Tax Code, taking into account the provisions of Chapter XI of the Code, persons who are not registered for VAT purposes and whose volume of taxable transactions in any month (months) of a consecutive 12-month period is 200,000 manats or less are entitled to be payers of the simplified tax.
It should be noted that the volume of taxable transactions in any month of a consecutive 12-month period refers to transactions subject to the simplified tax. It is possible that the total volume of transactions of a simplified tax payer over a consecutive 12-month period exceeds 200,000 manats, while the volume of transactions subject to the simplified tax is 200,000 manats or less. In such cases, the taxpayer does not lose the right to be a payer of the simplified tax.
Example 1: An individual carrying out entrepreneurial activity without establishing a legal entity is not registered for VAT purposes. The volume of their taxable transactions over a consecutive 12-month period amounts to 160,000 manats. In this case, the individual is entitled to be a payer of the simplified tax.
Example 2: An enterprise engaged in wheat production is a payer of the simplified tax. During a consecutive 12-month period in 2025, it earned 160,000 manats from the sale of its own wheat (an activity not subject to the simplified tax) and 50,000 manats from the sale of food products (an activity subject to the simplified tax).
Thus, despite its consecutive 12-month turnover exceeding 200,000 manats (160,000 + 50,000 = 210,000 manats), the enterprise does not lose the right to be a payer of the simplified tax, since the value of transactions subject to the simplified tax during that period was less than 200,000 manats, namely 50,000 manats.
Article 218.1.2 of the Tax Code states that entrepreneurs operating in the public catering sector may, at their discretion, remain payers of the simplified tax even if their sales turnover exceeds 200,000 manats. In this case, a simplified tax at the rate of 8 percent is applied to the total cash proceeds from public catering activities.
Example 3: Assume that a taxpayer engaged in public catering activities had taxable transactions amounting to 260,000 manats in April 2019. Under Article 218.1.2 of the Code, the taxpayer may choose to be a payer of the simplified tax. However, in this case an 8 percent simplified tax is applied to the total proceeds from public catering activities.
It should be noted that persons operating in the public catering sector with turnover exceeding 200,000 manats have an alternative choice regarding whether to exercise the right to be a payer of the simplified tax. That is, they may either pay the simplified tax at the rate of 8 percent on total proceeds from public catering activities or register as VAT payers under the general procedure.
According to Article 218.1-1 of the Tax Code, when determining a taxpayer’s right to be a payer of the simplified tax, if payments from retail sales and from services provided to persons not registered with the tax authorities are received via POS terminals, only half of such turnover (with a coefficient of 0.5) is included in taxable turnover. Thus, even if the taxpayer’s consecutive 12-month turnover from the above activities amounts to 250,000 manats, for VAT registration purposes the turnover is considered to be 125,000 manats (250,000 × 0.5 = 125,000).
Accordingly, under Article 218.1.1 of the Tax Code, persons whose consecutive 12-month turnover exceeds 200,000 manats are not entitled to be payers of the simplified tax. However, taking into account the requirements of Article 218.1-1, even if the total turnover is 250,000 manats, the turnover determining the right to be a payer of the simplified tax is considered to be 125,000 manats; therefore, the taxpayer does not lose this right.
Example 4: A limited liability company that is a payer of the simplified tax had a turnover of 280,000 manats over a consecutive 12-month period (01.02.2026–31.01.2027) as of the end of January 2027 from retail trade and services provided to persons not registered with the tax authorities. Of this amount, 80,000 manats resulted from cash transactions, and 200,000 manats from non-cash payments via POS terminals in retail trade. Let us determine whether the company retains the right to be a payer of the simplified tax.
Under Article 218.1.1 of the Tax Code, a coefficient of 0.5 is applied to turnover generated from non-cash retail payments via POS terminals. Therefore, although the total turnover over the consecutive 12-month period is 280,000 manats (200,000 + 80,000 = 280,000), the turnover determining the right to be a payer of the simplified tax is 180,000 manats. As a result, the LLC does not lose this right:
200,000 × 0.5 = 100,000 manats
100,000 + 80,000 = 180,000 manats
According to Article 218.1.1 of the Tax Code, persons entitled to be payers of the simplified tax must, no later than April 20 of each year, either submit a quarterly simplified tax return or submit a written notification to the tax authority stating that they will not use the right to be a payer of the simplified tax and will register as payers of profit (income) tax. If neither the return nor the written notification is submitted by April 20, and the taxpayer carried out activity in the previous tax year, the tax authority applies the method chosen by the taxpayer in the previous tax year. If the taxpayer starts a new activity during the year, the method indicated in the application for tax registration is applied. In both cases (except where VAT registration is voluntary or mandatory), the taxpayer does not have the right to change the selected method until the end of the calendar year.
If the total amount of taxable transactions of a taxpayer over the previous full 12 calendar months does not exceed 100,000 manats and the taxpayer has operated under this regime for one year from the effective date of the last VAT registration, the taxpayer may apply at any time for cancellation of VAT registration and continue activity as a payer of the simplified tax or income (profit) tax.
Example 5: An enterprise engaged in manufacturing activities was a payer of the simplified tax in 2024. From 2025, it intends to waive this right and register as a payer of profit tax.
In this case, in accordance with Article 218.1 of the Tax Code, the enterprise must submit a written notification to the tax authority with which it is registered, no later than April 20, 2025, stating that it will not use the right to be a payer of the simplified tax. If such notification is not submitted within the specified period, the enterprise will be considered a payer of the simplified tax for 2025 as well, and it will not have the right to change the selected method until the end of the calendar year.
However, as shown in Example 2, if during any consecutive 12-month period in 2025 the VAT-taxable turnover of a manufacturing enterprise exceeds 200,000 manats, it will lose the right to be a payer of the simplified tax starting from the first day of the month following that period.
A taxpayer starting a new activity during the year may, at their discretion, become a payer of the simplified tax or profit tax (income tax for individuals) in accordance with the method specified in the application for tax registration.
Thus, legal entities and individuals carrying out entrepreneurial activities without establishing a legal entity may be taxpayers under the following conditions:
Case 1: If the volume of taxable transactions over a consecutive 12-month period is 200,000 manats or less:
they may be payers of the simplified tax. In this case, under Article 219.5 of the Tax Code, legal entities are not payers of VAT or profit tax, and individuals carrying out entrepreneurial activities without establishing a legal entity are not payers of VAT or income tax;
if the total amount of taxable transactions over the previous full 12 calendar months does not exceed 100,000 manats and one year has passed since the last VAT registration took effect, the taxpayer may apply to continue activity as a payer of the simplified tax or income (profit) tax;
they may voluntarily become payers of profit (income) tax. VAT registration is voluntary for taxpayers under Article 156 of the Tax Code.
Case 2: If the volume of taxable transactions over a consecutive 12-month period exceeds 200,000 manats:
under Article 155.1 of the Tax Code, taxpayers are obliged to apply for VAT registration within 10 days from the first day of the month following the month in which the taxable transactions exceeded 200,000 manats;
under Article 218.1.2 of the Tax Code, entrepreneurs operating in the public catering sector may, at their discretion, remain payers of the simplified tax even if their sales turnover exceeds 200,000 manats. However, in this case an 8 percent simplified tax is applied to the total proceeds.
According to Article 218.2-1 of the Tax Code, if persons engaged in public catering activities whose taxable transactions exceed 200,000 manats over a consecutive 12-month period and who pay the simplified tax at the rate of 8 percent have total taxable transactions not exceeding 100,000 manats over the previous full 12 calendar months and have operated under this regime for at least one year, they may at any time apply to continue their activities as payers of the simplified tax at the rate of 2 percent or as payers of income (profit) tax.
One of the main issues of interest to entrepreneurs is determining in which cases they are entitled to become payers of the simplified tax. According to the latest amendments to the Tax Code, in certain cases a taxpayer does not lose the right to be a payer of the simplified tax even if their turnover reaches up to 400,000 manats. The relevant requirements and conditions are explained by tax expert Ismayil Bagirov.
Pursuant to Article 218.1.1 of the Tax Code, taking into account the provisions of Chapter XI of the Code, persons who are not registered for VAT purposes and whose volume of taxable transactions in any month (months) of a consecutive 12-month period is 200,000 manats or less are entitled to be payers of the simplified tax.
It should be noted that the volume of taxable transactions in any month of a consecutive 12-month period refers to transactions subject to the simplified tax. It is possible that the total volume of transactions of a simplified tax payer over a consecutive 12-month period exceeds 200,000 manats, while the volume of transactions subject to the simplified tax is 200,000 manats or less. In such cases, the taxpayer does not lose the right to be a payer of the simplified tax.
Example 1: An individual carrying out entrepreneurial activity without establishing a legal entity is not registered for VAT purposes. The volume of their taxable transactions over a consecutive 12-month period amounts to 160,000 manats. In this case, the individual is entitled to be a payer of the simplified tax.
Example 2: An enterprise engaged in wheat production is a payer of the simplified tax. During a consecutive 12-month period in 2025, it earned 160,000 manats from the sale of its own wheat (an activity not subject to the simplified tax) and 50,000 manats from the sale of food products (an activity subject to the simplified tax).
Thus, despite its consecutive 12-month turnover exceeding 200,000 manats (160,000 + 50,000 = 210,000 manats), the enterprise does not lose the right to be a payer of the simplified tax, since the value of transactions subject to the simplified tax during that period was less than 200,000 manats, namely 50,000 manats.
Article 218.1.2 of the Tax Code states that entrepreneurs operating in the public catering sector may, at their discretion, remain payers of the simplified tax even if their sales turnover exceeds 200,000 manats. In this case, a simplified tax at the rate of 8 percent is applied to the total cash proceeds from public catering activities.
Example 3: Assume that a taxpayer engaged in public catering activities had taxable transactions amounting to 260,000 manats in April 2019. Under Article 218.1.2 of the Code, the taxpayer may choose to be a payer of the simplified tax. However, in this case an 8 percent simplified tax is applied to the total proceeds from public catering activities.
It should be noted that persons operating in the public catering sector with turnover exceeding 200,000 manats have an alternative choice regarding whether to exercise the right to be a payer of the simplified tax. That is, they may either pay the simplified tax at the rate of 8 percent on total proceeds from public catering activities or register as VAT payers under the general procedure.
According to Article 218.1-1 of the Tax Code, when determining a taxpayer’s right to be a payer of the simplified tax, if payments from retail sales and from services provided to persons not registered with the tax authorities are received via POS terminals, only half of such turnover (with a coefficient of 0.5) is included in taxable turnover. Thus, even if the taxpayer’s consecutive 12-month turnover from the above activities amounts to 250,000 manats, for VAT registration purposes the turnover is considered to be 125,000 manats (250,000 × 0.5 = 125,000).
Accordingly, under Article 218.1.1 of the Tax Code, persons whose consecutive 12-month turnover exceeds 200,000 manats are not entitled to be payers of the simplified tax. However, taking into account the requirements of Article 218.1-1, even if the total turnover is 250,000 manats, the turnover determining the right to be a payer of the simplified tax is considered to be 125,000 manats; therefore, the taxpayer does not lose this right.
Example 4: A limited liability company that is a payer of the simplified tax had a turnover of 280,000 manats over a consecutive 12-month period (01.02.2026–31.01.2027) as of the end of January 2027 from retail trade and services provided to persons not registered with the tax authorities. Of this amount, 80,000 manats resulted from cash transactions, and 200,000 manats from non-cash payments via POS terminals in retail trade. Let us determine whether the company retains the right to be a payer of the simplified tax.
Under Article 218.1.1 of the Tax Code, a coefficient of 0.5 is applied to turnover generated from non-cash retail payments via POS terminals. Therefore, although the total turnover over the consecutive 12-month period is 280,000 manats (200,000 + 80,000 = 280,000), the turnover determining the right to be a payer of the simplified tax is 180,000 manats. As a result, the LLC does not lose this right:
200,000 × 0.5 = 100,000 manats
100,000 + 80,000 = 180,000 manats
According to Article 218.1.1 of the Tax Code, persons entitled to be payers of the simplified tax must, no later than April 20 of each year, either submit a quarterly simplified tax return or submit a written notification to the tax authority stating that they will not use the right to be a payer of the simplified tax and will register as payers of profit (income) tax. If neither the return nor the written notification is submitted by April 20, and the taxpayer carried out activity in the previous tax year, the tax authority applies the method chosen by the taxpayer in the previous tax year. If the taxpayer starts a new activity during the year, the method indicated in the application for tax registration is applied. In both cases (except where VAT registration is voluntary or mandatory), the taxpayer does not have the right to change the selected method until the end of the calendar year.
If the total amount of taxable transactions of a taxpayer over the previous full 12 calendar months does not exceed 100,000 manats and the taxpayer has operated under this regime for one year from the effective date of the last VAT registration, the taxpayer may apply at any time for cancellation of VAT registration and continue activity as a payer of the simplified tax or income (profit) tax.
Example 5: An enterprise engaged in manufacturing activities was a payer of the simplified tax in 2024. From 2025, it intends to waive this right and register as a payer of profit tax.
In this case, in accordance with Article 218.1 of the Tax Code, the enterprise must submit a written notification to the tax authority with which it is registered, no later than April 20, 2025, stating that it will not use the right to be a payer of the simplified tax. If such notification is not submitted within the specified period, the enterprise will be considered a payer of the simplified tax for 2025 as well, and it will not have the right to change the selected method until the end of the calendar year.
However, as shown in Example 2, if during any consecutive 12-month period in 2025 the VAT-taxable turnover of a manufacturing enterprise exceeds 200,000 manats, it will lose the right to be a payer of the simplified tax starting from the first day of the month following that period.
A taxpayer starting a new activity during the year may, at their discretion, become a payer of the simplified tax or profit tax (income tax for individuals) in accordance with the method specified in the application for tax registration.
Thus, legal entities and individuals carrying out entrepreneurial activities without establishing a legal entity may be taxpayers under the following conditions:
Case 1: If the volume of taxable transactions over a consecutive 12-month period is 200,000 manats or less:
they may be payers of the simplified tax. In this case, under Article 219.5 of the Tax Code, legal entities are not payers of VAT or profit tax, and individuals carrying out entrepreneurial activities without establishing a legal entity are not payers of VAT or income tax;
if the total amount of taxable transactions over the previous full 12 calendar months does not exceed 100,000 manats and one year has passed since the last VAT registration took effect, the taxpayer may apply to continue activity as a payer of the simplified tax or income (profit) tax;
they may voluntarily become payers of profit (income) tax. VAT registration is voluntary for taxpayers under Article 156 of the Tax Code.
Case 2: If the volume of taxable transactions over a consecutive 12-month period exceeds 200,000 manats:
under Article 155.1 of the Tax Code, taxpayers are obliged to apply for VAT registration within 10 days from the first day of the month following the month in which the taxable transactions exceeded 200,000 manats;
under Article 218.1.2 of the Tax Code, entrepreneurs operating in the public catering sector may, at their discretion, remain payers of the simplified tax even if their sales turnover exceeds 200,000 manats. However, in this case an 8 percent simplified tax is applied to the total proceeds.
According to Article 218.2-1 of the Tax Code, if persons engaged in public catering activities whose taxable transactions exceed 200,000 manats over a consecutive 12-month period and who pay the simplified tax at the rate of 8 percent have total taxable transactions not exceeding 100,000 manats over the previous full 12 calendar months and have operated under this regime for at least one year, they may at any time apply to continue their activities as payers of the simplified tax at the rate of 2 percent or as payers of income (profit) tax.