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Is transportation service provided abroad subject to VAT?
Is transportation service provided abroad subject to VAT?
Recently, there has been an increase in transportation (transfer) services provided abroad by resident taxpayers to individuals and legal entities using vehicles. In other words, resident entrepreneurs enter into contracts with non-residents and transport employees of legal entities, individuals, and citizens from one location to another outside the country. They receive service fees for these activities. The question arises: are such incomes subject to VAT? Should the resident service provider indicate a zero VAT rate in the issued electronic invoice?
The questions are clarified by expert Altay Jafarov.
To find answers, we should refer to the provisions of the Tax Code that regulate the application of the zero VAT rate. These issues are governed by Articles 159 and 168 of the Code.
According to Article 159.2 of the Tax Code, except for operations exempt from tax, the supply of goods, performance of works, and provision of services within independent entrepreneurial activity or joint activity without establishing a legal entity are considered taxable transactions if they are carried out within the territory of the Republic of Azerbaijan in accordance with Articles 167 or 168. According to Article 168, services performed or works carried out outside the territory of Azerbaijan are not considered taxable transactions.
Therefore, under Article 159, services are subject to VAT only if they are provided within Azerbaijan. If the service is provided outside the country, it is considered a non-taxable transaction for VAT purposes.
However, there are certain operations that are considered subject to 18% VAT even if they are performed outside the country. For example, services provided by a non-resident to a resident may still be subject to VAT.
This issue is regulated by Article 168.1.5 of the Tax Code. If transfer services were included in this article, they would be subject to 18% VAT even if provided abroad. However, a review of the article shows that transfer services are not included in this list.
Therefore, regardless of whether the service is provided to a resident or non-resident, transfer services performed outside the territory of Azerbaijan and not included in Article 168.1.5 are considered non-taxable for VAT purposes.
When residents provide transfer services abroad, the issued electronic invoice should indicate the service under “non-VAT taxable transactions.” At the same time, it should be reflected in line 328 of the VAT return.
Recently, there has been an increase in transportation (transfer) services provided abroad by resident taxpayers to individuals and legal entities using vehicles. In other words, resident entrepreneurs enter into contracts with non-residents and transport employees of legal entities, individuals, and citizens from one location to another outside the country. They receive service fees for these activities. The question arises: are such incomes subject to VAT? Should the resident service provider indicate a zero VAT rate in the issued electronic invoice?
The questions are clarified by expert Altay Jafarov.
To find answers, we should refer to the provisions of the Tax Code that regulate the application of the zero VAT rate. These issues are governed by Articles 159 and 168 of the Code.
According to Article 159.2 of the Tax Code, except for operations exempt from tax, the supply of goods, performance of works, and provision of services within independent entrepreneurial activity or joint activity without establishing a legal entity are considered taxable transactions if they are carried out within the territory of the Republic of Azerbaijan in accordance with Articles 167 or 168. According to Article 168, services performed or works carried out outside the territory of Azerbaijan are not considered taxable transactions.
Therefore, under Article 159, services are subject to VAT only if they are provided within Azerbaijan. If the service is provided outside the country, it is considered a non-taxable transaction for VAT purposes.
However, there are certain operations that are considered subject to 18% VAT even if they are performed outside the country. For example, services provided by a non-resident to a resident may still be subject to VAT.
This issue is regulated by Article 168.1.5 of the Tax Code. If transfer services were included in this article, they would be subject to 18% VAT even if provided abroad. However, a review of the article shows that transfer services are not included in this list.
Therefore, regardless of whether the service is provided to a resident or non-resident, transfer services performed outside the territory of Azerbaijan and not included in Article 168.1.5 are considered non-taxable for VAT purposes.
When residents provide transfer services abroad, the issued electronic invoice should indicate the service under “non-VAT taxable transactions.” At the same time, it should be reflected in line 328 of the VAT return.