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What taxes are withheld from service payments made to a non-resident?
A company exports goods to a foreign country. The transportation of the goods outside the territory of the Republic of Azerbaijan (logistics services) is carried out by a foreign logistics company (a non-resident). In this case, should the service fee paid to the non-resident be subject to withholding tax and VAT? If there is a valid Double Taxation Avoidance Agreement (DTAA) between the Republic of Azerbaijan and the country where the foreign company is a resident, is it possible to apply a tax exemption or a reduced tax rate?
According to the State Tax Service under the Ministry of Economy, Article 13.2.33 of the Tax Code defines international transportation as the transportation of cargo, passengers, baggage, and mail by various means of transport, based on transport documents, between a point of departure (destination) in Azerbaijan and a destination (departure) point in another country.
Furthermore, under Article 125.1.4 of the Tax Code, payments made by a resident enterprise or entrepreneur for communication or transportation services provided in connection with international communications or international transportation between Azerbaijan and other countries are subject to 6% withholding tax. However, payments for transportation between departure and destination points located outside Azerbaijan, as well as transit transportation through the territory of Azerbaijan, are not subject to taxation under this provision.
Accordingly, payments made to a non-resident for the above-mentioned transportation services are subject to 6% withholding tax, which must be remitted to the state budget.
In addition, pursuant to Article 165 of the Tax Code, international transportation services are subject to 0% VAT.
According to Clause 5.1 of the Rules on the Administration of International Agreements on the Avoidance of Double Taxation, if the applicable international agreement provides for a tax exemption or a reduced tax rate on income derived by a non-resident from sources in Azerbaijan, the non-resident may apply for such exemption or reduced rate by submitting the DTA-03 Application Form, either electronically or in paper form, to the tax authority where the income payer is registered.
Legal basis: Articles 13, 125, and 165 of the Tax Code.
A company exports goods to a foreign country. The transportation of the goods outside the territory of the Republic of Azerbaijan (logistics services) is carried out by a foreign logistics company (a non-resident). In this case, should the service fee paid to the non-resident be subject to withholding tax and VAT? If there is a valid Double Taxation Avoidance Agreement (DTAA) between the Republic of Azerbaijan and the country where the foreign company is a resident, is it possible to apply a tax exemption or a reduced tax rate?
According to the State Tax Service under the Ministry of Economy, Article 13.2.33 of the Tax Code defines international transportation as the transportation of cargo, passengers, baggage, and mail by various means of transport, based on transport documents, between a point of departure (destination) in Azerbaijan and a destination (departure) point in another country.
Furthermore, under Article 125.1.4 of the Tax Code, payments made by a resident enterprise or entrepreneur for communication or transportation services provided in connection with international communications or international transportation between Azerbaijan and other countries are subject to 6% withholding tax. However, payments for transportation between departure and destination points located outside Azerbaijan, as well as transit transportation through the territory of Azerbaijan, are not subject to taxation under this provision.
Accordingly, payments made to a non-resident for the above-mentioned transportation services are subject to 6% withholding tax, which must be remitted to the state budget.
In addition, pursuant to Article 165 of the Tax Code, international transportation services are subject to 0% VAT.
According to Clause 5.1 of the Rules on the Administration of International Agreements on the Avoidance of Double Taxation, if the applicable international agreement provides for a tax exemption or a reduced tax rate on income derived by a non-resident from sources in Azerbaijan, the non-resident may apply for such exemption or reduced rate by submitting the DTA-03 Application Form, either electronically or in paper form, to the tax authority where the income payer is registered.
Legal basis: Articles 13, 125, and 165 of the Tax Code.