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How are services provided to foreign individuals taxed?
If my income from design services is received from foreign individuals, should I register as a simplified tax payer or as an income tax payer?
According to the State Tax Service under the Ministry of Economy, pursuant to Article 97.1 of the Tax Code, the income of a resident taxpayer consists of income earned both within the Republic of Azerbaijan and outside the Republic of Azerbaijan.
The activity referred to in your inquiry is considered entrepreneurial activity. According to Article 33.4 of the Tax Code, an individual carrying out entrepreneurial activity without establishing a legal entity must register with the tax authority before starting the activity (obtain a TIN/VÖEN) and pay tax on the income earned to the state budget.
To register for tax purposes, you may submit an "Application for Registration of an Individual" to the tax authority. Registration is carried out free of charge at ASAN xidmət centres, and in cities and districts where such centres are not available, at taxpayer service centres.
Tax obligations depend on the taxation system selected when registering and on the tax objects that arise, and may include simplified tax, income tax, and VAT.
If the individual chooses the simplified taxation system, simplified tax is calculated at a rate of 2% on income from trading activities (gross turnover), without deducting expenses, and paid to the state budget.
However, the right to be a simplified taxpayer is retained if, during a quarter, the volume of transactions that must be documented by electronic invoices—including the value of services and works provided on the basis of invoices to non-resident legal entities and non-resident individuals engaged in entrepreneurial activities—does not exceed 30% of the total volume of transactions related to the provision of services and performance of works, excluding non-operating income.
If the activity is carried out as an income tax payer, income tax is calculated at a rate of 20% on the amount remaining after deducting expenses related to earning that income.
It should also be noted that, pursuant to Article 102.1.30 of the Tax Code, individual entrepreneurs who are micro-entrepreneurship entities, have an average annual number of employees of at least three, and have no outstanding mandatory state social insurance contributions are entitled to a 75% tax relief on income earned from entrepreneurial activities.
In addition, as of January 1, 2025, if the annual income earned by individuals engaged in the types of activities specified in Article 102.1.30-1 of the Tax Code does not exceed AZN 45,000, excluding expenses, 75% of such income is exempt from income tax.
Since tax obligations arising from any transaction depend directly on the primary documents related to the transaction, the nature of the work, and the taxpayer's activities, it is recommended to contact the relevant tax authority for detailed information on taxation, providing a full description of the nature of the transactions, primary documents, and detailed information about the taxpayer's activities.
Legal basis: Articles 33.4, 102.1.30, 102.1.30-1, and 220 of the Tax Code.
If my income from design services is received from foreign individuals, should I register as a simplified tax payer or as an income tax payer?
According to the State Tax Service under the Ministry of Economy, pursuant to Article 97.1 of the Tax Code, the income of a resident taxpayer consists of income earned both within the Republic of Azerbaijan and outside the Republic of Azerbaijan.
The activity referred to in your inquiry is considered entrepreneurial activity. According to Article 33.4 of the Tax Code, an individual carrying out entrepreneurial activity without establishing a legal entity must register with the tax authority before starting the activity (obtain a TIN/VÖEN) and pay tax on the income earned to the state budget.
To register for tax purposes, you may submit an "Application for Registration of an Individual" to the tax authority. Registration is carried out free of charge at ASAN xidmət centres, and in cities and districts where such centres are not available, at taxpayer service centres.
Tax obligations depend on the taxation system selected when registering and on the tax objects that arise, and may include simplified tax, income tax, and VAT.
If the individual chooses the simplified taxation system, simplified tax is calculated at a rate of 2% on income from trading activities (gross turnover), without deducting expenses, and paid to the state budget.
However, the right to be a simplified taxpayer is retained if, during a quarter, the volume of transactions that must be documented by electronic invoices—including the value of services and works provided on the basis of invoices to non-resident legal entities and non-resident individuals engaged in entrepreneurial activities—does not exceed 30% of the total volume of transactions related to the provision of services and performance of works, excluding non-operating income.
If the activity is carried out as an income tax payer, income tax is calculated at a rate of 20% on the amount remaining after deducting expenses related to earning that income.
It should also be noted that, pursuant to Article 102.1.30 of the Tax Code, individual entrepreneurs who are micro-entrepreneurship entities, have an average annual number of employees of at least three, and have no outstanding mandatory state social insurance contributions are entitled to a 75% tax relief on income earned from entrepreneurial activities.
In addition, as of January 1, 2025, if the annual income earned by individuals engaged in the types of activities specified in Article 102.1.30-1 of the Tax Code does not exceed AZN 45,000, excluding expenses, 75% of such income is exempt from income tax.
Since tax obligations arising from any transaction depend directly on the primary documents related to the transaction, the nature of the work, and the taxpayer's activities, it is recommended to contact the relevant tax authority for detailed information on taxation, providing a full description of the nature of the transactions, primary documents, and detailed information about the taxpayer's activities.
Legal basis: Articles 33.4, 102.1.30, 102.1.30-1, and 220 of the Tax Code.