Amendments to the Tax Code

The Amendment Law became effective as of 1 January 2020, and brought significant changes regarding the VAT provisions of the tax code.

1. Previously required electronic tax invoicing for VAT purposes was abolished, and currently available electronic invoicing will be used for both billing (tax invoicing) and VAT purposes.

2. Application of a single approach to VAT calculation and payment was introduced. It should be noted that two methods (cash and accrual) were used for the timing of VAT operations. With effect from January 2020, only the cash method will be used for the timing of VAT operations. According to the Amendment Law, the time of the taxable transaction is the time of payment made for the goods (works and services). The payment shall be deemed as carried out as follows:

(a) cash payment – at the time when cash is received;

(b) non-cash payment – at the time when the money is received in bank account;

(c) offset transaction – at the time when the obligation is discharged or paid;

(d) barter transaction – at the time when the asset is acquired/bartered;

(e) gratuitous alienation – at the moment of such an alienation;

(f) assignment of claims – at the moment of such an assignment;

(g) prepayment – at the time of prepayment. It is not permitted to issue an electronic invoice on advance payments.

3. The following new items were included in the list of VAT exemption operations:

(a) turnover on sales of feed and feed supplements used in animal breeding and poultry farms – for four (4) year period starting from 1 January 2020;

(b) provision of residential and non-residential areas of buildings allocated to state ownership;

(c) sale of goods, performance of works and provision of services on the basis of an agreement concluded with a competent body (established by the relevant executive authority) in connection with Formula 1 and Formula 2 competitions held in the Republic of Azerbaijan – for six (6) year period starting from 1 January 2018;

(d) leasing of aircraft or aircraft engines from non-residents (who have no permanent establishments in Azerbaijan) to resident companies in the field of civil aircraft activity;

(e) provision of medical insurance services at the expense of mandatory medical insurance fund – for one (1) year period starting from 1 January 2020.

4. A definition of “non-commodity transaction” was included in the tax code. Non-commodity transaction shall mean a transaction disclosed in the course of tax inspection, concluded for the purpose of concealing another transaction and generating profit without the actual provision of goods, works and services. According to the Amendment Law, non-commodity transaction documents cannot serve as a basis for a VAT refund.