Effective from 1 January 2019, the Cabinet of Ministers of the Republic of Azerbaijan approved with its resolution No. 56, dated February 18, 2019. These criteria determine the list of persons which are not entitled to apply income tax exemptions and social security payment reductions, which are available to the private sector entities.
Under the resolution, the following persons shall be deemed engaged in oil and gas activities:
i) SOCAR and its structural units and entities;
ii) contractors and legal entities operating under production sharing agreements (PSA), main pipeline and other similar agreements regardless of the type of activity;
iii) local and foreign subcontractors engaged in providing services to the legal entities specified in (i) and (ii):
for existing subcontractors – if annual revenue (excluding expenses) generated during the previous calendar year for the goods, works and services relate to the proceeds received from the above legal entities exceeds 50% of the total annual revenue of such subcontractor;
for newly subcontracts to be established during a year –a newly established subcontractor shall apply income tax benefits on wages from the beginning of the year until the month when they start to provide goods, work and services to the entities specified above. In case during a calendar year, the subcontractor who enters into a contract with the persons specified in (i) and (ii) above, and if the proportion of income under the same contractual arrangements exceeds 50%, upon which such subcontractor shall lose its income tax exemption rights.
iv) The resolution provides that legal entities and solo tax payers registered in Azerbaijan shall be considered non-state sector, save for the public legal entities established on behalf of the state, budget organizations, other legal entities and organizations financed from the state budget and other state-owned funds, as well as legal entities with 51 % or more shareholding and participation interest directly and indirectly owned by the state.
This article was prepared as general information by the attorneys of Baku Attorneys & Consultants (BAC), Azerbaijani law firm. BAC provides cutting-edge legal solutions for businesses in Azerbaijan. Please, reach us via www.batco.az for any questions.