Corporate social responsibility expenses are newly accepted as deductible expenses in Azerbaijan. Unlike charity and non-commercial spendings, the expenses falling under the criteria defined by the Cabinet of Ministers would qualify as tax-deductible expense.

 

Corporate social responsibility and tax regulations in Azerbaijan 

 

“The Criteria of enterprises, institutions and organizations operating in the fields of science, education, health, sports and culture for the purposes of tax exemption in accordance with Article 106.1.18 of the Tax Code of the Republic of Azerbaijan” were approved by the Decree of the Cabinet of Ministers of the Republic of Azerbaijan dated March 12, 2020.

According to Article 106.1.18 of the Tax Code of the Republic of Azerbaijan, except for the legal entities which 51 percent or more of the shares (stocks) belong directly or indirectly to the state and public legal entities established on behalf of the state, the part of the profit of taxpayers (not exceeding 10 percent of the profit of the taxpayer for the reporting year) that is transferred to enterprises, institutions and organizations operating in the fields of science, education, health, sports and culture meeting the criteria defined by the Cabinet of Ministers of Azerbaijan Republic, is exempt from income tax for a period of 10 years from January 1, 2019.

According to the Decree, transfers made to enterprises, institutions and organizations that meet the following criteria are exempt from income tax:

1. In the field of science- Accreditation in accordance with the requirements of the legislation, to conduct research on the main priorities of state policy in the relevant field of science, and to have at least 5 academic researchers ;
2. In the field of education- to be subordinated to state bodies, public legal entities established on behalf of the state, and legal entities which 51 percent or more of the shares (stocks) belong directly or indirectly to the state, and (or) to obtain a license in accordance with the requirements of the legislation (meeting one of the mentioned criteria is sufficient);
3. In the field of health- to be a medical institution included in the state health care system, and to use the transferred funds for the purposes of financing the expenses related to the protection of the health of the population in the areas of activity provided for in the charter;
4. In the field of sports- sports federations (associations) or sports clubs established in the form of public associations in accordance with the requirements of the legislation, and to use the transferred funds for the purposes specified in the constitutional documents of sports federations (associations) or sports clubs;
5. In the field of culture- legal entities that organize art and artistic events, competitions, exhibitions, art evenings, cultural and art presentations, festivals, conferences and symposiums, prepare and distribute publications, as well as produce films for the purpose of promotion and development of Azerbaijani culture and national cultural heritage (excluding commercial entities) and (or) to operate as a theater, library or museum (meeting one of the mentioned criteria is sufficient).

It should be noted that payments made by legal entities to enterprises, institutions and organizations that meet the above-mentioned criteria are exempt from income tax only if they are transferred cashless via a bank account and the purpose of the payment is specified in the document.

According to the Decree, the enterprise, institution or organization receiving the payment shall provide the transferor with documents confirming that the funds received have been spent for their intended purpose (sale agreements, acts of acceptance, payment orders, bank statements, etc.) within 1 month after the end of the reporting year