Taxation of e-commerce in Azerbaijan: new regulations for non-residents

 

Taxation of e-commerce

 

As a general rule under the Tax Code of Azerbaijan, business to business e-commerce is subject to Azerbaijani VAT (18%) where the payer of the e-commerce (e-trade) services is Azerbaijani resident taxpayer. In such cases, it is incumbent upon the resident taxpayer to withhold and pay relevant VAT on behalf of the non-resident e-commerce service provider. Corporate income tax obligations of a non-resident would arise in case where permanent establishment is deemed as created. 

 

However, where the payer is an individual person, i.e. consumer, in such cases, the newly adopted rules enable non-residents register online and pay their VAT for e-commerce obtained by Azerbaijani consumers (business to consumer e-commerce provided by non-residents). Where non-resident does not register online and pay VAT, the relevant bank shall act as the tax agent on behalf of the consumer and withhold VAT.

 

The Rules of "Electronic tax registration, re-registration and de-registration of a non-resident who carries out electronic trade through the Internet information resource" (“Rules”), which are effective from 1 November 2023, define the organizational and legal basis for electronic tax registration, re-registration and de-registration of a non-resident who conducts electronic trade through the Internet and earns income from selling services to residents in the form of electronic commerce.

 

For the purposes of the Rules, which is applicable with regard to VAT only, a non-resident who carries out electronic commerce via the Internet means a seller of services via the Internet, including downloading electronic books, music, audio and video materials, graphic images, virtual games, software, placing advertisements, and other similar works and services and this person acts as a (supplier) is not covered by the concept of resident is meant.

 

The Rules have been prepared in accordance with the Tax Code, and the terms used in the Rules have the meanings defined by the Tax Code and other normative legal acts.

 

Non-residents conducting electronic trade are registered electronically for VAT purposes (hereinafter - tax registration).

 

However, non-residents operating through a permanent establishment are not covered by the regulations.

 

Simplified registration of non-resident e-commerce service provider

 

A tax declaration is submitted by a non-resident if any of the following conditions are met by a non-resident for the services provided for the purposes of the Rules:

 

• when the resident person receiving the services makes the payment through a local bank located in the Republic of Azerbaijan, a branch of a foreign bank in the Republic of Azerbaijan, a national operator of postal communication or other payment service providers;

• when the resident person receiving the services is located in the Republic of Azerbaijan;

• when the IP address of the device used by the resident receiving the services to receive the services is located in the Republic of Azerbaijan;

• if the country code of the mobile operators used by the resident person to purchase the services or make the payment belongs to the Republic of Azerbaijan.

 

According to the Rules, the provision of works and services for VAT purposes by a registered non-resident person is not subject to withholding tax by the tax agent (recipient of the service) and the tax liability arising from these transactions is calculated and paid by the non-resident in accordance with the Tax Code.

 

 

Tax registration of a non-resident

 

For tax registration, a non-resident enters the following information and documents into the platform of the State Tax Service for the tax administration of e-commerce participants (hereinafter - the platform):

• full name;

• the name of the country of residence;

• legal address and actual address of the head office, postal code;

• website (if available);

• e-mail address;

• the number of the registration (incorporation) document in the state of registration;

• tax registration number in the country of registration;

• main field of activity (fields);

• currency in which tax payment will be made; (manat, US dollar, euro or pound sterling);

• The date on which he will start working as a registered person in the tax authority of the Republic of Azerbaijan;

• data of at least 2 (two) persons responsible for fulfilling tax obligations (surname, first name, patronymic, position, e-mail address and contact phone number).

 

Electronic copies of the following supporting documents are attached on the platform (the correctness of the mentioned documents is checked by the State Tax Service using information from known sources, international databases and information obtained within the framework of international agreements):

• registration (incorporation) or tax accounting document in the state where the non-resident is registered;

• a document confirming the appointment of a responsible person (decision, employment contract, etc.).

 

Changes in account information are made based on the request of a non-resident. Data and documents entered by a non-resident are checked for compliance with this Regulation within 20 (twenty) working days using databases available in tax authorities. A non-resident person is registered if the information and documents meet the requirements and the specified refusal cases are not detected.

 

When registering a non-resident by the State Tax Service, he is given a TIN. The given TIN is sent to the e-mail address of the non-resident and the non-resident is informed about it through the platform. To access the platform, a non-resident is automatically provided with a login and password.

 

Registration of a non-resident is refused in the following cases:

• when performing activities prohibited by law;

• when incorrect and (or) distorted information is found in the submitted documents and information;

• Non-resident for the purposes of the rules, operating through a permanent establishment, failing to meet the requirements for accounting information and supporting documents.

 

Re-registration and de-registration of a non-resident for VAT purposes

 

A non-resident is deregistered in the following cases:

• if the non-resident does not submit the tax declaration within 30 (thirty) working days after the notification of the tax authority that he did not submit the tax declaration within the period specified by the Tax Code;

• if the non-resident does not fulfill the tax obligation within 30 (thirty) working days after the notification of the tax authority that he did not submit the tax obligation within the period specified by the Tax Code;

• when the tax authority receives a non-resident's request for deregistration;

• when the activity of a non-resident is terminated;

• when incorrect and (or) distorted information is later discovered in the information and documents provided by the non-resident during the application for tax registration.

 

Except for the termination of the activity of the non-resident, a non-resident who was removed from registration in other cases is re-registered upon reapplying in accordance with this Rule (provided that after re-registration, the previous obligations are fulfilled by the non-resident).

 

The tax liability arising after the deregistration of a non-resident is fulfilled in accordance with Article 169.3 of the Tax Code. That is, after the non-resident is removed from the tax records, the resident person who received services from him fulfills his tax obligations as a tax agent of the non-resident.

 

Submission of VAT Declaration

 

The rules define 2 obligations for a non-resident:

• Submit a VAT declaration and pay taxes within the period specified by the Tax Code;

• to apply to the tax authority within 20 (twenty) working days from the date of such change, when there is a change in the information entered into the platform about it during tax accounting.

 

The non-resident is responsible for the correctness of all documents and information submitted by him, as well as documents and information changed (updated) after submission.

 

Confidentiality of data

 

Information obtained from non-residents is considered a commercial and (or) tax secret and may be used only for taxation purposes. The following information is an exception:

• disclosed with the consent of the taxpayer;

• about the identification number of the taxpayer and the accounting code of the business entity (object);

• about the authorized fund (authorized capital) of the enterprise;

• about violations of tax legislation and measures of responsibility for these violations.

• arrears on taxes, compulsory state social insurance, unemployment insurance and compulsory health insurance fees, interest and financial sanctions.

• information in the state register of legal entities (with the exception of information about the founders (participants) of commercial legal entities and their shares in the authorized capital).

• on whether the taxpayer is registered for VAT purposes;

• on whether the taxpayer is a risky taxpayer;

• on whether the taxpayer's entrepreneurial activity or other taxable transactions have been suspended or not;

 

Payment of VAT and enforcement

 

The provisions of the tax legislation of the Republic of Azerbaijan are applied regarding the collection of tax debts from non-residents.

 

If there is a bilateral international agreement between the state where the non-resident is a resident and the Republic of Azerbaijan regulating the collection of tax debts or a multilateral international agreement to which both states have joined, the collection of tax debts from those non-residents is carried out according to the provisions of the relevant international agreements.

 

Documentation requirements

 

Confirming documents entered into the platform for tax registration by a non-resident are submitted with legalization by the Ministry of Foreign Affairs of the Republic of Azerbaijan or diplomatic missions and consulates of the Republic of Azerbaijan. (or the diplomatic mission of another country representing the interests of the Republic of Azerbaijan in that country)

 

However, if the country where the non-resident is a resident has joined the Hague Convention of October 5, 1961 " Abolishing the Requirement of Legalisation for Foreign Public Documents " and this Convention is applied between the Republic of Azerbaijan and that country, legalization of the submitted supporting documents is not required. In this case, the documents are apostilled by the Hague Convention competent authority of that country.

 

If the country where the non-resident is a resident has joined the Chisinau Convention of October 7, 2002 "On Legal Assistance and Legal Relations in Civil, Family and Criminal Matters" and this Convention is applied between the Republic of Azerbaijan and that country, the competent authority of that country, or documents issued by a person within the scope of his authority and certified with a seal are accepted without legalization and apostille.

 

If other international agreements to which the Republic of Azerbaijan and the country where the non-resident is a resident are parties, provide for rules different from the ones mentioned above, formalization of documents is carried out in accordance with those international agreements.

 

The mentioned supporting documents are submitted in Azerbaijani or English languages. If the documents or information are in another language, their certified translation into Azerbaijani or English must also be submitted.