Azerbaijani SMEs to get boost in 2016

By: Nigar Orujova

Business entities are the driving force of the real sector of any economy and this area is of particular importance in Azerbaijan, an energy-rich nation that targets developing non-oil sector.

The main incentive to encourage the real sector under the unstable financial situation reigning in the world is to relief it from burdens.

The country’s government has introduced privileges for entrepreneurs in the form of simplifying licensing procedures for entrepreneurship and encouraging business transparency.

A reduction in the tax burden has turned to be another important step in this direction. President Ilham Aliyev has recently approved the amendments to the Tax Code providing simplification of taxation in a number of small and medium business, namely in the construction, trade sectors, catering.

Bulk of these amendments provides for the expansion of the rights of taxpayers, reducing the tax burden, improving tax administration and increasing tax revenues to the state budget by tightening measures against tax evaders.

Given today’s realities, this decision can be very useful as SMEs are now not only able to flexibly adapt to the market and actively shape the market environment, but also gain economic benefits. They can more easily upgrade the production, respond to changing market conditions, and contribute to the expansion of employment.

What can SMEs expect as their ‘New Year gift’?

Firstly, the updated procedures will increase the number of taxpayers using simplified taxation. If earlier the volume of taxable transactions exceeded 120,000 manat ($114,231) with imperative registration for VAT per month, this amount will be up to 200,000 manat ($190,386) the next year.

In addition, the order of cancellation of registration for VAT will change. This will be possible if the total amount of taxable operations of the taxpayer within 12 calendar months did not exceed 100,000 manat ($95,193), whilst now it is 60,000 manat ($57,116).

Thus, from now on companies with turnover of up to 200,000 manat ($190,386) will benefit from a simplified tax system, providing for the payment of 4 percent in tax with turnover registered in Baku and two percent outside of the capital.

Legal entities using simplified tax system are exempt from VAT, income tax and property tax, and individuals do not pay VAT and income tax.

Small and medium-sized enterprises represented as objects of trade and public catering will have an advantage to pay using simplified tax system next year regardless of the size of their turnover.

New simplified tax rates applied in this segment will be 6 percent for entrepreneurs engaged in trading activities, and 8 percent for entrepreneurs engaged in catering.

The taxation in the sphere of housing development will also be simplified from 2016. Legal entities and individuals engaged in housing construction in Azerbaijan will receive the right to be the payers of simplified tax from the next year.

In addition, taxes applied for the sale of real estate will be reduced by several times. Beginning from next year, individuals selling their residential and non-residential areas will pay the simplified tax, which is defined as a fixed rate at 15 manat ($14) per square meter.

Meanwhile, sales of residential areas, where owner remained registered in the last five years, are exempt from taxation.

Space industry will also enjoy new opportunities beginning from 2016. Enterprises engaged in this field will be released from the payment of property tax to promote the development of space industry.

The list of taxpayers who are deprived of the right to use the simplified system of taxation include manufacturers of excisable goods, credit and insurance companies, investment funds, professional participants of the securities market, pawn shops, private pension funds, etc.

However, the year to come will bring not only benefits but also new disciplinary rules for entrepreneurs.

Fines for violations the rules applying cash calculations in the areas of trade and catering will be increased. The first penalty in a calendar year will increase from current 400 manat ($381) to 2,000 manat ($1,904), the second penalty will comprise 4,000 manat ($3,808), and the third will be 6,000 manat ($5,712).

By applying these steps, Azerbaijan expects not only to create new opportunities for growth and development of enterprises and expansion of production, but also provide additional tax revenues to the treasury in the amount of 316 million manat ($301 million), which will be very useful in the context of reducing oil revenues.