Profit Tax The tax rate is 27%. Taxable losses can be carried forward indefinitely for offset against future profits. Income and deductions are recognized according to the cash method of accounting. Profit is defined as income less deductions, where income includes both tariff income and other income. Tariff Income is cash received from tariffs for transport though the pipeline. Other income consists of other cash received by HGA participants. Deductions include all costs incurred during the year in connection with the project, within or outside of Azerbaijan. No tax applies to any subcontractor, to any payment to any entity established outside of Azerbaijan or to any individual who is not an employee of the payer. In addition, no tax applies to any payment made by an HGA participant, operating company or affiliate in reimbursement of costs incurred on behalf of the payer. Further, no income tax at the source of payment is required on payments of interest, dividends, royalties, service fees or other profit remittances.
Value Added Tax All goods and services sold to or imported by an HGA participant, contractor, operating company or shipper are exempt from VAT. The procedure for avoiding VAT is similar to that for PSAs: tax authorities will issue VAT exemption certificates to companies working on the HGA, and these certificates would absolve suppliers of the obligation to charge VAT on their supplies.
Employee Taxes Foreign employees are subject to tax only on income earned from employment in Azerbaijan and only if they spend more than 182 days in Azerbaijan during the year. Personal taxes apply only after the time in the year when an employee becomes subject to tax. Personal tax applies at the standard domestic tax rates. Foreign employees are not subject to social taxes. Local national employees are subject to all payroll taxes in Azerbaijan. As discussed above with respect to the statutory tax regime, these include personal income tax at graduated rates that reach a maximum of 35%. Employers are also required to pay for social insurance for employees who are citizens of Azerbaijan, and this results in a total burden of 22% of local gross payroll. The further 3% employee-paid social tax must be withheld from each employee’s salary.
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Economy Investment Guide