Standards and Procedures for Deducting Representation Expenses Employees from Income for Taxation Purposes

Approved by Decision No. 492, dated November 22, 2024, signed by the Prime Minister of the Republic of Azerbaijan, Ali Asadov.

The “Standards and Procedures for Deducting Representation Expenses, Employee Housing and Meal Expenses, as well as Expenses Related to Preventive and Treatment Meals, Milk, and Equivalent Products for Workers in Hazardous and Underground Work Conditions from Income for Taxation Purposes” have been adopted.

Firstly, it should be noted that these rules were prepared based on Article 119.2 of the Tax Code of the Republic of Azerbaijan.

How are the respective norms determined under these standards and procedures?

We divide these rules into three sections:

1. Standards and Procedures for Deducting Meal Expenses of Employees, Including Preventive and Treatment Meals, Milk, and Equivalent Products for Workers in Hazardous and Underground Work Conditions from Income for Taxation Purposes

This section regulates standards in three directions. Each will be explained with examples:

Section 2.1.1: Preventive and Treatment Meals Based on subsection 2.1.1 of these rules, the daily expense standard for deducting preventive and treatment meals, milk, and equivalent products for workers in hazardous and underground work conditions from income is set at 5 AZN per employee.

Example:
There are 20 workdays in a month, and an employee worked the full 20 days. The company set the daily standard at 9 AZN. Thus, the company pays 20 × 9 = 180 AZN per employee. However, only the amount determined by the standards (20 × 5 = 100 AZN) can be deducted from income for taxation purposes. The remaining portion (180 − 100 = 80 AZN) cannot be deducted.

• Note: According to subsection 2.3, the norm determined in subsection 2.1.1 is added to the norms specified in subsection 2.1.3.
• Note: This amount was previously set at 2 AZN.

Section 2.1.2: Meal Expenses for Maritime Crews
Under subsection 2.1.2, the daily deductible meal expense standard for maritime crew members is 25 AZN per employee for ships operating in the Caspian Sea and 25 USD per employee for ships operating outside the Caspian Sea.

Example:
For 20 workdays, a company sets daily expenses at 30 AZN for the Caspian Sea and 30 USD for outside the Caspian Sea. The deductible amounts are (20 × 25 = 500 AZN) for the Caspian Sea and (20 × 25 = 500 USD) for outside the Caspian Sea. The excess amounts (600 − 500 = 100 AZN/USD) cannot be deducted.

• Note: When applying the norms specified in subsection 2.1.2, the norms specified in subsection 2.1.3 do not apply.
• Note: This amount was previously set at 15 AZN/USD.

Section 2.1.3: Meal Costs Paid to Employees
When meal costs are directly paid to employees, the daily deductible standard is 5 AZN. If provided by the employer or purchased from a catering service provider, it remains at 5 AZN.

Example:
For 20 workdays, an employer pays 9 AZN per day per employee, totaling 180 AZN. Only 100 AZN can be deducted (20 × 5 = 100 AZN), while the remaining 80 AZN cannot.

Conditions for Deducting Meal Expenses:

• Paid non-cash directly to the employee.
• Meal preparation is ensured by the employer, with purchases documented as per the Tax Code.
• Purchased from a catering service provider with an e-invoice.
• Note: Expenses for meals on non-working days, such as leave or business trips, are not deductible.

2. Housing Expenses for Employees
   Based on subsection 3.1, 50% of annual housing expenses (rent of residential apartments and individual houses) incurred by the employer for employees can be deducted from income for taxation purposes, provided it does not exceed 1% of the annual income.

Example:
If an employee’s rent is 400 AZN, and the company covers this expense, 50% of the amount, i.e., 200 AZN, can be considered deductible from income for taxation purposes.

3. Representation Expenses
   50% of the annual representation expenses incurred by the taxpayer can be deducted, provided they do not exceed 1% of the annual income.

Representation expenses include:

• Costs related to hosting guests: visa-related services, transportation, accommodation, meals (breakfast, lunch, dinner, banquets), and beverages (tea, coffee).
• Translation services for events and the purchase of souvenirs.
• Note: Representation expenses do not include costs for entertainment, recreation, or medical treatments.

Reference: 

https://e-qanun.az/framework/58311

https://www.taxes.gov.az/az/page/ar-vergi-mecellesi (Article 119.2 of the Tax Code)