This decision was approved by Decision No. 383 of the Cabinet of Ministers of the Republic of Azerbaijan dated September 3, 2024. According to this decision, a list of over 90 fixed assets subject to leasing agreements that are exempt from VAT has been established.
Based on Article 164 of the Tax Code of the Republic of Azerbaijan, titled “Exemption from Taxation,” specifically subsection 164.1, the following provisions can be highlighted:
Article 164.1: Exemptions from VAT
Aside from the export of goods, the following types of supply, work, services, and imports are exempt from VAT:
- 1.2: Provision of financial services (including financial leasing services), including interest paid on financial leasing transactions.
- 1.2-1: Provision of assets (fixed assets) acquired within transactions exempt from or not subject to VAT under a financial leasing agreement.
- 1.25: Import of fixed assets subject to a leasing agreement.
Illustrative Examples
- Import of Fixed Assets:
A taxpayer imports fixed assets listed in the approved list. According to Article 164.1.25 of the Tax Code, these fixed assets under leasing agreements are exempt from VAT. Therefore, the taxpayer cannot impose VAT on the assets under the leasing agreement, as they fall under VAT-exempt operations.
- Leasing Transaction Example:
A taxpayer provides a vehicle worth 15,000 AZN to another party under a two-year leasing agreement. According to the terms of the leasing agreement, the taxpayer pays a monthly interest of 70 AZN. Based on Article 164.1.2 of the Tax Code, VAT should not be applied to the interest paid for financial leasing transactions. Consequently, the electronic invoice issued to the other party must classify the 70 AZN as a VAT-exempt transaction.
- Leasing of Fixed Assets Acquired Without VAT:
If a VAT payer (Person A) provides fixed assets under a leasing agreement to another party and these assets were acquired without VAT (e.g., from a non-VAT payer), then Person A, acting as the “lessor,” will not apply VAT to the leasing transaction. However, if Person A purchased the fixed assets with VAT applied, VAT will be imposed on the leasing transaction. Additionally, the interest amount arising from the leasing agreement will not be subject to VAT under Article 164.1.2 of the Tax Code.
Illustrative Scenario with a Chart:
Previously, when Company B acted as the “lessor” and acquired fixed assets with VAT applied from Company A, the following occurred:
Company A
Fixed Assets 10000
VAT 1800 (Can be offset)
Company B
Fixed Assets 10000
VAT 1800 (Can be offset)
Company C
Fixedd Assets 11800
No VAT
Changes in Legislation:
Under the revised regulations, Company C can now offset the 1,800 AZN VAT, reducing its tax burden.
Reference / List of Fixed Assets:
You can familiarize yourself with the list of assets approved by the Cabinet of Ministers of the Republic of Azerbaijan in its Decision No. 383 dated September 3, 2024, by following the link:
https://e-qanun.az/framework/57865#%C9%99lav%C9%99
Article 164 of the Tax Code:
https://e-qanun.az/framework/46948#_edn974
