Tax Code: what may change in 2025

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A package of proposed amendments to the Tax Code for 2025 has been submitted to the relevant committees of the National Assembly. If approved, what changes can taxpayers expect in 2025? According to vergiler.az, the proposed amendments mainly focus on the following areas:

• supporting entrepreneurship and investment
• reducing the tax burden on businesses
• improving tax control mechanisms and tax administration
• enhancing the country’s position in international rankings

The source notes that these goals support Azerbaijan’s long-term economic development model based on sustainability, inclusion, and private initiative.

Support for business activity

The proposed changes include tax incentives aimed at strengthening cooperation between the public and private sectors. These measures are designed to:

• encourage business activity
• reduce the tax burden on companies
• improve the investment environment

The incentives mainly target investments in renewable or “green” energy projects. The expected outcomes include:

• reducing the long-term financial burden on the state
• lowering tariffs for consumers
• supporting local production through tax exemptions

Reduction of the tax burden

Another group of proposals includes tax benefits for sectors such as theatre, cinema, museums, and symphony orchestras. For example:

• 50 percent of VAT paid by individuals for services in these sectors through non-cash payments may be refunded
• 90 percent of profits earned by legally registered theatres, museums, symphony orchestras, film producers, and dubbing companies may be exempt from profit tax for 5 years
• land used by these entities may be exempt from land tax for 5 years
• royalty income from intellectual property rights may be exempt from tax for 5 years

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Proposed 75 percent tax relief

The draft amendments also include provisions related to a 75 percent tax exemption. Since January 1, 2024, individual entrepreneurs classified as micro businesses, with at least 3 employees and no social insurance debt, have been exempt from income tax on 75 percent of their business income.

The new proposal suggests expanding this benefit. It may apply to certain service sectors without requiring a minimum number of employees or social insurance conditions. Micro entrepreneurs with an annual turnover of up to 45,000 AZN may benefit from a 75 percent income tax exemption.

VAT-related incentives

Several proposals are aimed at improving transparency and increasing profitability through VAT benefits. These include:

• extending the VAT calculation method based on trade margin for agricultural product sales
• maintaining VAT exemptions for the import of equipment and materials by oil refineries
• exempting locally produced buses from VAT and also exempting the import of spare parts for production purposes, provided supporting documents are available
• introducing VAT refunds under a tax-free regime for medical services provided to foreigners and stateless persons to support medical tourism

Another proposal includes exempting management companies and operators in industrial parks from land and property tax.

Additional proposals include:

• exempting lease payments for land from VAT
• expanding the list of goods purchased from individuals not registered as taxpayers that can be treated as deductible expenses

Improving the investment environment

Further proposals focus on improving the investment climate, including:

• reducing withholding tax on the net profit of permanent establishments of non-residents
• exempting foreign trucks and transport vehicles from road tax for 2 years starting from January 1, 2025
• applying a zero VAT rate to shipbuilding and ship repair services provided to non-residents

There is also a proposal to exempt income earned from investing the funds of the State Social Protection Fund and the Unemployment Insurance Fund from profit tax.

Tax control and expansion of the tax base

Another set of proposals focuses on strengthening tax control and expanding the tax base. These include:

• amendments related to market supervision
• financial penalties for accepting cash payments in transactions involving precious metals, stones, cultural goods, and registered movable assets
• limiting the number of importers required to submit import data and improving administration in this area
  updating tax and social insurance incentives in life insurance savings

Improving tax administration

The proposals also include improvements in tax administration, such as:

• clarifying the taxation of shares traded on the stock exchange
• defining clearer rules for income and deductible expenses in the construction sector

Other planned updates include:

• reducing service time at tax service centers
• introducing electronic fixed receipts
• regulating voluntary VAT registration with retroactive effect for transport operators
• setting clear criteria for tax benefits and exemptions
• assigning tax agents responsibility for reporting and paying tax on rental income
• allowing certain taxpayers to access their electronic accounts using a username and password

Improving international rankings

Another group of expected changes relates to multinational companies and cross-border transactions. The proposals include mechanisms for submitting notifications by multinational groups, rules for controlled foreign transactions, and financial penalties for violations, including failure to provide transfer pricing information on time.

These points do not cover the entire scope of the proposed changes. The amendments to the Tax Code for 2025 are still in draft form and have been submitted to the National Assembly. Once the discussions are completed and final decisions are made, more detailed information will be provided.

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