Amendments and Additions to the Tax Code Related to Banking Activities

Amendments and additions have been made to the Tax Code of the Republic of Azerbaijan in relation to banking activities.

(The new amendments and additions have been effective since January 1, 2017)

1. When residents of the Republic of Azerbaijan transfer funds to an account created in an electronic wallet owned by non-resident individuals, the Bank executing the transaction shall withhold tax at the source at a rate of 10% of the transferred amount. (Tax Code Article 125.1-1.)

For example, if 100 AZN is deposited into a Skrill.com e-wallet using a Yapı Kredi Bank Azerbaijan card or via a transfer, a tax of 10% (i.e., 10 AZN) will be withheld, and a total of 110 AZN will be debited from the account. 

2. When legal entities and individual entrepreneurs withdraw funds in cash from their bank accounts, the Bank is obliged to withhold tax at the source at a rate of 1%. (Tax Code Article 150.3-3.) 

Exemptions: International organizations, diplomatic missions, specific taxpayers regulated by international treaties, and notaries. 

3. In cases where the buyer of works and services via electronic commerce, or a participant of lotteries, contests, or competitions organized electronically outside the Republic of Azerbaijan, is a person not registered with the tax authorities, the Bank executing the payment shall withhold and transfer 18% VAT to the state budget from the buyer’s funds. (Tax Code Article 169.3) 

A person not registered with the tax authorities refers to individuals other than legal entities and individual entrepreneurs. 

Example: If a service is purchased online using a Yapı Kredi Bank Azerbaijan card from a foreign website (excluding hotels, airline tickets, and transportation)—for instance, ads placed on Facebook—18% VAT will be withheld from the total amount. Thus, for a payment of 100 AZN, an additional 18% (18 AZN) VAT will be charged, and a total of 118 AZN will be deducted from the account. In addition, VAT does not apply when purchasing goods or physical items. 

4. Income (prizes) from lotteries, contests, and competitions: If such income is paid by resident legal entities and individual entrepreneurs, the payer is responsible for withholding tax at the source. If such income is paid by non-resident individuals without a permanent establishment in the Republic of Azerbaijan, the Bank where the recipient holds an account is obliged to withhold tax at the source. (Tax Code Article 150.1.11) 

5. As of February 1, 2016, for a period of 7 (seven) years, annual interest income paid by local banks or branches of foreign banks operating in the Republic of Azerbaijan on individual deposits, as well as dividends, discounts (the difference arising from bonds issued below nominal value), and interest income paid by the issuer on investment securities, are exempt from tax. (Tax Code Article 102.1.22)

For more details: http://www.taxes.gov.az/modul.php?name=pages&page=183