One of the most important questions that everyone asks before starting any business is "What will be my profit or profit here?" is a question. We are sure that everyone who finds the answer to this question is wondering what interest rate and amount of tax should be paid on the profit at the next stage, as well as whether there are any exemptions. In this article, we will inform you about profit, profit tax and its calculation.
What is profit and gains tax?
Profit is the difference between the income of any enterprise and the expenses deducted from the income. Profit tax is a type of tax calculated by multiplying that profit by the interest rate determined in accordance with the tax legislation of the Republic of Azerbaijan. Tax-exempt income is not included in this tax. At the same time, let's note that there is an accounting profit and a tax profit. Income and expenses of accounting profit are determined by accounting standards, income and expenses that determine tax profit are determined by AR tax legislation.
How is the income tax calculated?
A legal entity registered as an income tax payer must pay income tax at the rate of 20 percent of the difference between the profit it has earned during the year and the expenses it has incurred from obtaining its income. We can express this in a simplified form by the following formula:
Income tax = (Revenues-Expenses) x Tax rate.
Let's explain on such an example:
An enterprise received 180,000 manat income for 2023. The costs are 100,000 manats. Then the profit will be = 180,000 -100,000 = 80,000 manats.
According to Article 106 of the AR Tax Code on Exemptions and Concessions, the part of certain profits determined by law is exempt from profit tax. In the above example, 75 % of the profit obtained due to micro-entrepreneurial activity is exempted from tax. This time:
80,000 x 75% = 60,000 manats
Taxable portion:
80,000-60,000 = 20,000 manats
20,000 x 20% = 4,000 manats
The profit tax of the enterprise is 4,000 manats.
The cost of profit tax depends on the financial result of the enterprise.
In the Republic of Azerbaijan, non-resident and resident enterprises, as well as non-commercial organizations that receive income from entrepreneurship are also considered payers of profit tax.
Taxation of non-resident's income from Azerbaijani source and non-resident's permanent representation on the territory of Azerbaijan
The non-resident's income, which is defined as the income obtained from the Azerbaijani source and does not belong to the permanent representation of the non-resident in the territory of the Republic of Azerbaijan, is taxed without deducting the expenses at the source in the following manner:
- Dividend – at the rate of 10 % from the payment source.
- Interests - resident to an individual, to a permanent representation of a non-resident individual in AR and to a non-resident without a permanent representation in AR, from interest paid by a resident or non-resident permanent representative office or on behalf of such representative office, as well as from loan interest paid on financial leasing operations, (if the income is obtained from an Azerbaijani source) at the rate of 10 % from the source of payment, taking into account the discount provided by law
- Insurance payments according to the contract on insurance and reinsurance of the resident enterprise or the entrepreneur – in the volume of 4%
- Payments of the resident enterprise and entrepreneur for communication or transport services when other interstate international communication or international transportation is carried out with the Republic of Azerbaijan – in the volume of 6%
- Excluding the income specified in Articles 125.1.1 - 125.1.4, 125.1.6 - 125.1.8 and 125.1-1 of the Tax Code, from the provision of services or the performance of works by legal entities and natural persons who are tax payers payments on received incomes and other incomes received from Azerbaijani sources – in the volume of 10%
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Income paid by resident enterprise and entrepreneur in connection with wage employment
| Monthly taxable income | Tax rate |
| Up to 8000 manats | 0% |
| More than 8000 manats | 14% of the part over 8000 manats |
- Rents and royalties - If the income from rent for movable and immovable property, as well as royalty paid by or on behalf of the resident and non-resident's permanent representation in the Republic of Azerbaijan, is received from an Azerbaijani source - in the amount of 14% from the source of payment
- From lotteries, sports betting and other contests and competitions from the amount remaining after deducting the money paid for participation from the prizes obtained in the form of money - at the rate of 10%
To sum up what has been said, the profit tax related to legal entities is paid in full to the state budget, and the profit tax of municipally owned organizations and enterprises is paid to the municipal budgets. At the same time, there are various exemptions and concessions defined by legislation. You can get detailed information about this by getting acquainted with the provisions specified in Article 106 of the AR Tax Code.
Macis Consulting as a company, we provide a number of services to business owners who want to operate both as an individual entrepreneur and as a legal entity. Our company has been providing its business partners with both forms of business creation, accounting services, audit and legal process services for years. Contact us get all the accounting, financial and legal services your business needs.
