Republic of Azerbaijan - Profit Tax

February 2006

Source: Ministry of Taxes of the Republic of Azerbaijan

Expenses connected with the generation of profit

All expenses connected with obtaining income, as well as mandatory payments stipulated under the legislation are deducted from such income, except for non-deductible expenses.

Non-deductible expenses

The following expenses are not deducted from income:

expenses incurred on the acquisition and installation of fixed assets as well as other expenses that are characterized as expenses incurred on capital;
expenses connected with non-commercial activity;
food and entertainment expenses, as well as housing and other social expenses of employees.

If the expenses of an enterprise whose entrepreneurial activity is of entertainment nature are incurred within the framework of such activity, expenses incurred on entertainment shall be deducted from the income.
No deduction is allowed with respect to the profit tax or any other tax calculated on profit which has been paid in the territory of the Republic of Azerbaijan or other countries, paid financial sanctions, as well as the actual travel expenses exceeding the limit.

Deductible expenses

Actual amount of interest on debts obtained from abroad, and also paid to each other by interconnected persons (when applying accrual method - amount of interest on payment), is deducted from the profit within the period for which interests are applied, at the same currency and at the amount not exceeding 125 percent of the average interest on inter-bank trade on credits with similar periods, or, if no trade was conducted - on inter-bank credits published by the National Bank of the Azerbaijan Republic;
doubtful debts connected with goods, works and services that have been realized where income from them was previously included in the gross income received from entrepreneurial activity;
amounts assigned by the banks and credit unions engaged in certain types of banking activities for establishment of special reserve funds in accordance with legislation depending on classification of assets;
amounts assigned by a legal entity engaged in insurance activity for establishment of reserve insurance funds within the norms established by the legislation of the Republic of Azerbaijan;
expenditures on research, project-research and experimental-design work conducted with the purpose of making profit (except for the expenditures on the acquisition of fixed assets, their installation and other expenses of a capital nature);
amortization charges for fixed assets;
insurance payments that are paid by insured parties under insurance agreements with the exception of insurance payments on property damage insurance to employees' favor, as well as life insurance made by foreign insurance organizations.

The amount of repair expenses to be deducted for each year is limited to the balance value as of the previous year-end for each category of fixed assets - 2 percent of remaining value of buildings, facilities and installations, 5 percent of remaining value of machinery, equipment, calculation technology and transport means, 3 percent of the remaining value of other assets at the year end, and zero (0) percent on main assets to which the depreciation is not accounted.
In the event when the actual amount of repair expenses is less than the amount established by this limit then the actual amount of repair expenses shall be deductible from income.

<< Prev | Forward >>

Go Back

Note: The information in this site is for general guidance only. Users of this site are advised to take professional advice before taking practical tax decisions.
Please read our terms of service before entering this site.

Homepage | Security Policy | Terms of Service