President Ilham Aliyev has signed amendments to the Tax Code and Migration Code, as well as laws on social insurance, customs tariffs, licenses and permits, and public procurement.
“Operativ Məlumat Mərkəzi-OMM” reports that, under the amendments, from Jan. 1, 2027, for 10 years, 100% of income earned from the sale of a taxpayer’s ownership interest or shares will be exempt from income and profit tax if the interest or shares belong to a legal entity that is a micro or small business, holds a “Startup” certificate or a technology park registration certificate, and is not engaged in other activities. The exemption applies if the interest or shares have been held for at least three years.
Under the previous law, income earned from innovation activities by startups operating as individual entrepreneurs and classified as micro or small businesses was exempt from income and profit tax for three years from the date they received a “Startup” certificate. That period has been extended from three to seven years.
The income and profit tax exemption will also apply to the following:
- Income earned by individuals from selling securities acquired through investments made via crowdfunding platforms in persons holding a “Startup” certificate or an industrial or technology park registration certificate, for 10 years from Jan. 1, 2027;
- Dividends paid to individuals on the ownership interests (shares) listed above, except for interests in technology park residents, for 10 years from Jan. 1, 2027;
- Payments, excluding royalties, made from Jan. 1, 2027, for 20 years to non-resident persons without a permanent establishment in Azerbaijan for cloud computing, infrastructure, platform and software services, as well as application programming interface services, purchased by taxpayers holding a “Startup” certificate or a technology park registration certificate and used directly to support their own activities. The exemption will not apply if the taxpayer resells the services to other persons;
- Dividends paid to participants (shareholders or partners) of venture capital funds from profits earned by those funds through investments in micro and small businesses holding a “Startup” certificate or an industrial or technology park registration certificate, for 10 years from Jan. 1, 2027.
Under the draft law, from Jan. 1, 2027, for 10 years, investment amounts committed by a designated accredited investor to acquire issued shares or ownership interests through additional capital contributions in resident legal entities holding a “Startup” certificate or an industrial or technology park registration certificate may be deducted from an individual entrepreneur’s taxable gross income, subject to the following conditions:
- The amount deducted from the individual entrepreneur’s income must not exceed 50% of their taxable gross income for the relevant reporting year, after expenses;
- The individual making the investment must not be a related party of the founders (partners) or executive body managers of the legal entity receiving the investment;
- As a result of the investment, the individual must not directly or indirectly hold 50% or more of the legal entity’s charter capital, ownership interest (shares) or voting rights. This restriction does not apply to funds invested in venture capital funds;
- The acquired ownership interest (shares) must remain continuously in the individual’s ownership for at least three years from the date of investment;
- Within one month after the end of the reporting year, the enterprise receiving the investment must provide the investor with documents confirming that the funds were spent for their intended purpose, including sale and purchase agreements, delivery and acceptance certificates, payment orders and statements from payment service providers. The individual may deduct from taxable income only the portion of the investment that the recipient has spent;
- For investments in innovation and technological advances in industrial parks, the body (institution) designated by the relevant executive authority must issue a supporting document.
Under the law, from Jan. 1, 2027, for 10 years, taxpayers may deduct from their taxable income for the relevant reporting year, using a 2.5 multiplier, cash operating expenses incurred directly in developing innovative products and in commissioning research, design and experimental development work from holders of a “Startup” certificate, residents of industrial and technology parks, and higher education and research institutions. The deduction excludes the acquisition of fixed assets and intangible assets. The 2.5 multiplier will not apply to transactions between related parties when the commissioner and the person carrying out the research, design or experimental development work are related. The body (institution) designated by the relevant executive authority will approve the eligible expenses and areas, as well as the procedure for confirming the consequences of technological and industrial failures.
From Jan. 1, 2027, for 20 years, cloud computing, infrastructure, platform and software services, as well as application programming interface services, obtained by taxpayers holding a “Startup” certificate or a technology park registration certificate from non-residents without a permanent establishment in Azerbaijan for the direct support of their own activities will be exempt from value-added tax (VAT), excluding royalties. The exemption will not apply if taxpayers resell the services to other persons.
