The Milli Majlis has approved amendments to the Tax and Migration Codes, as well as the laws on social insurance, customs tariffs, licenses and permits, and public procurement, which had been returned by the President with objections.
Operative Information Center-OMM reports that the document was discussed at today’s first meeting of the parliament’s autumn session.
Under the amendments, from Jan. 1, 2027, for a period of 10 years, 100% of income derived from the sale of a taxpayer’s ownership interest or shares will be exempt from income and profit tax for at least three years if the interest or shares belong to a legal entity that is a micro or small business and has obtained a “Startup” certificate or a technology park registration certificate, provided it is not engaged in other activities.
Under the current law, startups that are micro or small businesses operating as individual entrepreneurs are exempt from income and profit tax on income from innovation activities for three years from the date they receive a “Startup” certificate. The period will be extended from three years to seven years.
The income and profit tax exemptions will also apply to:
- income earned from the sale of securities acquired through investments by individuals on crowdfunding platforms in entities that have obtained 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 or shares listed above, except for interests in technology park residents, for 10 years from Jan. 1, 2027;
- payments made to nonresident persons without a permanent establishment in the Republic of Azerbaijan for cloud computing, infrastructure, platform and software services, as well as application programming interface services, purchased directly by taxpayers holding a “Startup” certificate or a technology park registration certificate to support their own activities, without being treated as royalties, for 20 years from Jan. 1, 2027. The exemption will not apply if the taxpayer resells the services to other persons;
- dividends paid to participants, shareholders or interest holders of venture capital funds from profits earned through investments in micro and small businesses that have obtained a “Startup” certificate or an industrial or technology park registration certificate, for 10 years from Jan. 1, 2027.
Under the draft, from Jan. 1, 2027, for 10 years, investment amounts used by an 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 will be deducted from an individual entrepreneur’s taxable gross income under the following conditions:
- the amount deducted from the individual entrepreneur’s income may not exceed 50% of the entrepreneur’s taxable gross income for the relevant reporting year after expenses have been deducted;
- the individual making the investment must not be a related party to the founders, interest holders or heads of the executive body of the legal entity receiving the investment;
- the individual making the investment must not, as a result of the investment, directly or indirectly acquire an ownership interest or share of 50% or more in the legal entity’s charter capital or 50% or more of its voting rights. This restriction will not apply to funds invested in venture capital funds;
- the acquired ownership interest or shares must remain continuously in the individual’s ownership for at least three years from the date of the 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, acceptance and transfer certificates, payment orders and statements from payment service providers. The individual’s deduction from taxable income under this provision will apply to the portion of the investment amount spent by the recipient;
- for investments in innovation and technological developments in industrial parks, the relevant authority or institution designated by the competent executive authority must issue a supporting document.
According to the draft, cashless operating expenses incurred directly by taxpayers in developing innovative products, as well as expenses for research, design and development work commissioned from holders of a “Startup” certificate, residents of industrial and technology parks, and higher education and research institutions, will be deducted from the taxpayer’s taxable income for the relevant reporting year using a 2.5 multiplier for 10 years from Jan. 1, 2027. The provision will not apply to transactions between related parties when the client and the party performing the research, design or development work are related parties. The scope and areas of eligible expenses, as well as the procedure for confirming the results of technological and industrial failures, will be approved by the relevant authority or institution designated by the competent executive authority.
Payments for cloud computing, infrastructure, platform and software services, as well as application programming interface services, purchased from nonresident persons without a permanent establishment in the Republic of Azerbaijan directly to support the activities of taxpayers holding a “Startup” certificate or a technology park registration certificate will be exempt from value-added tax for 20 years from Jan. 1, 2027, without being treated as royalties. The exemption will not apply if the taxpayer resells the services to other persons.
The document was put to a vote after discussion and adopted in a single reading.
