OMM Redaksiyası
Who is subject to simplified tax in Azerbaijan, what is the tax rate, what does the 200,000 manat turnover threshold mean, and who cannot use this tax regime? This article presents the key simplified tax rules for entrepreneurs in a clear and accessible format.
Simplified tax is one of the tax regimes available primarily to individuals engaged in small business activities. Under this regime, tax is applied in a number of cases to total turnover, without deducting expenses from income.
What is simplified tax?
Simplified tax is a tax applied to the total turnover earned by an entrepreneur in accordance with established rules.
As a general rule, the simplified tax rate is 2 percent. Individuals engaged in public catering whose taxable transactions exceed 200,000 manats in any month of a consecutive 12-month period may pay simplified tax at a rate of 8 percent, subject to certain conditions.
For example, if a simplified tax payer has total turnover of 10,000 manats during the reporting period and the 2 percent rate applies, the tax payable will be 200 manats.
Who can become a simplified tax payer?
Persons who are not registered for VAT purposes and whose taxable transactions do not exceed 200,000 manats in any month of a consecutive 12-month period are entitled to become simplified tax payers.
In addition, individuals engaged in public catering with turnover exceeding 200,000 manats may choose the simplified tax regime in accordance with the established procedure. In this case, the tax rate is 8 percent.
The following business sectors are also specifically included among simplified tax payers under the legislation:
- Individuals engaged in passenger and cargo transportation in Azerbaijan, including taxi services;
- operators and sellers of sports betting games;
- lottery organizers and lottery ticket sellers;
- individuals selling residential and non-residential premises;
- persons selling land plots;
- fixed-tax payers provided for by legislation.
The taxation and calculation rules for each of these activities may differ from the general 2 percent regime.
What does the 200,000-manat turnover threshold mean?
This threshold is one of the issues to which entrepreneurs pay the most attention.
If a person is not registered for VAT purposes and taxable transactions do not exceed 200,000 manats in any month of a consecutive 12-month period, they may use the right to become a simplified tax payer.
However, the type of activity must also be taken into account. For example, an entrepreneur engaged in public catering whose turnover exceeds 200,000 manats may remain a simplified tax payer under certain conditions, with the 8 percent rate applying in this case.
What is the simplified tax rate?
The basic rate is 2 percent.
Thus, if an entrepreneur’s taxable total turnover is 50,000 manats:
50,000 × 2% = 1,000 manats
The key point is that simplified tax is often applied not to profit, but to total turnover. In other words, the entrepreneur’s expenses are not automatically deducted from turnover when the tax is calculated.
Eight percent rate for public catering
If a person engaged in public catering has turnover exceeding 200,000 manats during a consecutive 12-month period and chooses the simplified tax regime, the 8 percent rate applies.
For example:
30,000 × 8% = 2,400 manats
How and when is simplified tax paid?
The reporting period for simplified tax is a quarter.
The tax payer must submit the return and pay the calculated tax to the state budget no later than the 20th day of the month following the reporting quarter.
For example, the simplified tax return and payment for the first quarter, covering January-March, must be completed by April 20.
Which taxes does a simplified tax payer not pay?
A legal entity that is a simplified tax payer is not considered a payer of VAT or profit tax, while an individual is not considered a payer of income tax or VAT on entrepreneurial activity.
However, this does not mean that the entrepreneur is completely exempt from other tax and social obligations. Depending on the nature of the activity, other payments and liabilities may arise.
Who cannot become a simplified tax payer?
The Tax Code sets out a list of persons who cannot use the simplified taxation system.
These mainly include:
- persons producing excise goods and goods subject to mandatory marking;
- credit organizations;
- professional participants in the insurance market;
- investment funds and their managers;
- persons licensed in the securities market;
- pawnshops;
- non-state pension funds;
- persons earning income from leasing property and royalties;
- natural monopoly entities;
- public legal entities;
- persons possessing fixed assets above the established threshold;
- in certain cases, persons engaged in production activities whose average number of employees exceeds 10;
- persons engaged in wholesale trade;
- in certain cases, persons providing services and performing works;
- persons selling gold and jewelry made from gold, as well as diamonds;
- persons selling fur products;
- persons engaged in activities requiring a license.
Since the specific activity and the entrepreneur’s business model are also important, choosing a tax regime solely based on the name of the business sector is not appropriate.
Important point for service providers
Whether persons engaged in providing services and performing works qualify as simplified tax payers requires separate consideration.
For example, persons providing services to individuals who are not registered as tax payers — that is, to the general public — may qualify as simplified tax payers in certain cases.
If an entrepreneur provides services both to the general public and to legal entities or individuals registered as tax payers, the 30 percent threshold established by legislation must be taken into account. An explanation published by the tax service in 2026 separately outlines the application of this rule.
Retail and wholesale activities
An entrepreneur engaged in retail sales may also lose the right to simplified taxation if they simultaneously conduct wholesale operations.
In cases established by legislation, a tax payer engaged in both retail and wholesale activities may retain the right to use the simplified tax method if transactions that must be documented by electronic invoices do not exceed 30 percent of total trade transactions during the quarter.
Transportation and taxi services
For persons engaged in passenger and cargo transportation, including taxi services, simplified tax is calculated differently from the general 2 percent rule.
In this sector, tax is calculated according to rules determined for the specific activity and vehicle. Therefore, persons engaged in taxi or passenger transportation should not calculate tax by applying 2 percent to total turnover.
Sale of residential and non-residential premises
Special simplified tax rules also apply to individuals selling residential and non-residential premises they own.
For this category, the tax base is not total income but is determined based on legally established indicators of the property being sold.
In addition, tax exemptions may apply in certain cases involving the sale of residential premises.
What about the sale of land?
Persons selling land plots they own may also qualify as simplified tax payers under special rules.
In this case, the tax base is the land plot being sold, and the tax is not calculated according to the general 2 percent turnover principle.
Tax concessions and exemptions
The Tax Code provides exemptions from simplified tax for certain activities and transactions.
Subject to conditions established by legislation, these include:
- turnover earned by agricultural producers from the sale of their own products;
- in certain cases, income resulting from the write-off of tax debts owed to the state budget;
- funds paid as part of export promotion;
- dividend income subject to certain conditions;
- certain cases involving the sale of residential and non-residential premises, as well as land plots;
- gifts, material assistance and inheritance received from family members;
- the transfer of assets between spouses;
- the transfer of assets between former spouses during divorce proceedings;
- compensation paid in connection with the acquisition of land for state needs and other cases provided for by legislation.
However, each of these concessions has specific conditions. Therefore, it is necessary to verify separately whether an exemption applies to a particular transaction.
How can the main rules be remembered briefly?
Key points about simplified tax:
200,000 manats – one of the main turnover thresholds related to VAT registration.
2 percent – the general simplified tax rate.
8 percent – the simplified tax rate for public catering activities with turnover exceeding 200,000 manats under certain conditions.
Quarter – the main reporting period for simplified tax.
The 20th – the return must be submitted and the tax paid by the 20th day of the month following the quarter.
Conclusion
Although the simplified tax system makes tax calculations relatively easier for entrepreneurs, the regime cannot be applied uniformly to every business sector. In addition to turnover, the entrepreneur’s type of activity, customer base, whether sales are retail or wholesale, number of employees and other criteria must also be considered.
In particular, exceeding the 200,000-manat threshold does not automatically mean that all entrepreneurs leave the simplified tax regime. For example, legislation provides a separate option for public catering activities. In 2026, new rules concerning POS-terminal payments also apply to the calculation of the turnover threshold in this sector.
