According to the Decree of the President of the Republic of Azerbaijan dated December 10, 2021 "On some measures to accelerate economic development in the occupation-liberated territories", it was assigned to apply tax, social insurance and other benefits for the purpose of effective management of economic and labor resources in the liberated territories, and directing them to the creation of processing industry and service infrastructure, as well as to stimulate private initiatives in those areas, to improve the investment promotion mechanisms, to determine the customs and tax concessions for the import of raw materials and materials for entrepreneurs engaged in production activities.
In order to ensure the implementation of the relevant Decree of the Head of State, optimal concessions and incentive mechanisms have been developed to increase the investment attractiveness and improve the business environment in the territories liberated from occupation, and appropriate changes have been made to the Tax Code.
The main purpose of granting tax incentives is to attract investments to territories liberated from occupation and to provide incentives for this sector by the state. The liberated territories have a favorable geographical structure and a large production potential. There are ample opportunities here both in terms of industrialization and extractive industry. Consequently, entities registered as residents in those areas will be covered by other large-scale benefits.
Residents of the liberated territory were exempted from profit (income), property, land and simplified tax for 10 years from January 1, 2023. In addition, this exemption will also apply to a district resident's non-operating income earned in connection with activities in that district.
At the same time, the import of machinery, technological equipment and devices, as well as raw materials and materials by residents who are VAT payers in the areas of economic activity and commodity nomenclatures, raw materials and materials, has been exempted from VAT for a period of 10 years from January 1, 2023. To this end, it is planned to separately approve the list of economic activity areas and the range of goods exempted from VAT.
In addition, dividend incomes of shareholders of legal entities residing in the territory liberated from occupation were exempted from taxation for a period of 10 years from January 1, 2023. A number of other tax incentives have also been approved to stimulate economic activity in these areas. Given that the territories liberalized from occupation have a wide tourism potential, in addition to the general benefits provided for in the tourism sector, consumers will also receive a refund of VAT paid for hotel services. Thus, 30 percent of the non-cash paid VAT and 5 percent of the cash paid VAT for lodging and accommodation services (except for other additional services) provided by the hotels located within these territories are subject to return to consumers. The VAT refund process will increase the interest of citizens as well as business interest in this area.
It should be noted that tax exemptions will not apply to a number of activities and transactions. Such activities and operations include the provision of financial services, motor transport services and the provision of goods (works and services) by the contractor (with the exception of resident contractors carrying out production activities within the demilitarized zone) at the expense of the state budget.
In general, with the amendments made to the Tax Code, all areas of the real sector, tax incentives in the territories liberated from occupation covered all areas of the real sector, namely trade, services, manufacturing, construction, mining and other entities.
