Expansion of access to financial resources of small and medium businesses (SMEs) is considered as one of the priority directions in the "Social and Economic Development Strategy of the Republic of Azerbaijan in 2022-2026".
As it is known, flexible crediting of operations of business entities through the factoring tool is actively used, this tool seriously stimulates the market in the direction of reducing the financial burden of business and increasing the level of liquidity.
In practice, the cost of goods sold by manufacturers and wholesalers is usually repaid within 2-3 months, and in some cases later. This causes a lack of cash in the activities of manufacturers and wholesale trade entities. In such a situation, banks ensure the financial liquidity of business entities by using the factoring tool, and difficulties related to the receipt of funds from buyers are eliminated.
As per the requirements of the Tax Code, the basic value of purchased goods, works, and services for VAT compensation are to be paid to the bank account of the seller, and the amount of VAT must be paid to the VAT deposit account. However, the main cost of factoring transactions is not paid to the seller, but to the relevant credit institution. At this time, there are restrictions on the compensation of VAT in accordance with the requirements of the Tax Code.
It is necessary to clearly define it in the tax legislation since the factoring tool is a right derived from civil legislation and given to business subjects. In order to increase the attractiveness of financing instruments and ensure business continuity, the possibility of compensating VAT amounts paid during the use of the factoring tool was included in the legislation with recent changes.
