Transparency initiative annual report

2.1.2. Fiscal regime

The general principles of taxation in the Republic of Azerbaijan are regulated by the Tax Code which consists of rules for determining, payment and collection of taxes, the rights and responsibilities of taxpayers and State tax authorities, as well as other parties to taxation procedures, tax control forms and methods, liability for tax law violations and the procedures for lodging complaints against unlawful actions (failure to take actions) committed by tax agencies and officials thereof.

Together with the main pipeline agreements, the PSA enter into force after being approved by the National Assembly of the Republic of Azerbaijan. These agreements regulate the accounting and tax regimes of the operating companies, contractors and sub-contractors’ activities.
In case there are any inconsistencies in regard to taxes between the Tax Code and provisions, provision stipulated by agreements or laws on production sharing, main pipeline, other similar agreements and laws, the provision stipulated by the legislation on oil and gas operations of export direction and special economic areas are given the higher priority.
Activities on the transportation of exported oil and natural gas are governed by tax regime agreements Main Export Pipeline (“MEP”) (Baku–Tbilisi–Ceyhan) and South Caucasus Pipeline (Baku-Tbilisi-Arzurum). The accounting and tax regime of companies operating on behalf of these agreements, also MEP participants and their contractors’ activities are regulated by the tax code.
The Tax Code sets out the general taxation framework in Azerbaijan and establishes the following taxes:

Profit tax	Value added tax (“VAT”);
Property tax	Income tax;
Mining tax	Land tax;
Excise tax	Road tax; and
Simplified tax

A special tax regime is applied for legally approved PSA, companies functioning in Azerbaijan Republic and covers PSA concluded between State Oil Company of Azerbaijan Republic and a number of multinational companies and regulating discovering, exploitation, sale of oil-gas fields in the Republic of Azerbaijan and distribution of profits from the sale, as well as Protocols made on the basis of them and clarifying certain aspects of taxation:

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  Protocol on Profit tax;
  
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  Protocol on Value Added Taxes;
  
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  Protocol on taxation of foreign subcontractors;
  
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  Protocol on taxation of employees and individuals; and
  
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  Protocol on import and export taxes.
  

There are special tax regimes imposed on the entities working under the main Export Pipeline (Baku-Tbilisi-Ceyhan) HGA (“BTC”), the Host Government Agreement (“HGA”) and South Caucasus Pipeline (Shah Deniz Gas).