Azerbaijan improves legislation on financial leasing requirements

One of the changes made to the Tax Code in the direction of reducing the tax burden of entrepreneurial subjects and promoting entrepreneurial activity is the improvement of the provisions in the legislation on financial leasing.

Azernews reports that this is stated in the information released by the State Tax Service.

It was reported that until the recent changes, leasing companies could not offset the VAT amounts they paid when acquiring the assets they leased, so the amount of tax was included in the value of the asset.

"This limited the ability of business entities that acquired assets under financial leasing to offset VAT and created a tax burden on capital investment. However, if the assets were acquired through bank loans, business entities could offset the VAT amounts paid for those assets, and as a result, financing instruments in the financial sector created tax burden differences, which had a negative impact on the competitiveness of the leasing market.

With the latest changes in the Tax Code, both leasing companies and leasing entrepreneurs have the opportunity to offset the VAT amounts paid when acquiring assets. Thus, the main goal of the change is to create an equal tax regime for financing instruments, increase efficiency, reduce the tax burden by transferring VAT to the final consumer along the value chain, and optimise the tax burden by giving business entities the right to offset the paid VAT.

Interest on loans, which is the income of leasing companies, continues to be exempted from VAT as financial services. In addition, if the assets were acquired by the leasing companies without paying VAT, both the value of the asset and the loan interest on providing those assets to business entities within the framework of financial leasing will continue to be fully exempted from VAT.

Another important change is that if the lessee transfers the rights and obligations under the financial leasing contract to another person, the relationship between the lessor and the new buyer is considered a financial lease, a continuation of the previous contract.

If the financial leasing contract is terminated prematurely and if the transaction does not comply with the requirements of Article 140.2 of the Tax Code, such transaction will not be considered financial leasing. At this time, the taxes will be determined according to the Tax Code.

Thus, the final result of the changes will be the promotion of the leasing tool and the conditions for the subjects who will participate in this process to use this tool more."