The tax regime is chosen as soon as a company is registered with the tax authority, and it shapes the tax burden, the reporting and how clients will work with you. Here is when a new company can use the simplified tax and when it operates with VAT.
Short answer: A new company can use the simplified tax — 2% of gross revenue — if its taxable turnover over any 12 consecutive months does not exceed 200,000 manat and its activity is not excluded by law. Otherwise it pays 20% profit tax under the general regime, plus 18% VAT only once VAT-registered (mandatory above 200,000 manat, or voluntary). The method is stated in the tax registration application.
Who can use the simplified tax?
The simplified tax is available to persons not registered for VAT whose taxable transactions over a consecutive 12-month period do not exceed 200,000 manat. The main rate is 2% of gross revenue; catering and certain other activities have special rules. A legal entity on the simplified tax is not a payer of profit tax or VAT.
Companies with foreign capital use the regime on the same terms: Article 3.6 of the Tax Code prohibits setting different tax rates based on the form of ownership, an individual’s citizenship or the origin of capital.
Simplified tax or VAT: what’s the difference?
| Parameter | Simplified tax | General regime |
|---|---|---|
| Main taxes | 2% of gross revenue | 20% profit tax; 18% VAT once VAT-registered |
| Threshold | Taxable turnover up to 200,000 AZN over any 12 consecutive months | VAT registration is mandatory above 200,000 AZN; voluntary below it |
| What it replaces | Profit tax and VAT | — |
| Input VAT | Not recoverable | Can be offset once VAT-registered |
| Usually suits | Retail and consumer services, small turnover | Working with companies, imports, fast growth |
Which activities cannot use the simplified tax?
The restrictions are set out in Article 218.5 of the Tax Code. The simplified tax cannot be used, in particular, by:
- producers of excise goods and goods subject to mandatory marking;
- credit institutions, insurers, investment funds, licensed securities market participants, pawnshops and non-state pension funds;
- persons earning income from leasing out property and from royalties;
- companies engaged in wholesale trade;
- manufacturers with an average of more than 10 employees per quarter;
- persons whose fixed assets have a residual value above 1,000,000 manat at the start of the year;
- persons engaged in activities that require a licence (with some exceptions), as well as natural monopolies and public legal entities;
- sellers of gold, jewellery, diamonds and fur products;
- persons providing services or works to registered taxpayers: this is allowed only if such operations, documented with electronic invoices, do not exceed 30% of the quarter’s services. Since 2023, services to non-residents under invoices also count toward this limit.
What happens if turnover exceeds the threshold?
The right to the simplified tax is lost: the company must apply for VAT registration within the first 10 days of the following month and move to VAT and profit tax. That is why it pays to forecast first-year turnover before registering. Since 2026, for retail trade and consumer services, non-cash payments via POS terminals count toward turnover with a 0.5 coefficient — see our article on the 2026 tax changes for details.
— SME: Don’t pick a regime on the rate alone. 2% of revenue looks attractive, but what matters is the total burden: with modest margins profit tax may come out lower, and clients who pay VAT care about input VAT. We model both options on a first-year forecast before the company is registered.
Frequently asked questions
Can a company with a foreign founder use the simplified tax?
Yes, on the same terms. The Tax Code prohibits different rates based on citizenship or the origin of capital, so turnover and type of activity are what decide.
Can a company register for VAT voluntarily?
Yes, even if turnover is below 200,000 manat. Once registered for VAT, the simplified tax no longer applies.
When is the tax regime chosen?
At tax registration: the method stated in the application generally applies until the end of the calendar year. That is why the decision is best made before registering.
Does the simplified tax suit IT services or consulting for businesses?
Usually not: services to registered taxpayers and to non-residents under invoices are allowed only within 30% of the quarter’s services. Such projects are usually better suited to the general regime.
This article is for general information and does not replace individual advice. Tax rules can change — confirm current conditions or talk to SME.
Choosing a tax regime for your new company? Model both options with SME.
Full overview: How to Register a Company in Azerbaijan: Step-by-Step Guide (2026)
Sources
State Tax Service — taxes.gov.az: “Sadələşdirilmiş vergi” booklet (Baku, 2026; taxes.gov.az/uploads/2026/buklet/1_4.pdf) — threshold, rates, exclusions (Art. 218.5) and the 30% rule (Art. 218.6.2); “Questions and answers” No. 11271 of 05.10.2026 (200,000 manat threshold), No. 11179 of 12.09.2026 (0.5 coefficient), No. 11134 of 01.09.2026 (Art. 218.5.10), No. 11199 of 21.09.2026 (Art. 3.6); “Tax guide” (VAT registration, 10 days); “Tax Code amendments: questions and answers” (2026). MKS.az, 01.03.2023 — services to non-residents within the 30% limit. PwC Worldwide Tax Summaries, Azerbaijan — Corporate, 28.09.2026 (20% profit tax, 18% VAT).
Last reviewed: October 2026.
