Summary
Summary
The article discusses Azerbaijan’s new VAT compliance regulations for non-resident digital service providers. It highlights the amendments to the Tax Code and the shift towards a mandatory VAT system for providers not registered for VAT.
Azerbaijan is moving forward with the implementation of the new accounting and tax payment mechanism specifically designed for non-resident providers of digital services. The relevant amendments to the Tax Code were adopted on the third reading, on the plenary session held on February 13, 2026.
According to the amendments to the Tax Code, specifically provisions relating to VAT rules and regulations, the current tax regime imposed on non-resident digital service providers that aren’t registered for VAT is moving towards a new mandatory VAT system.
Background
At the present time, a significant part of the supplies of digital services or digital products by non-registered non-resident digital service providers is under the automatic VAT withholding regime. In practice, this means that for supplies of digital services or products by not-registered overseas providers, the local bank or local payment service provider is acting as a VAT withholding agent.
The bank or other financial institution is acting as a VAT withholding agent, deducting VAT from the local payment at 18% VAT rate, and sending the collected tax directly to tax authorities. This tax collection arrangement only applies to B2C local supplies, for digital services, when the provider isn’t registered for VAT.
Tax is calculated upon the net payment value.
New Framework
The amendments to the Tax Code adopted on February 13, 2026, are updating the rules and requirements for non-resident digital service providers relating to B2C transactions. According to the new rules, non-resident digital services providers should register for VAT when they surpass the annual threshold of USD 10,000 relating to B2C supplies.
Timeline
Mandatory registration starts from September 1, 2026. Until that date, it remains voluntary.
VAT Compliance for Non-Resident Digital Service Providers
To strengthen the tax framework for non-resident digital service providers, the State Tax Service has put in place a simplified registration portal. Through this portal, non-resident digital service providers that don’t have a permanent establishment in the country should do the following:
- Register for VAT when they surpass the designated threshold
- Submit VAT returns
- Make VAT remittance within the prescribed period
The principal VAT obligations for non-resident digital service providers could be processed via an online tax portal developed by the State Tax Service.
Scope of digital services
Non-resident digital service providers should charge, collect, and remit VAT only for B2C transactions made to local consumers. For B2B supplies, a local VAT-registered taxable person should report VAT under the general rules of the Tax Code.
Digital services include(non-exhaustive list):
- Supply or download of E-books
- Supply or download of music
- Supply or download of audio and video materials
- Supply or download of graphic images
- Supply or download of virtual games
- Supply or download of software
- Placement, distribution, and management of advertisements
- Provision of other similar electronic services supplied in a digital environment.
Threshold
Non-resident digital service providers have before them a specifically defined threshold of USD 10,000 based on the 12-month income. The threshold is based only on the B2C transactions.
Registration
The development of the simplified registration portal should ease the registration procedure for non-resident digital services providers and increase compliance under domestic rules. The VAT portal is ready for registration.
Taxable persons in scope have to register within 30 days from the date when the threshold is reached.
VAT Declaration and Remittance
Non-resident digital service providers should file VAT returns monthly, until the 20th day of the following month.
The tax payment should be successfully processed(deposited into the account of the State Treasury) until the last day of the following month.
Invoicing
Under the simplified VAT regime, non-resident digital service providers aren’t required to follow the mandatory filing requirements defined for tax invoices.
How to Stay Compliant
The Azerbaijan VAT regime for non-resident providers of digital services has been significantly reshaped with the latest amendment to the Tax Code. Starting from September 1, 2026, non-resident digital service providers should register for VAT through the simplified VAT portal and duly fulfill their VAT-related obligations.
We have continuously followed the legislative updates concerning the introduction of the VAT regime for overseas providers of digital services.
The advisory role offered by 1stopVAT for these providers extends from understanding the threshold exposure for registration, accountability for VAT, assistance with the return preparation, and remittance of the owed tax.
Where we cannot manage your VAT requirements directly, we have a great network of local tax agents who will take care of this.
In addition to successfully managing your registration, we can offer additional services for digital service providers in Azerbaijan, such as:
- Assistance with Tax Reporting
- Tax Advisory and Ongoing Tax Management
- Correspondence with Tax Authorities
Takeaway
The date for the mandatory adherence to the simplified Azerbaijan VAT regime for non-resident digital service providers is getting closer. The introduction of the new accounting system and tax payment framework is specifically designed to strengthen the tax compliance framework.
Author: Aleksandar Delic
The Government is looking to increase the tax revenue, to transfer the VAT accounting responsibilities from the local financial institutions to actual suppliers of digital services, and to put in place a taxation system that will align with the OECD best practices for taxation of the digital economy.
Indirect Tax Manager – E-commerce
Frequently Asked Questions
Azerbaijan is introducing a new VAT compliance framework for non-resident digital service providers supplying digital services to local consumers.
Under the new rules:
Non-resident providers should register for VAT once they exceed the registration threshold.
VAT reporting and payment obligations shift from local banks to the actual digital service provider.
A simplified online VAT portal will be used for registration, filing, and tax payments.
The reform aims to align Azerbaijan’s digital economy taxation framework with international best practices.
The new mandatory VAT registration regime becomes effective on September 1, 2026.
Until that date:
VAT registration remains voluntary for non-resident digital service providers.
The existing VAT withholding mechanism continues to apply in many situations.
From September 1, 2026, qualifying providers should register and comply directly with VAT obligations.
The registration threshold is USD 10,000.
The threshold is calculated based on:
B2C digital service sales only
Revenue earned during 12 months
Once a provider exceeds USD 10,000 in qualifying B2C sales, VAT registration becomes mandatory.
Non-resident digital service providers should register within 30 days after exceeding the USD 10,000 threshold.
Failure to register within the prescribed period may expose the provider to tax compliance risks and potential penalties.
The standard VAT rate applicable to digital services is 18%.
This VAT applies to qualifying B2C supplies made to consumers located in Azerbaijan.
The scope of taxable digital services is broad and includes:
E-books
Music downloads
Audio content
Video content
Graphic images
Software downloads
Online gaming
Virtual games
Digital advertising
Internet-based services
Electronic platform services
Similar electronically supplied services
The list is non-exhaustive and may extend to other digital products and services delivered electronically.
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