Azerbaijan abolishes shareholders’ dividends taxation

In accordance with the decision of the Constitutional Court of Azerbaijan dated Dec. 7, 2011 the country abolished taxation of dividends of banks and insurance companies' shareholders, directed at improving the capital of these companies under the law on exemption from income tax directed at their recapitalization, the court said in its report on Tuesday.

According to the court, the decision on imposing a 10-percent tax on banks and insurance companies' shareholders dividends was canceled, as net profit of legal entities directed for recapitalization does not correspond to "dividend" (Paragraph 13.2.15 of the Tax Code of Azerbaijan).

Azerbaijani banks, insurance and reinsurance companies are exempt from paying tax on that part of the profit that is directed to increasing capitalization from Jan. 1, 2009.

The main purpose of adopting the law is to accelerate the financial sector development, to improve the quality of banking and insurance sectors and to promote the capitalization of companies. Validity of the tax incentives expire in 2011. Loss of Azerbaijan's state budget from providing banks, insurance and reinsurance companies with tax benefits during three years amounted to 150 million manat.

"As a result of issuing tax benefits, the state budget do not receive 45-50 million manat each year. Despite the fact that in general over three years it hit 150 million manat, the funds allowed to maintain stability in the banking sector and to strengthen the assets in the midst of the global economic crisis. It was an important and timely step taken by the government," Taxes Minister Fazil Mammadov said.

According to the State Insurance Supervision Service under the Azerbaijani Finance Ministry, tax benefits significantly affected the insurance market of Azerbaijan. If, before Jan.1, 2009, the total market capitalization of insurance and reinsurance companies amounted to 80 million manat, while on Nov.1, 2011 this figure amounted to 208 million manat.

The Central Bank also believes that these measures promote directing benefits at capitalization, as a result of which the banks sent more than 90 percent of their profits to increase capital in 2009 and 2010.

"It increased the financial stability of banks and increased possible expansion of banking services," the CBA said. The CBA noted that, the aggregate capital of all banks in Azerbaijan amounted to 2.345 billion manat as of Oct. 1, 2011.


/Trend/