1. # !E 1 Changes to the Tax Code of Azerbaijan February 2010 Baku February 2010 Baku

2. # !E 2 Agenda Transfer pricing rules and Property TaxTransfer pricing rules and Property Tax Financial SanctionsFinancial Sanctions Value Added TaxValue Added Tax Personal Income TaxPersonal Income Tax Transfer pricing rules and Property TaxTransfer pricing rules and Property Tax Financial SanctionsFinancial Sanctions Value Added TaxValue Added Tax Personal Income TaxPersonal Income Tax

3. # !E 3 Agenda Profit TaxProfit Tax Withholding TaxWithholding Tax Profit TaxProfit Tax Withholding TaxWithholding Tax

4. # !E 4 Transfer Pricing Rules and Property Tax Introduction of the fourth case when transfer pricing rules may be applied – insurance of the property for the amounts exceeding its residual value by legal entities. Property taxes in such cases will be calculated on the basis of market prices to be determined in accordance with the provisions of Article 14. Introduction of the fourth case when transfer pricing rules may be applied – insurance of the property for the amounts exceeding its residual value by legal entities. Property taxes in such cases will be calculated on the basis of market prices to be determined in accordance with the provisions of Article 14.

5. # !E 5 Financial Sanctions Article on application of financial sanctions in connection with the remittance of VAT to the special deposit accounts has been clarified. VAT should be paid to the VAT deposit account not later than on the day of the remittance of the principal invoice amount. It is clearly envisaged that the sanction applies in case the remittance of VAT is delayed. Article on application of financial sanctions in connection with the remittance of VAT to the special deposit accounts has been clarified. VAT should be paid to the VAT deposit account not later than on the day of the remittance of the principal invoice amount. It is clearly envisaged that the sanction applies in case the remittance of VAT is delayed.

6. # !E 6 Value Added Tax Electronic VAT invoices have been introduced. VAT invoices are replaced with “electronic VAT invoices” across the Tax Code. Rules for the application, registration and the use of VAT invoices have been published. The threshold for VAT registration and simplified tax eligibility has been changed to AZN 150,000 for legal entities and AZN 90,000 for physical individuals during a consecutive 12-month period. Electronic VAT invoices have been introduced. VAT invoices are replaced with “electronic VAT invoices” across the Tax Code. Rules for the application, registration and the use of VAT invoices have been published. The threshold for VAT registration and simplified tax eligibility has been changed to AZN 150,000 for legal entities and AZN 90,000 for physical individuals during a consecutive 12-month period.

7. # !E 7 Personal Income tax Personal Income Tax rates are now different for entrepreneurial and non-entrepreneurial income. Progressive tax rates in connection with non-entrepreneurial income are 14 and 30%. Entrepreneurs are subject to a flat tax rate of 20%. Personal Income Tax rates are now different for entrepreneurial and non-entrepreneurial income. Progressive tax rates in connection with non-entrepreneurial income are 14 and 30%. Entrepreneurs are subject to a flat tax rate of 20%.

8. # !E 8 Exemptions for Personal Income tax Employee Insurances paid by the employer: The term of long-term insurances subject to exemption from personal income tax have been reduced to 3 years. Insurances paid by employees: Payments under accumulative life insurance or pension insurance agreements with any Azerbaijani Insurance company for the period of not less than 3 years will be deducted by the employer for personal income tax calculation purposes. Condition - insurance premiums should be remitted through the bank. Withholding tax consequences in case of an early termination of insurance contracts to be carried out by insurers. Employee Insurances paid by the employer: The term of long-term insurances subject to exemption from personal income tax have been reduced to 3 years. Insurances paid by employees: Payments under accumulative life insurance or pension insurance agreements with any Azerbaijani Insurance company for the period of not less than 3 years will be deducted by the employer for personal income tax calculation purposes. Condition - insurance premiums should be remitted through the bank. Withholding tax consequences in case of an early termination of insurance contracts to be carried out by insurers.

9. # !E 9 Profit Tax Profit Tax rate is reduced to 20%

10. # !E 10 Withholding Tax Annual (instead of quarterly) reporting period for employee related withholding taxes by VAT and simplified taxpayers. However, employee related information to be included in the VAT and simplified tax reports. Quarterly compliance remained for all other payments subject to withholding taxes. Annual (instead of quarterly) reporting period for employee related withholding taxes by VAT and simplified taxpayers. However, employee related information to be included in the VAT and simplified tax reports. Quarterly compliance remained for all other payments subject to withholding taxes.

11. # !E 11 Thank You for Attention!