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Procedures to be Followed for the Dissolution of Legal and Natural Persons

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Procedures for the Dissolution of Legal Entities

Regulatory Documents:

The procedure for dissolving commercial and public legal entities (hereinafter – legal entities) is regulated by the provisions of the Civil Code and the Tax Code of the Republic of Azerbaijan, the Law of the Republic of Azerbaijan “On State Registration and State Register of Legal Entities,” and the “Rules on Deregistration of Commercial Entities and Taxpayer Registration with State Tax Authorities.”

Application Form:

Paper-based (submitted in person or by mail).

Tax Authority Where the Application is Submitted:

According to territorial jurisdiction, the Department for State Registration of Commercial Legal Entities of the State Tax Service of the Nakhchivan Autonomous Republic, the Department for State Registration of Legal Entities of the Main Department of National Revenues of the State Tax Service, and taxpayer service centers located in administrative buildings of the Territorial Tax Departments (excluding financial-industrial groups, banks, investment funds, insurance, and audit organizations).

Grounds for Dissolution of a Legal Entity:

According to Article 59 of the Civil Code, a legal entity may be dissolved in the following cases:

  • By decision of its founders or the authorized body stipulated in its charter;

  • If the registration of the legal entity is declared invalid by the court due to violations of the legislation at the time of its establishment;

  • If declared bankrupt.

Documents Submitted to the Registration Authority for Entering the Legal Entity in the “Dissolution Process” Status in the State Register:

Within 15 days from the date the liquidation commission (liquidator) is appointed, the following documents must be submitted to the registration authority:

  • Application (“Application for Deregistration from State Registration (Tax Accounting)”);

  • Decision on liquidation;

  • Official statement confirming solvency;

  • Document confirming publication of the initial notice on liquidation and creditors’ claims procedures and deadlines (not less than 60 days) in a mass media publication;

  • Seal.

If the legal entity is declared bankrupt, a court decision on bankruptcy or the creditors’ initial meeting decision declaring bankruptcy must be submitted.

If the submitted documents comply with the law, the registration authority shall enter the note “in the dissolution process” into the State Register within 5 days, register the liquidation commission members or liquidator as the legal representatives, and provide an extract from the register. From that moment on, the legal entity uses a seal marked “in the dissolution process” and adds the phrase “in the dissolution process” after its name on all documents.

Checks and Notifications at the Time of Application Acceptance:

The following should be checked and reported regarding the legal entity being deregistered in the taxpayer database:

  • Existence of legal entities created by the deregistered legal entity as a founder;

  • Whether the legal entity is registered for VAT purposes;

  • Presence of branches, representative offices, or other business units of the legal entity in the tax accounting;

  • Registration of cash registers at the business units of the legal entity;

  • Registration of POS terminals at the business units of the legal entity;

  • Existence of active bank accounts;

  • Tax debts to the state budget;

  • Submission of all required declarations/reports.

If any issues are found, the legal entity must take necessary actions to resolve them (submit closure applications for active accounting units, submit outstanding tax declarations, pay tax debts, etc.).

Documents Submitted to Deregister the Legal Entity from the State Register:

Within 10 days after the distribution or use of remaining property, the liquidation commission (liquidator) submits the following to the relevant executive authority:

  • Liquidation balance sheet;

  • Report on distribution/use of remaining property and documents confirming settlement with participants (acts, bank payment statements, etc.);

  • Original registration certificate and charter bearing the “in the dissolution process” seal;

  • For joint-stock companies, a certificate from the Financial Market Supervisory Authority regarding withdrawal of shares from circulation.

If the documents meet legal requirements, the registration authority shall remove the legal entity from the State Register within 7 days from receipt of the documents.

Duration of the Legal Entity’s Dissolution Process:

The total duration of the dissolution process shall not exceed one year from the moment the legal entity’s status “in the dissolution process” is entered into the State Register. If the period expires, the process must restart, with the note removed from the register and documents returned to the liquidation commission with a notification.

Note: The dissolution procedures for branches or representative offices of foreign legal entities follow the same rules as commercial and public legal entities, according to the Civil Code and Law on State Registration.

Procedures for the Deregistration of Natural Persons

Regulatory Documents:

Tax Code of the Republic of Azerbaijan, “Rules on Registration, Re-registration and Deregistration of Natural Persons for Tax Purposes,” and “Rules on Deregistration of Commercial Entities and Taxpayers with State Tax Authorities.”

Application Form:

Paper-based (submitted in person or by mail) or electronic.

The application form is determined by the Ministry of Taxes of Azerbaijan.

Applications must be signed and submitted only by the natural person, their authorized representative (with notarized power of attorney), or heir (guardian or custodian).

Paper applications are submitted in person to the tax authority where the person is registered or by mail. Electronic applications are submitted via the Internet Tax Service portal (www.taxes.gov.az).

Grounds for Deregistration of a Natural Person:

According to Article 34.7.3 of the Tax Code, deregistration is possible in the following cases:

  • The natural person ceases activities;

  • The person is declared deceased, missing, or incapacitated by a court;

  • The natural person passes away.

Required Documents:

  • If activities cease: Application for deregistration and original tax registration certificate (if issued);

  • If deceased, missing, or incapacitated: Court decision and original tax registration certificate;

  • If deceased: Death certificate and original tax registration certificate.

When submitting electronically, the original tax certificate must be handed over before deregistration.

If the certificate of entrepreneurial registration is lost, the natural person or their authorized representative must inform the tax authority. If no heir exists and the certificate is lost, it is not required to submit the certificate for deregistration.

Checks and Notifications at the Time of Application Acceptance:

The following must be checked and notified regarding the deregistered person in the tax database:

  • Submission of applications for deregistration from VAT;

  • Deregistration of business units/objects;

  • Deregistration of registered cash registers;

  • Deregistration of POS terminals;

  • Closure of active bank accounts;

  • Payment of tax debts to the state budget;

  • Submission of outstanding declarations/reports.

If any of these issues are detected, the natural person must take necessary measures (submit applications for closure of accounting units, submit outstanding declarations, pay tax debts).

Result:

Following the completion of all necessary procedures (closing bank accounts, deregistering cash registers and business units, paying tax debts, submitting outstanding declarations, completing any final tax audits), the natural person is deregistered from the tax records.

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Digitalization in Tax Policy Yields Beneficial Results

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One of the main directions of the tax policy implemented in our country is the further expansion of the application of digital approaches and solutions in tax administration and the efficient use of existing resources for this purpose. Tax policy is being adapted to the pace of changes in the digital economy and the developing economic environment.

Expansion of Digitalization and Electronic Services Continues

The State Tax Service (STS) is undertaking necessary efforts to expand the number of electronic services and to further modernize these services. In Azerbaijan, tax declarations have been submitted electronically for many years, an electronic tax invoice system is in place, and more than 60 electronic services are provided to taxpayers. Currently, over 90% of taxpayers nationwide submit their reports and declarations electronically. Tax authorities are working on innovations that simplify the existing system to help entrepreneurs fulfill their tax obligations. The service system is being improved in line with taxpayers’ expectations and demands. Preparations are underway to enable micro and small entrepreneurs to fulfill their tax obligations via mobile applications, i.e., simple mobile apps. One of the main goals is to minimize live contact between entrepreneurs and tax authorities and to ensure that each taxpayer can access any service anytime, anywhere. The application of new technologies supports targeted government services, the complete transfer of interactions with taxpayers to electronic format, and full transparency in these relations. New technologies play a significant role in increasing voluntary compliance with tax legislation. This contributes to strengthening mutual trust between society and the state, enhancing citizen satisfaction, and ensuring transparency of the economy for all parties.

Digital Solutions Are More Effective for Fulfilling Tax Obligations

One of the main goals of digital transformation at the State Tax Service is to establish an efficient and fast data processing system that enables agile decision-making. The use of digitalization is not limited to services provided to taxpayers but also applies to analysis, auditing, and desk audits, using programs based on artificial intelligence and modern information technologies. Efforts continue to improve the application of IT in tax administration, including the further expansion of electronic services. The Digital Transformation Council operates to increase the efficiency of operations in the IT field, develop unified principles and standards, manage digitalization and automation processes within the STS, and ensure the highest levels of security and uninterrupted operations.

Systematic Fight Against the “Shadow Economy” and Increasing Transparency…

Among the digital tools applied by tax authorities, the introduction of next-generation control-cash registers is a significant event for further improving the business environment and advancing entrepreneurial activity to a new qualitative level. The main benefit of this innovation is the increased transparency, which serves both entrepreneurs’ and the state’s interests. The use of new cash registers allows for more transparent settlements, prevents illegal circulation of goods, and ensures control over turnover. Currently, more than 71,000 such cash registers have been installed in the country. Since these cash registers allow remote monitoring of taxpayers’ activities and offer flexible settlement methods, the scope of activities requiring their use is expanding. The expansion of their application positively impacts the innovative “VAT Refund” project. This year, amendments to the legislation included the VAT refund mechanism for medical services. The “VAT refund” mechanism has been implemented not only for retail trade and public catering but also for medical services, aiming to increase turnover transparency in the healthcare sector and encourage citizens’ direct participation.

According to the “2022-2026 Socio-Economic Development Strategy,” systematic efforts to combat the “shadow economy” and increase transparency include expanding digitalization in tax policy. Among other targets, the coverage of digital tax collection (the ratio of submitted invoices and online cash register turnover to declared turnover) aims to exceed 75%.Digital tax services

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Decree of the President of the Republic of Azerbaijan on Amendments to the “Regulation on the Form and Procedure for Maintaining a Unified Information Register of Inspections Conducted in the Field of Entrepreneurship,” approved by Decree No. 383 dated February 15, 2011

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Based on Clause 32 of Article 109 of the Constitution of the Republic of Azerbaijan, I have decided:

To amend Clause 4.5-2 of the “Regulation on the Form and Procedure for Maintaining a Unified Information Register of Inspections Conducted in the Field of Entrepreneurship,” approved by the Decree No. 383 of the President of the Republic of Azerbaijan dated February 15, 2011 (Legislative Collection of the Republic of Azerbaijan, 2011, No. 2, Article 87; 2015, No. 8, Article 910; 2016, No. 8, Article 1384; 2017, No. 3, Article 377, No. 10, Article 1778; 2018, No. 10, Article 2001; 2019, No. 5, Article 857; 2020, No. 6, Article 707; 2021, No. 5, Article 450; Decrees No. 1766 dated July 26, 2022, and No. 1784 dated August 2, 2022, of the President of the Republic of Azerbaijan), by adding the words “, as well as in case of an extension of the inspection period during a field tax audit in accordance with Article 36.3-1 of the Tax Code of the Republic of Azerbaijan, within 1 working day from the time the decision on this extension is made” after the words “until the inspection is completed)”.

Ilham Aliyev
President of the Republic of Azerbaijan
Baku city, August 22, 2022

Source: https://president.az/az/articles/view/56989

SANCTIONS

Financial Sanction and Administrative Penalty

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  1. According to Article 57.1 of the Tax Code, a financial sanction of 40 AZN is imposed on taxpayers who do not submit their tax report or, if there was no entrepreneurial activity or other taxable transactions during the reporting period, do not submit a certificate instead of the tax report to the tax authority within the established timeframe without valid reasons, based on the decision of the head (or deputy) of the tax authority.
  2. According to Articles 59.1 and 59.2 of the Tax Code, if the tax or current tax payment is not paid within the period established by the Tax Code, an interest of 0.1% of the unpaid tax or current tax payment amount is charged for each overdue day after the payment deadline from the taxpayer or tax agent. This interest is applied to all overdue periods regarding tax payments but not exceeding one year. This interest is applied to tax amounts unpaid on time identified as a result of field tax audits from the day these tax amounts are charged to the taxpayer.
  3. According to Article 461.1 of the Code of Administrative Offenses, failure to submit tax reports related to activities carried out under international agreements ratified by the Republic of Azerbaijan, production sharing agreements approved by law, the main export pipeline agreement, and other similar agreements to the State Tax Service within the established timeframe without valid reasons (except where other rules are stipulated in those agreements) results in a fine of 50 AZN imposed on the responsible officials.
  4. According to Article 461.2 of the Code of Administrative Offenses, failure to submit a report on the collection of state fees in cases and procedures determined by the Law of the Republic of Azerbaijan “On State Fees” to the State Tax Service results in a fine of 50 AZN imposed on responsible officials.
  5. According to Article 467 of the Code of Administrative Offenses, for violation of the rules for payment of state fees, i.e., improper collection of state fees by authorized officials or failure to pay the state fee to the state budget on time or in full, responsible officials are fined between 500 AZN and 700 AZN.