Proper planning of tax obligations is one of the key elements of financial discipline for every business. Especially for corporate income or profit tax payers, accurate calculation of current tax payments directly affects both budget planning and the management of tax liabilities arising at the end of the year.
According to Article 151 of the Tax Code of the Republic of Azerbaijan, there are three different methods for calculating current tax payments. These methods are applied depending on the taxpayer's operating history, the financial results of the previous year, and the calculation method selected. Under the legislation currently in force, the rules for applying these methods remain unchanged.
What Are Current Tax Payments?
Current tax payments are profit or income tax payments made to the state budget on a quarterly basis before the end of the reporting year. These payments are deducted from the final tax liability calculated based on the annual tax return submitted at the end of the year. As a result, the taxpayer either pays an additional amount or the excess amount paid is credited toward subsequent tax liabilities.
3 Methods for Calculating Current Tax Payments
1. Method Based on 1/4 of the Tax Calculated for the Previous Year (Tax Code, Article 151.1)
This method is considered the simplest calculation method in practice.
If a company calculated profit tax in the previous year, the tax payable for each quarter of the current year is determined as one-fourth of that amount. Current tax payments are made to the state budget within the period prescribed by legislation after the end of each quarter.
Who Is It Suitable For?
- Companies whose revenues do not fluctuate significantly from year to year;
- Businesses with stable financial performance;
- Businesses seeking to simplify their calculations.
Advantages
- Easy to calculate;
- No need for complex recalculations every quarter;
- Cash flow planning can be carried out more easily.
Important Consideration
If profit in the current year increases or decreases significantly compared to the previous year, an additional tax liability or an overpayment may arise at the end of the year.
2. Method Based on the Current Quarter's Revenue (Tax Code, Article 151.2)
This method is intended for businesses with more dynamic operations.
Under this method, the taxable revenue earned during the current quarter (without taking expenses into account) is multiplied by the coefficient representing the share of tax in the previous year's revenue. As a result, the current tax payment more closely reflects the actual level of business activity.
Who Is It Suitable For?
- Companies engaged in seasonal activities;
- Businesses with fluctuating turnover throughout the year;
- Businesses with unstable sales volumes.
Advantages
- Provides a result that is more aligned with current business activity;
- Tax payments are calculated closer to actual revenue;
- Reduces the likelihood of significant differences arising at the end of the year.
Important Requirement
A taxpayer choosing this method must notify the tax authority within the period prescribed by legislation each year and submit a "Statement on the Calculation of Current Tax Payments" for each quarter. Otherwise, the tax authority applies the method provided for under Article 151.1.
3. Method for Newly Established Taxpayers or Taxpayers with No Taxable Profit in the Previous Year (Tax Code, Article 151.5)
This method applies to the following taxpayers:
- newly established businesses;
- taxpayers that did not operate during the previous tax year;
- businesses that had no taxable profit (income) in the previous year.
In this case, current tax payments are calculated on a cumulative basis by quarter throughout the calendar year, and the tax rates prescribed by legislation are applied. The current tax amount may not be less than 75% of the calculated profit or income tax.
Who Is It Suitable For?
- Startups;
- Newly established LLCs;
- Businesses resuming their activities;
- Businesses that ended the previous year with a loss or had no taxable profit.
Important Requirement
Under this method as well, a "Statement on the Calculation of Current Tax Payments" must be submitted to the tax authority after the end of each quarter. If it is not submitted, the tax authority may carry out the calculation in accordance with the procedure prescribed by legislation.
Which Method Is More Appropriate?
| Type of Business | Recommended Method |
|---|---|
| Companies with stable turnover | 151.1 |
| Seasonal businesses and businesses with fluctuating revenue | 151.2 |
| Newly established businesses or businesses with no taxable profit in the previous year | 151.5 |
The choice of method affects not only the calculation procedure but also the management of the company's cash flow and the tax liability arising at the end of the year. Therefore, it is important to analyze financial performance before making a choice.
Most Common Mistakes Made by Companies
In practice, the following mistakes are frequently encountered in relation to current tax payments:
- choosing a method that does not correspond to the nature of the business;
- failing to notify the tax authority about the selected method on time;
- late submission of statements under the 151.2 and 151.5 methods;
- evaluating current tax payments separately from annual tax planning;
- incorrectly taking into account losses from previous years and tax incentives.
These mistakes may result in additional tax liabilities, interest, and administrative risks.
Calculating current tax payments is not merely a matter of quarterly payments; it is an important part of a company's overall financial management. Each of the three methods provided for under Article 151 of the Tax Code is designed for different business models, and making the right choice can help optimize the company's cash flow and prevent unexpected tax burdens at the end of the year.
If you are having difficulty determining which method is more suitable for your business or want to ensure that current tax calculations are carried out fully in compliance with legislation, Global Management's professional accounting and tax outsourcing services can help manage this process in a safer, more accurate, and more efficient manner.
Frequently Asked Questions (FAQ)
1. Are current tax payments recalculated at the end of the year?
Yes. After the annual profit or income tax return is submitted, the current tax amounts paid during the year are deducted from the final tax liability.
2. Is it possible to change the method during the year?
No. According to the Tax Code, the selected method cannot be changed until the end of the tax year. This applies only to Article 151.1.
Accordingly, if Article 151.1 is selected in the first quarter of the current year, calculations will continue to be made under this article until the end of the year.
Businesses that submit a statement under Article 151.5 may use only Article 151.5 during the year, meaning that they do not have the right to choose Article 151.1 or 151.2.
Under Article 151.2, a business must submit the Article 151.2 statement by the 15th day of the month following each quarter. If it fails to do so, the calculation will be made under Article 151.1. Therefore, a business that has selected Article 151.2 may switch to Article 151.1 during the year.
3. Who Is Required to Apply the 151.5 Method?
This method applies to newly established taxpayers, taxpayers that did not operate or had no taxable profit in the previous tax year, as well as other cases provided for by legislation. (Other case: businesses that operated as simplified tax payers in the previous tax year and become profit tax payers in the current year.)
