The taxation system in Azerbaijan is made of various levies that are categorized as direct and indirect ones. The most important levy in Azerbaijan is the income tax which applies to both individuals and companies depending on the earnings they obtain from various sources.
Taxation in Azerbaijan depends on whether a taxpayer is a resident or non-resident of this country, so if you need to know how much income tax you must pay, you can determine the amount based on this criterion, but also on others.
Below, our company formation specialists in Azerbaijan explain how the income tax applies here.
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Income tax residence in Azerbaijan
Before determining the rate of the income tax in Azerbaijan, it should be noted that this levy can be imposed on the entire or partial profits or income earned by a company, respectively individual.
The imposition of this tax is as follows:
- residents will be levied on the income they obtain in Azerbaijan and outside it,
- non-residents will be levied on the income they obtain in Azerbaijan only.
When it comes to non-residents in Azerbaijan and the income tax, the imposition of this tax also implies the provisions of double tax treaties, where these exist.
If you want to set up a business in Azerbaijan, our consultants can guide you through the company registration procedure.
Natural persons and the income tax in Azerbaijan
In order to not create confusion, the natural persons are subject to the personal income tax in Azerbaijan. It is levied on the following types of earnings:
- employment, no matter if it is obtained from a local or foreign company operating in Azerbaijan,
- social security contributions are also imposed on Azeri employees,
- on dividends and other types of incomes they obtain from various savings or sources,
- on real estate ownership and rental income (deemed as royalty income),
- inheritances, gifts and other capital gains are also subject to the income tax in Azerbaijan.
The value added tax is a consumption tax that is usually paid by those who purchase goods and services in Azerbaijan. If it cannot be considered an income tax, it is one of the most important levies in this country with a high consumption rate.
There are specific aspects to be considered when it comes to Azerbaijan and the income tax applied to employment-generated earnings, as the rates are divided into income obtained by those working in the oil and gas sector and those who work in industries unrelated to these two.
The following rates should be considered by natural persons paying the income tax on employment in Azerbaijan:
- a 0% rate is applicable to non-oil and gas workers for incomes below 8,000 AZN,
- a 14% rate is available for the same workers for incomes above 8,000 AZN (the first 8,000 AZN will be imposed the reduced rate),
- for workers in the oil and gas sector, the 14% rate will apply for an income of up to 2,500 AZN,
- for those in the oil and gas sector earning more than 2,500 AZN a tax of 350 AZN plus 25% of the amount exceeding the salary will be imposed.
These salaries are calculated on a monthly basis, and the 0% rate is available for 7 years.
When it comes to the social contributions that need to be paid in Azerbaijan and that are related to the income tax, employees are subject to the following:
- a 3% social contribution for employees in non-oil and gas sectors,
- a 2% medical insurance contribution,
- a 0.5% unemployment insurance contribution.
It should be noted that in the case of employment and medical social insurances higher rates apply, depending on the income obtained by the employee.
The income tax applied to companies in Azerbaijan
Also known as the corporate income tax, this is the most important levy applied to companies in Azerbaijan. The rate of this tax is 20% for domestic companies and permanent establishments of foreign enterprises operating in Azerbaijan.
If you need information about starting a business in Azerbaijan and the income tax that needs to be paid for corporate profits, you can ask our local representatives.
Income taxes filing requirements in Azerbaijan
In order to pay levies in Azerbaijan, including income taxes, only companies must file tax returns with the State Tax Office. In the case of individuals, those earning incomes from employment only are not required to file tax returns, as all the amounts due are withheld at source by the employer.
In the case of businesses, annual tax returns must be filed. Companies registered for VAT must file monthly statements associated with the payment of this levy.
For detailed information on Azerbaijan and the income tax, please contact our local agents.