AzerbaijanTax Obligations Detailed

Employers in Azerbaijan have various tax obligations related to payroll, social security, and other contributions.

Employer Taxes and Contributions

• Social Security: Employers contribute 22% of the employee's gross salary. This applies to all foreign employees except those with diplomatic status or working under Production Sharing Agreements (PSAs). A portion of these contributions are subsidized by the state for employees in the private sector of liberated territories (excluding oil and gas operations): 100% until December 31, 2025, 80% from January 1, 2026, to December 31, 2028, 60% from January 1, 2029, to December 31, 2030, and 40% from January 1, 2031, to December 31, 2032.
• Unemployment Insurance: Employers contribute 0.5% of the employee's gross monthly salary.
• Mandatory Medical Insurance: Employers contribute 2% of the employee's monthly salary up to 8,000 AZN. For salary exceeding 8,000 AZN, the contribution is 160 AZN + 0.5% of the amount above 8,000 AZN.
• Personal Income Tax (PIT): Employers withhold and remit employee PIT. For private sector employees outside the oil and gas industry, monthly income up to 8,000 AZN is exempt for seven years starting from January 1, 2019. Income above this threshold is taxed at 14%. In the oil and gas sector, income up to 2,500 AZN is taxed at 14%, and income above this amount is taxed at 25%.

Filing and Payment Deadlines

• PIT: Quarterly returns are due by the 20th day of the month following the end of the quarter. An annual summary of PIT payments for foreign employees is due with the Q4 return.
• Social Security and other contributions: These are typically paid monthly or quarterly, depending on specific regulations.
• Profit Tax: Annual profit tax returns are due by March 31 of the following year.

Additional Information

• Tax Year: The tax year in Azerbaijan is the calendar year (January 1 to December 31).
• Currency: Tax payments are made in Azerbaijani Manat (AZN). However, under PSAs and Host Government Agreements (HGAs), payments can sometimes be made in USD.
• Tax Exemptions: Various tax exemptions and incentives may apply, depending on the industry, location, or specific circumstances. Consult with a tax advisor for detailed information relevant to your situation.

This overview is current as of February 5, 2025, and may be subject to change due to updates in tax laws and regulations. It's important to stay updated on current regulations.

In Azerbaijan, employers are responsible for withholding various taxes from employee salaries, which contribute to social security, unemployment insurance, and mandatory medical insurance. These deductions, along with the income tax, are crucial for compliance with Azerbaijani employment regulations.

Employee Tax Deductions in Azerbaijan

Income Tax

• Tax-Exempt Income: Monthly employment income up to 8,000 AZN is exempt from income tax for seven years, starting from January 1, 2019, for private sector employees (excluding those in the oil and gas industry).
• Tax Rates: Income above the exempt amount is taxed progressively, with the highest rate currently at 25%. Income above the 8,000 AZN threshold, and investment income, is taxed at 14%. Individual entrepreneurs are taxed at a rate of 20%.
• Capital Gains: Capital gains are considered part of regular income and taxed at the standard individual income tax rate.

Social Security

• Employee Contribution: The social security contribution is split into two parts: 3% on income up to 200 AZN and 10% on income exceeding 200 AZN, plus a flat fee of 6 AZN.
• Liberated Territories Subsidy: Employees in the private sector of liberated territories (excluding oil and gas) receive a government subsidy on their social security contributions. The subsidy is currently 100% (from January 1, 2023, to December 31, 2025), and will decrease gradually in the following years.

Unemployment Insurance

• Employee Contribution: Employees contribute 0.5% of their salary to unemployment insurance.

Mandatory Medical Insurance

• Employee Contribution: The mandatory medical insurance contribution is tiered: 1% on income up to 8,000 AZN and 0.5% on income above 8,000 AZN, plus a flat fee of 160 AZN.

Employer Tax Contributions in Azerbaijan

Social Security

• Employer Contribution: Employers contribute 22% of the employee's salary for social security. This is in addition to the employee's contribution.
• Liberated Territories Subsidy: Similar to employees, employers in liberated territories (excluding oil and gas) receive a subsidy on their portion of social security contributions. The subsidy is currently 100% and decreases over time according to the current schedule.

Additional Information

• Minimum Wage: The national minimum wage is 400 AZN. As of February 5, 2025. This figure might be subject to change.
• Payroll Frequency: Payroll is typically processed monthly or bi-monthly in Azerbaijan.
• Overtime: Overtime work is subject to specific regulations, including limits on consecutive overtime hours and situations when overtime is allowed.

It is important to consult official government resources for the most recent updates to these tax regulations and specific details related to individual circumstances.

In Azerbaijan, the standard Value Added Tax (VAT) rate is 18%, applicable to most goods and services. Businesses with a taxable turnover exceeding AZN 200,000 in any 12-month period must register for VAT.

VAT Registration

• Threshold: AZN 200,000 (approximately USD 117,000 as of February 2025) in any consecutive 12-month period. A single transaction exceeding this amount also triggers mandatory registration. Voluntary registration is allowed.
• Who is required?: Both resident and non-resident businesses conducting taxable operations, importing goods, or providing services in Azerbaijan. Branches and permanent establishments must also register if they meet the threshold.
• Exemptions: Businesses operating under the simplified tax system are exempt from VAT registration.

VAT Rates

• Standard Rate: 18% applies to most goods and services.
• Zero Rate (0%): Applies to exports, certain international transportation services, and specific supplies to diplomatic missions and international organizations.
• Exemptions: Financial services, educational services, share sales, specific agricultural products, and certain imports. A full list is available from the Azerbaijani tax authorities.

VAT Filing and Payment

• Returns: Filed monthly.
• Deadline: By the 20th of the following month.
• Payment: Due by the 20th of the following month.

VAT Refunds

• Tax-Free Shopping: Foreign citizens can claim VAT refunds on purchases exceeding AZN 300 (excluding VAT) if goods are exported within 90 days. Refunds are subject to a 20% handling fee and bank charges.
• Medical Services: Starting January 1, 2025, tax-free VAT refunds are available for medical services provided to foreigners and stateless persons. Specific procedures are determined by the relevant executive authority.

Specific Provisions

• Digital Services: Non-resident providers of digital services to consumers in Azerbaijan are generally required to register and collect VAT, though a withholding tax mechanism is sometimes implemented. E-commerce transactions are subject to 18% VAT.
• E-Invoicing: While not mandatory, e-invoicing can simplify compliance.
• Record Keeping: Maintain records of transactions, VAT invoices, and other relevant documents for at least five years.

Recent Updates

• Exemptions are granted for profit and VAT for renewable energy projects and public-private partnerships, often for up to 30 years.
• Eight-year VAT exemption on the sale and import of bus parts for production purposes by legal entities began January 1, 2025.

As tax regulations are subject to change, consulting a tax professional is advisable for the most up-to-date information.

Azerbaijan offers a range of tax incentives to stimulate economic growth and attract investment.

Corporate Tax Incentives

• Investment Promotion Certificate: Entities holding this certificate enjoy a 50% profit tax exemption for seven years from the date of issuance. Additional incentives may also be available.
• Liberated Territories: Businesses operating in these territories are exempt from profit tax for 10 years, starting from January 1, 2023.
• Technology Parks: Dividends from resident legal entities operating within technology parks and engaged in system integration, software design, and development outside the park are exempt for 10 years from the certificate issuance date. From January 1, 2025, entities carrying out system integration, software development, and implementation activities outside the technology parks are exempt from corporate income tax for 10 years.
• Alat Free Economic Zone (AFEZ): Businesses in the AFEZ are exempt from VAT, withholding tax, corporate taxes, customs duties, and import/export taxes.
• Industrial Parks: Residents of industrial parks are exempt from property, land, corporate income tax, VAT on imported equipment, and import duties on equipment for 10 years.
• Export-Oriented Oil and Gas Activities: Contractors and subcontractors (excluding foreign subcontractors without a Permanent Establishment in Azerbaijan) can choose between a 20% profit tax or a 5% withholding tax on gross revenues. They are also exempt from VAT, dividend withholding tax, and taxes on branch profits. Foreign subcontractors without a PE are subject to a 5% WHT.
• Public-Private Partnerships (PPP) and Green Energy: From January 1, 2025, private partners in PPP projects and green energy initiatives are exempt from profit, property, land taxes, and VAT on imported goods and equipment for a period up to 30 years as determined by the contract.
• Railway Freight Transportation: From January 1, 2025, foreign motor vehicles transporting goods via railway to or from Azerbaijan are exempt from road tax for two years.

Individual Tax Incentives

• Investment Promotion Certificate: Individuals holding this certificate benefit from a 50% personal income tax exemption for seven years.
• Liberated Territories: Residents of the liberated territories are exempt from income tax for ten years, starting January 1, 2023.
• Micro and Small Entrepreneurs: 75% of income derived from micro-entrepreneurial activities is exempt from income tax for three years from the startup certificate date. For micro-businesses with annual revenue up to AZN 45,000 further exemptions may apply.
• Alat Free Economic Zone (AFEZ): Employees in the AFEZ with salaries up to 8,000 AZN are exempt from personal income tax.
• Food Production (Import Substitution): Individuals involved in producing food products intended to replace imported goods enjoy a 50% exemption from individual income tax for seven years.
• Private Non-Oil Sector: Monthly salaries up to 8,000 AZN have been exempt from income tax for seven years, starting from 2019. (This incentive is set to expire at the end of 2025.)

Application Procedures

Specific application procedures vary depending on the incentive. Further information can be obtained from the relevant Azerbaijani authorities, such as the State Tax Service under the Ministry of Economy or the Azerbaijan Export and Investment Promotion Foundation (AZPROMO).

Other Tax Provisions

• Capital Gains: Treated as regular income and taxed at the standard profit tax rate.
• Losses: Can be carried forward for five years but cannot be carried back.
• Foreign Tax Relief: Corporate income taxes paid abroad can be credited against Azerbaijani taxes due. Excess credits cannot be offset against domestic income or carried forward/back.
• Participation Exemption/Holding Company Regime: Azerbaijan does not have these regimes.

This information is current as of February 5, 2025, and may be subject to change. Please consult with the relevant Azerbaijani authorities for the most up-to-date details.