Tax Guide

Azerbaijan has most competitive corporate tax rates. The Azerbaijan corporate tax legislation has noticeably clear, objective, and harmonized provisions that are in line with international standards.

 

State taxes include:

  • Income tax of natural persons (personal income tax);
  • Profit tax of legal persons (corporate income tax) (with the exception of enterprises and organizations that are the property of municipalities);
  • Value added tax;
  • Excise tax;
  • Property tax of legal persons;
  • Land tax of legal persons and that of natural persons in respect of misused agricultural lands;
  • Road tax;
  • Mining tax;
  • Simplified tax.
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Income tax of natural persons (personal income tax)

Real persons' income is subject to personal income tax. Income is defined as the net amount of all earnings and revenues derived by an individual within a single calendar year. An individual’s income may consist of one or more income elements listed as follows:  

  • Business profits
  • Salaries and wages
  • Income from independent personal services
  • Income from immovable property and rights (rental income)

 

Resident and non-resident natural persons are payers of income tax. Income tax in respect of residents’ income is levied on income consisted of the difference between the gross income of the residents for the tax year and deductions for that period.

 

A non-resident taxpayer operating in the Republic of Azerbaijan through a permanent establishment should be a payer of personal income tax on taxable income related to permanent establishment, whereas non-resident taxpayer who does not have a permanent establishment is a payer of income tax on gross income, irrespective of the expenses. Entrepreneurial activity conducted by non-resident natural person for the cumulative period of not less than 90 days within any 12-months period is deemed the activity conducted through permanent establishment.

 

Monthly income of natural persons, along with the income from employment, is taxed in accordance with the following table:

Gross income of a non-resident natural person which is not related to the permanent establishment is taxed at the rates specified in the Article 125 of the Tax Code.

 

Income of special notary, as well as earnings in the form of money from sports betting games, lotteries, and other contests and competitions, is taxed at a rate of 10 per cent. Article 102 of the Tax Code envisages 45 tax privileges and exemptions in respect of income tax. Reporting period for individuals engaged in entrepreneurial activity is the calendar year.

 

In case income elements specified in the Income Tax Law are derived by corporations, taxation is applicable on the legal entities of these corporations. Corporate taxpayers defined in the law are as follows: Capital companies; Cooperatives; Public economic enterprises; Economic enterprises owned by associations and foundations.

 

Value Added Tax (VAT)

Value Added Tax (VAT) is the difference between the amount of tax calculated from taxable turnover and the amount of tax that should be offset according to the electronic tax invoices issued in accordance with the provisions of the Tax Code or the documents proving the payment of VAT on import. During retail sale of agricultural products produced in the territory of the Republic of Azerbaijan, value added tax is calculated from the trade markup.

 

Persons importing goods liable to VAT into the Republic of Azerbaijan, producers of excised goods and persons engaged in construction of building, who waives the right to become payer of simplified tax, are considered to be VAT payers irrespective of the volume of taxable operations.

 

Non-resident person providing works or services without registering for VAT purposes, and who is taxable in accordance with Article 169 of the Tax Code, shall be deemed as VAT payer on those works or services.

 

VAT is applied at the rates of 18% and 0%. The VAT reporting period is a calendar month.

 

Mining Tax

Mining tax is levied on minerals extracted from subsurface strata of the earth in the territory of the Republic of Azerbaijan (including sector of Caspian Sea belonging to the Republic of Azerbaijan).

 

Depending on the type of minerals extracted from subsurface strata of the earth, the rates of mining tax are defined in the Tax Code as follows:

 

26% of wholesale price of oil; 20% of wholesale price of natural gas; 3% of the wholesale price of ores; In respect of nonmetallic ores, at rates defined by Article 216.2 of the Tax Code depending on the type of minerals.

 

Land Tax

Natural persons and enterprises who own or use land in the territory of the Republic of Azerbaijan are payers of land tax.
Agricultural lands used upon designation or impossible to be used upon designation for irrigation, melioration and other agro-technical reasons, are taxed in the amount of 0.06 manats per 1 conventional point depending on geographical location and quality of the land (conventional points for the administrative districts of the republic were approved by Decree No. 230 of the Cabinet of Ministers of the Republic of Azerbaijan dated 29.12.2000).

Tax on agricultural lands not used upon designation is levied in the amount of 2 manats per each 100 sq.m, whereas lands of different purpose are taxed as per each 100 sq.m pursuant to Article 206.3 of the Tax Code, depending on the location of land and purpose of use thereof.

 

Land tax is calculated annually. Enterprises and natural persons as specified in Article 206.1 of the Tax Code, pay their land tax to the state budget, in other cases, natural persons shall pay their tax to the local (municipal) budget.

 

For enterprises reporting period of land tax is the calendar year.

 

Article 207 of the Tax Code envisages 8 tax privileges and exemptions in respect of land tax.

 

Property tax

Enterprises with fixed assets in their balance, and individuals having premises (building), water and air transport facilities in their ownership, are payers of property tax.

 

Premises (building) located in the territory of the Republic of Azerbaijan, water and air transport facilities, which are in ownership of natural persons, regardless of their location and utilization status, as well as the average annual value of fixed assets of enterprises, is taxable for the purposes of property tax.

 

Property tax on buildings owned by individuals is calculated as per each square meter of property area and at rates as specified in Article 198.1.1 of the Tax Code, whereas water and air transport facilities with engine are taxed in the amount of 0.02 manats per 1 cub. sm. of engine. In respect of water and air transport facilities without engine tax is levied at a rate of 1% of their market price.

 

Simplified tax system

 

The Tax Code stipulates payment of taxes based on a simplified system for enterprises or sole entrepreneurs not registered as value-added tax (VAT) payers and whose cumulative gross revenue during any consecutive 12-month period is not more than 200,000 Azerbaijani manats (AZN). 

The following persons are not eligible to be classified as simplified taxpayers:

  • Persons engaged in wholesale trade.
  • Persons engaged in retail trade activities with turnover exceeding AZN 200,000 over a consecutive 12-month period.
  • Persons with a residual value of fixed assets owned at the beginning of the year more than AZN 1 million.
  • Companies with headcount over ten employees engaged in production.
  • Professional participants of the insurance market (except for insurance agents providing services under a mandatory insurance agreement).
  • Persons providing services to tax registered persons.
  • Persons engaged in licence-required activities.
  • Persons earning income from renting property and royalties.

Persons engaged in both wholesale and retail activities may choose to be simplified taxpayers unless the volume of transactions (other than non-operating income) to be executed by electronic invoices in a quarter does not exceed 30% of total trading operations.

Persons who provide services to non-tax-registered persons and tax-registered persons may choose to be simplified taxpayers if the portion of the revenue (other than non-operating income) in relation to services supplied to tax-registered persons does not exceed 30% of the total revenue for a quarter.

Persons engaged in building construction activities do not have right to be a simplified taxpayer, except for those who have commenced but have not completed their construction works by 1 January 2020.

Persons who are operators of sports betting games and sellers of sports betting games, as well as organisers of lotteries and sellers of lottery tickets, are considered to be simplified taxpayers irrespective of their turnover.

The simplified tax is imposed on gross revenue at a rate of 2%, whereas the simplified tax rate for enterprises rendering catering services with taxable transactions exceeding AZN 200,000 shall be at 8%.

A special rate of simplified tax is set for individuals selling residential and non-residential premises (except for premises of individuals where one has been residing for at least five years) at a fixed amount of AZN 15 per square metre multiplied by an applied coefficient. The applied coefficient is determined by regional executive authorities.

Special tax rates apply in relation to the income of sports betting operators and lottery organisers at 6% of the proceeds generated from the sale of tickets and income of sports betting and lottery ticket sellers and 4% of the commissions paid to them by the operators and lottery organisers.

Simplified tax is calculated at 1% for cash withdrawals by legal entities and sole traders.