Azerbaijan

In general, Azerbaijan resident entities are subject to a profit tax on their worldwide income. A non-resident enterprise operating in Azerbaijan through a PE must pay tax on the gross income generated from Azerbaijan sources, less any related deductions attributable to the PE. Gross income of a non-resident enterprise generated from Azerbaijan sources and not connected with a PE is taxed at the source of payment without any deductions allowed for expenses.

Domestic enterprises and PEs of non-residents are subject to profit tax at the flat rate of 20%.

Taxable profits are defined to be the difference between a taxpayer’s gross income and deductible expenses.

Gross income encompasses all revenues received by a taxpayer from all economic activities, unless the revenues are expressly exempted under the law.

Deductible expenses encompass all expenses that are incurred in the furtherance of a taxpayer's business activities, except for those determined as non-deductible under the Tax Code. See the Deductions section for more information.

Simplified tax system

The Tax Code stipulates payment of taxes based on a simplified system for enterprises or sole entrepreneurs not registered as VAT payers and whose cumulative gross revenue during any consecutive 12-month period does not exceed AZN 200,000 (Turnover generated from non-cash payments made through POS terminals for retail trade and services provided to persons not registered with the tax authority is taken into account with a coefficient of 0.5.).

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

• Persons who produce goods subject to excise duty and mandatory marking.
• Non-state pension funds.
• Public legal entities.
• Persons selling gold, jewellery made from it and other household goods, as well as diamonds.
• Persons selling fur products.
• 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.

Additional clarifications:

• Motor vehicles owned by taxpayers and used exclusively for transporting their employees and goods for their own business activities are not subject to simplified tax. A “Special Distinguishing Badge” must be obtained and returned electronically.
• Persons engaged in both wholesale and retail activities may choose to be simplified taxpayers if e-invoice transactions do not exceed 30% of quarterly operations.
• Persons providing services to both tax-registered and non-tax-registered persons may choose simplified tax if services to tax-registered persons do not exceed 30% of quarterly revenue.
• Persons engaged in building construction activities do not have the right to be simplified taxpayers, except for projects started before 1 January 2020 and not completed.
• Operators and sellers of sports betting games, as well as lottery organisers and ticket sellers, are considered simplified taxpayers regardless of turnover.

Tax Rates

• General simplified tax rate: 2% on gross revenue.
• Catering services: 8% if taxable transactions exceed AZN 200,000.
• Reduced rate for non-cash payments:
  • 6% simplified tax rate (instead of 8%) for services provided for public and paid via POS terminals, applicable for 3 years starting 1 January 2026.
• Individuals selling residential and non-residential premises (except for premises where one has resided for at least five years):
  • Fixed amount of AZN 15 per square metre × applied coefficient (coefficient determined by regional executive authorities).
• Sports betting and lottery income:
  • Operators: 6% of proceeds from ticket sales and betting income.
  • Sellers: 4% of commissions paid by operators and lottery organisers.
• Cash withdrawals: 1% for legal entities and sole traders.

Other special corporate tax regimes

There are other tax regimes applicable under special agreements concluded between the Azerbaijan government and foreign oil companies: production sharing agreements (PSAs) and host government agreements (HGAs). The PSA and HGA regimes apply to all enterprises involved in these agreements, including foreign oil companies functioning as contractors and foreign service companies providing services to the contractor or the operating company.

There are 30 signed and ratified PSAs and two HGAs, each with its own separate tax regime. Each PSA and HGA is in force, published on the official website of the Ministry of Taxes (www.taxes.gov.az), and contains a tax article that outlines the tax regime for that particular agreement. While there are several similarities with respect to tax terms in the various PSAs, there are some differences, other than merely differing tax rates (e.g. taxation of foreign subcontractors) or reporting requirements. Additionally, tax protocols for each PSA and HGA, which provide specific guidance regarding the procedures for payment of taxes and filing of reports, are negotiated with the Ministry of Taxes and other executive authorities.

Under PSAs, PSA contractor parties and foreign subcontractors are subject to tax only on their corporate income. Contractor parties pay profit tax on income derived from hydrocarbon activities, and foreign subcontractors are subject to tax only on income from services and mark-up on goods supplied in Azerbaijan. Local subcontractors are subject to the statutory tax regime.

No corporate tax is applicable to HGA subcontractors. HGA participants pay tax only on their transportation income.

See the Tax credits and incentives section for a description of other tax incentives.

Local income taxes

Local income taxes are paid only by companies and organisations that are in the property of municipalities. Tax rates do not exceed 20% for profit taxpayers and 2% to 8% for simplified taxpayers.