Azerbaijan

Foreign tax credit

Azerbaijani legal entities are taxed on worldwide profit; however, any tax paid overseas, up to the tax amount that would be calculated under Azerbaijani law, will be allowed to offset the Azerbaijani profit tax. The tax credit may not exceed the tax that would be imposed on such income in Azerbaijan. This credit applies only to residents of Azerbaijan.

Incentives for agricultural producers

Taxpayers producing agriculture products are exempt from profit tax, VAT, and property tax for the thirteen-year period beginning 1 January 2014.

Only mark-ups applied in the retail sale of agricultural products produced in Azerbaijan are subject to VAT. Beginning from 1 January 2022, for a period of three years, VAT is assessed on mark-ups applied on wholesale and retail sale of agricultural products (local and foreign origin).

Under recent amendments to the Tax Code, the following transactions are not subject to VAT for a specified period:

• Import and sale of wheat, as well as production and sale of flour and bread, for ten years from 1 January 2017.
• Sale of animal and poultry meat for seven years from 1 January 2020.

• production and sale of bran - for a period of 8 years from March 1, 2019
• Sales of feed and feed additives used in livestock and poultry farms for seven years from 1 January 2020.

Incentives for residents of industrial and technology parks

Businesses operating in industrial and technology parks are eligible for certain privileges and exemptions for ten years starting from the reporting year in which residents are registered in the industrial and technology park. Beginning from 2023, companies involved in system integration, software preparation, and development activities and conducting these activities even outside of the territory of the technology parks might be considered as residents of the technology park and by that use the tax benefits provided in the legislation.

The privileges include the following:

• Exemption from profit/income, land, and property tax for resident legal entities and private entrepreneurs.
• Exemption from WHT on dividend payments.
• VAT exemption for import of equipment for construction, scientific research works, and other activities in these parks, depending on the nature of these activities.

Incentives for the residents of the liberated territories

Legal entities and individuals registered with the tax authorities and operating in the liberated territories are eligible for the following exemptions for a period of ten years:

• Profit (income) and simplified tax, including on non-sales income.
• Property tax.
• Land tax.
• VAT on the import of raw materials and materials (list yet to be published).
• Dividend income of the shareholders.

These benefits are not applicable to financial services, cargo transportation services, and goods and services conducted at the expense of the state budget.

Law on the Special Economic Regime for Export-Oriented Oil and Gas Activities

The Law on the Special Economic Regime for Export-Oriented Oil and Gas Activities was adopted in April 2009 and will remain effective for 15 years. This law avails the following tax incentives to contractors and subcontractors (excluding foreign subcontractors without PE in Azerbaijan):

• Local companies are permitted to choose between (i) profit tax at a rate of 20% or (ii) 5% WHT on gross revenues.
• Foreign subcontractors are taxable only by a 5% WHT.
• 0% VAT rate.
• Exemption from dividend WHT and taxation on branch’s net profits.
• Exemption from customs duties and taxes.
• Exemptions from property tax and land tax.

In order to derive these benefits, the relevant taxpayer should obtain a special confirmation certificate from the Ministry of Industry and Energy.

The Law on Special Economic Zones (SEZs)

The companies operating in SEZs shall have the following tax benefits:

• A 0.5% tax levied on overall turnover from supplied goods, performed services, or works.
• A 0% VAT rate.
• Customs exemptions.

In order to operate in an SEZ, a special residency certificate is necessary. However, the following companies may not apply for this certificate:

• Companies producing or processing oil and gas.
• Companies producing alcoholic beverages and tobacco.
• Television or radio broadcasting companies.

Incentive for the employment of disabled persons

The rate of profit tax levied on production enterprises belonging to community organisations for disabled persons, and involving at least 50% of disabled persons, shall be reduced by 50%.

In determining eligibility for these privileges, disabled persons substituting for permanent employees, contractors (i.e. who work under contractor agreements, civil legal contracts), or disabled persons till the age of 18 are not included in the average number of employees.

Incentive for civil aviation

Payment for rent or lease of aircraft and aircraft engines from non-residents of Azerbaijan who do not have PE in Azerbaijan within the scope of this activity is exempted from VAT and WHT.