Azerbaijan

Horizontal Monitoring (Effective 2026)

Azerbaijan will introduce Horizontal Monitoring (HM) from January 2026 as part of its tax administration modernisation. HM is a voluntary compliance programme for large taxpayers, replacing traditional audits with a real-time, cooperative approach. Key features include:

• Continuous dialogue and real-time data sharing with tax authorities via digital platforms.
• Risk-based monitoring instead of retrospective audits.
• Benefits: Greater certainty on tax positions, reduced financial sanctions, no audit burden and improved compliance reputation.

Legal basis will be set through secondary legislation. 

Expiry of 7-Year Tax Incentives for Non-Oil and Gas Sector in 2026

Beginning January 1, 2026, the 7-year tax incentive for non-oil and gas sector employees will end, and a new progressive PIT schedule will apply. The rates will increase in stages: 3% for income up to AZN 2,500 in 2026, rising to 5% in 2027 and 7% from 2028 onward, while higher income brackets will continue to be taxed at incremental rates with fixed base amounts and percentages. The detailed schedule will be available in the Individual section of the WWTS.

OECD/G20 Inclusive Framework on BEPS

Azerbaijan joined the OECD/G20 Inclusive Framework on BEPS in December 2022, committing to implement 15 measures to combat tax avoidance and enhance transparency. Key actions already adopted include CFC rules, PE provisions, transfer pricing regulations, and CbC reporting.

Further, Azerbaijan signed the Multilateral Instrument (MLI) on 20 November 2023, ratified it on 24 September 2024, and it entered into force on 1 January 2025. The MLI enables swift updates to Azerbaijan’s double tax treaties to prevent treaty abuse and improve dispute resolution, reinforcing its commitment to global tax standards.

New tax incentives

Beginning from 2023, a new tax incentives regime has been created for the legal entities and sole entrepreneurs operating in the liberated territories. Beginning from 2026 the tax incentive regime was expanded to the residents in the Nakhchivan region.

Exemptions for IT companies

Companies involved in system integration, software preparation, and development activities (so-called ‘IT companies’), beginning from 2023, can benefit from certain profit tax exemptions.