Value-added tax (VAT)
VAT is levied on the supply of goods and services in Azerbaijan, and on the import of goods.
The standard rate of VAT is 18%.
Zero rating applies to the following:
- Exportation of goods and services.
- Importation under the PSA and HGA regimes if the taxpayer obtains a VAT exemption certificate.
- Importation of goods, the supply of goods, and the implementation of works and provision of services to grant recipients on the expense of financial aid (grants) received from abroad.
- International and transit cargo and passenger transportation, as well as the supply of works and services directly connected with international and transit flights and freight forwarding services related to international and transit cargo transportation.
- Investment of fixed assets in the form of shares in the charter fund (capital) of the enterprise (if the investment of fixed assets is not related to the acquisition of other property in exchange for it)
- The supply of gold and other valuables to the Central Bank of Azerbaijan.
Apart from the zero-rated VAT, an exemption from VAT is applied to the specific transactions listed below:
- Provision of financial services.
- Sale of participation interests or shares of a legal entity.
- Provision of paid educational services.
- Investment of any property (other than fixed assets) in the form of share into the charter fund (capital) of an enterprise, with the exception of imported property (if the investment of property is not related to the acquisition of other property in exchange for it)
- Imports of fixed assets being a subject-matter of leasing agreements.
- Turnover of agricultural products producers (including by industrial process) for the sale of agricultural products produced by them for a 13-years period beginning from 1 January 2014.
- Payment for rent or lease of aircraft and aircraft engines from non-residents of Azerbaijan who do not have a PE in Azerbaijan within the scope of this activity.
Industrial and technology equipment imported by taxpayers is exempt from VAT for the period of 10 years since their registration as a resident of the industrial and technological park. The VAT exemption is also applicable to goods imported into special economic zones (excluding those that are subject to an excise tax). Additionally, certain categories of imported goods are exempt from VAT as defined by the Cabinet of Ministers.
Any person who is registered or is liable to register as a VAT payer is regarded as a taxable person.
Taxpayers are required to register for VAT if:
- their cumulative taxable income exceeds AZN 200,000 for a consecutive 12-month period, or
- the value of one taxable transaction exceeds AZN 200,000.
Payments to a non-resident person, who is not registered as a VAT payer, for e-commerce services and works are subject to VAT.
If a person, who is not registered for tax purposes, makes payment to a non-resident for such electronic services (excluding hotel and air ticket arrangement services), the local bank executing the payment should pay the VAT from funds of the buyer. Such paid VAT is not creditable.
The taxable base is established by starting with the value of the goods and services without adding the VAT amount, but including any customs duty and excise duty, if applicable.
The value of taxable imports consists of the value of the goods determined in accordance with the customs legislation and taxes and duties (other than VAT) to be paid upon importation to Azerbaijan.
The amount of VAT to be paid is the difference between the amount of VAT received on taxable supplies of goods and services (output VAT) and VAT paid on the purchase of goods and services necessary to generate taxable supplies of goods and services (input VAT).
Beginning from 1 January 2022, the trade mark-up applied in the wholesale and retail sale of agricultural products (local and foreign origin) will be subject to taxation for a period of three years.
The Cabinet of Ministers can grant exemptions for the import of goods and equipment used for production purposes or to provide advanced technology know-how. Such exemptions are granted for a specific period and in a specific area and can only be granted if it is impossible to satisfy the respective needs from local resources.
Beginning from 1 January 2022, royalty payments are subject to VAT if the user of the intellectual property (IP) rights is situated/registered in Azerbaijan.
Beginning from 1 January 2020, recognition of taxable turnover for VAT purposes mainly has been shifted to the cash basis method.
As a rule, in monetary transactions (i.e. cash and non-cash settlements), the time of the taxable transactions is the date when payment was received by the taxpayer. Whereas the time of VATable non-monetary transactions, such as barter and in-kind transactions, as well as free-of-charge provision of goods, services, and works, will be considered the time when such non-monetary transactions are completed.
The Customs Code sets out the rules governing all aspects of the regime, including:
- The establishment of bonded warehouses and duty-free zones.
- Temporary imports and the processing of foreign goods in Azerbaijan.
- The procedures for the re-import and re-export of goods.
Azerbaijan has adopted the internationally accepted classification system for goods. The valuation procedures for customs purposes are determined in line with the general principles of the World Trade Organization (WTO).
The rates of customs duties are contained in the list of customs duties for the goods to be imported to Azerbaijan. These ad valorem customs duty rates vary between 0% and 15%, depending on the type of goods.
Full or partial relief from the duty on temporary imports (generally, for a period of up to one year) is also available.
Under the PSA regime, contractors, their agents, and subcontractors are entitled to import and re-export from Azerbaijan, free from any import duties and restrictions, goods used for hydrocarbon activities.
Excise duties are imposed on motorcycles that must be state registered, tobacco products; alcoholic beverages; light vehicles; leisure and sports yachts; petroleum; lubricants; imported platinum, gold, jewellery, and other items made thereof; processed, sorted, framed, and fixed diamonds; imported fur and leather goods; energy drinks (alcoholic and non-alcoholic), and electronic cigarettes.
Excise duties are paid by individuals, companies, and registered PEs of foreign companies in Azerbaijan that import and produce excise goods.
The following operations are subject to excise duties:
- Release of excise goods produced in Azerbaijan outside the premises of the building in which they were produced.
- Import of excise goods pursuant to the customs legislation of Azerbaijan.
The relevant executive authority shall determine rates of excise tax for excise goods imported into Azerbaijan (with the exception of light vehicles, leisure and sports yachts, and other floating transports stipulated for these purposes; platinum, gold, jewellery, and other items made thereof; and processed, sorted, framed, and fixed diamonds).
The following excise rates apply for the following items produced in Azerbaijan:
- Food alcohol (including ethyl alcohol non-denatured with alcohol content of not less than 80%; ethyl alcohol non-denatured with alcohol content of less than 80%): AZN 4.8 per litre.
- Vodka, strong drinks and strong beverage materials, liqueurs, and liqueur products: AZN 4.8 per litre.
- Cognac and cognac products: AZN 4.8 per litre.
- Sparkling wines: AZN 0.2 per litre.
- Wine and vineyard materials: AZN 0.2 per litre.
- Beer (except for non-alcoholic beer) and other beverages containing beer: AZN 0.4 per litre.
- Cigarillos: AZN 45.5 per 1,000 items.
- Cigarettes made of tobacco and their substitutes: AZN 45.5 per 1,000 items.
- Liquid for e-cigarettes: AZN 100 per litre.
- Tobacco for hookah and tobacco substitutes, other smoking tobacco, except for industrial tobacco, 'homogenised' or 'reconstituted' tobacco, chewed or snuffed tobacco: AZN 22 per kg.
- Disposable e-cigarettes, hookahs, and their substitutes: AZN 2 per unit.
- Products containing tobacco or reconstituted tobacco intended for inhalation without lighting: AZN 16 per 1,000 units.
Excise rates on petroleum materials, light vehicles, leisure and sports yachts, and other floating transports stipulated for these purposes produced in the Azerbaijan Republic are established by the Cabinet of Ministers.
Excise rates for automobiles, yachts for rest and sport purposes, and other floating means serving the mentioned purposes and imported into the Azerbaijan Republic constitute AZN 0.30 to AZN 70 per cubic cm of engine volume.
Property tax is levied on both movable and immovable property owned by individuals and companies.
Property tax rates
Property tax of legal entities is imposed on the average annual book value of the taxable property at the rate of 1%.
Property tax of physical persons is calculated based on the area of the building, and property tax rates will vary between AZN 0.1 and AZN 0.4 per square metre, depending on the location of the building (e.g. in Baku, the rate is AZN 0.4 per square metre).
In the residential areas, property tax is applied only to the area of the property exceeding 30 square metres. If the building is located in Baku, tax will be calculated applying coefficients (minimum 0.7 and maximum 1.5).
Taxable persons are comprised of the following:
- Resident companies.
- Persons performing activities through a PE in the territory of Azerbaijan.
Enterprises can combine their assets and cooperate as joint owners. Joint owners are liable to pay tax according to their interest in the property concerned.
The following entities are exempt from property tax:
- Legal entities involved in production of agricultural products (including production by industrial method).
- Residents, managers, and operators of industrial or technological parks.
- Micro enterprises with a total book value of assets less than AZN 1 million.
- Companies in the small and medium-sized enterprise (SME) cluster are exempt from property tax on property used for the operation of the SME cluster for seven years from the date of registration in the SME group register.
The property tax base varies according to the residency status of the taxpayer. Resident companies are subject to property tax on their tangible assets recorded on their balance sheet. Persons carrying out a business activity through a PE in Azerbaijan are only subject to property tax on their tangible assets connected with the PE.
The following assets are exempt:
- Fixed assets used for the purposes of the environment, fire protection, and civil defence.
- Product lines, railways and motorways, communication and power lines, melioration and watering facilities, and satellites and other space objects.
- Facilities of companies involved in education, healthcare, culture, and sports that are used only for the purposes of such areas of activity.
- Legal and natural persons engaged in the production of agricultural products, including production via industrial methods, are exempt from property tax for the period from January 1, 2024, to 3 years.
Companies are required to report the average annual value of taxable property by 31 March of the year following the reporting year and pay property tax on a quarterly basis, subject to any necessary recalculations at the end of the year. Tax payments are due within 15 days of the second month of each quarter. The payment should be 20% of the previous year property tax amount.
The tax on water and air transport means is estimated on 1 January each year by the tax offices based on data provided by the organisations responsible for registration of means of transport. The tax is assessed on the person named in the registration document.
When an asset changes ownership during the tax year, the tax liability is defined as the liability of the new owner.
Land tax is levied on Azerbaijan’s land resources that are in the possession of or used by individuals or companies.
Land tax rates
Land tax is AZN 0.06 per unit for agricultural land used for intended purposes or not available for the intended purposes of irrigation, reclamation, and other farming reasons based on conventional units per hectare.
AZN 2 is calculated per 100 square metres of land considered for agricultural use but not used for that purpose.
The rate of land tax for industrial, construction, transport, telecommunications, trade and housing servicing, and other dedicated land varies from AZN 2 to AZN 20 per 100 square metres, depending on the purpose, size of land, and city or region where it is located.
Land plots that are in possession of physical persons or companies or land plots leased or used on other grounds are subject to land tax. Exemptions apply to various types of land owned or used for public purposes by the state or other public authorities. The government may grant further tax exemptions and reliefs.
Assessment and procedure of payment
Companies must compute the exact amount of the land tax each year on the basis of documents evidencing the title of ownership, possession, and use. The computation must be submitted to the tax authorities and final payment must be made by 31st of January of the following year. Estimated advance land tax payments are paid by enterprises in equal amounts no later than August 15 and November 15. The amount of each payment is 1/2 of the amount of tax calculated in the previous tax year.
No specific transfer taxes are levied upon the transfer of immovable property. However, certain notary fees and other sale duties applicable to transfer of property may apply.
There are no stamp duties. State notary fees are payable upon notarisation of certain transactions.
Employers are liable for correct calculation, withholding, payment, and reporting of personal income tax (from 0% to 25%) from employee’s monthly gross salaries.
New incentives were introduced beginning from 1 January 2019 for the employees of non-oil and gas and non-government sectors.
Social security contributions
Social security contributions at the rate of 22% are payable by the employer from the gross income of the employees. In addition, a 3% social security contribution is withheld from employees.
From 1 January 2019, the social security contributions rates for employment income (other than oil and gas and government sectors) are considered as 15% payable by employer and 10% withheld from employees.
Unemployment insurance contributions
Unemployment insurance contributions at the rate of 0.5% are payable by the employer from gross income of the employee. In addition, 0.5% should be withheld from employees.
Mandatory medical insurance contributions
Beginning from April 2020, mandatory medical insurance contributions at the rate of 2% are payable by the employer from gross income of the employee. In addition, 2% should be withheld from employees.
Instead of payment of road tax by owners of auto-transportation means (excluding road tax on transit), such owners will indirectly pay the road tax within the price of fuel.
Wholesalers: Road tax rate for automobile petrol, diesel fuel, and liquid gas manufactured in Azerbaijan and directed to the national consumption (wholesale) is AZN 0.02 on wholesale price (including VAT and excise) for each litre of these mentioned items.
Importers: For automobile petrol, diesel fuel, and liquid gas imported into Azerbaijan, road tax is calculated at AZN 0.02 on the customs value, but not lower than wholesale market price (including VAT and excise), of each litre of the mentioned items.
Road tax will not be included into the taxable base for VAT and excise tax.
Legal entities and individuals involved in the recovery of minerals in Azerbaijan are obligated to pay the mining tax. The rate depends on the type of mineral extracted, as follows:
- Crude oil: 26% of the wholesale price.
- Natural gas: 20% of the wholesale price.
- All type of metals: 3% of the wholesale price.
- Non-metallic minerals: AZN 0.04 to AZN 10 per cubic metre, depending on the type of the mineral resources.
The amount of mining tax assessed by a taxpayer for a calendar year for minerals (except for oil and gas) shall be reduced in the last reporting month of the calendar year by not exceeding the amount of land tax assessed and paid for that calendar year.