Azerbaijan

Individual - Income determination

Last reviewed - 18 August 2021

Employment income

Salary and wages and the value of any of the following payments or benefits received in connection with employment are treated as the employee’s taxable income:

  • Loans granted to a physical person at an interest rate that is lower than the interest rate at the interbank credit auction. The difference between the amount that would be paid under the interbank credit auction rate and the amount to be paid at the provided lower rate is treated as taxable income.
  • The assignment of goods (works, services) or gratuitous transfer thereof by an employer to an employee. Tax is levied on the difference between the value of these goods (works, services) based on their fair market value and the amount paid by the employee.
  • The amount of reimbursed non-business expenses by the employer to an employee.
  • Where an employee’s debt or obligation to the employer is written off, the amount of such debt or obligation.
  • Insurance premiums paid by the employer.

Dividend income

WHT is withheld from Azeri-source dividend income at 10%. Dividends received by physical persons and taxed at source in Azerbaijan are not subject to further taxation in Azerbaijan.

Interest income

WHT is withheld from Azeri-source interest income at 10%. Interest received by physical persons and taxed at source in Azerbaijan is not subject to further taxation in Azerbaijan.

As of 1 February 2016, physical persons are exempt from tax on interest income from deposits in banks or other credit organisations for seven years.

Exempt income

The below list indicates some of the exemptions from PIT provided in the law:

  • Wages received overseas by employees assigned to work at diplomatic missions on a rotation basis and administrative and technical employees of diplomatic missions.
  • Non-resident’s income paid by an employer who is a non-resident of Azerbaijan, or on the employer’s behalf, which is not paid by a PE of such a non-resident.
  • Income received as gift or inheritance in a calendar year within the following limits:
    • Value of gifts and financial aid for education and medical treatment: up to AZN 1,000.
    • Financial aid for payment of medical treatment abroad: up to AZN 2,000.
    • Value of inheritance: up to AZN 20,000.
  • Entire value of a gift or inheritance received from a family member of the taxpayer.
  • Income derived from the sale of immovable property that has been the place of the taxpayer’s permanent residence for the last three years.
  • Income from the sale of movable tangible assets, other than income from the sale of precious stones and metals, their products, fine art, and antique items, as well as from sale of property being used or used in the entrepreneurial activity of the taxpayer.
  • Compensation for incurred damages.
  • Income received directly from the manufacturing of agricultural products.
  • Income from professional coppersmith and tinsmith activities or from the making of household equipment, gardening tools, national music instruments, toys, souvenirs, artistic ceramic items, decorative sewing, and wooden domestic items.
  • Alimony.
  • Payments in cash or in-kind as compensation for damage to the life, property, or property interests of the insured employee; all types of mandatory and voluntary medical insurance premiums paid by an employer; and premiums paid by an employer after three years of commencement of life or pension insurance contracts with term exceeding three years.
  • Lump-sum aid provided on the basis of decisions of relevant executive authorities, as well as foreign states and other organisations, due to natural disasters and other emergency circumstances.
  • Dividend income of shareholders of the resident legal entity not registered as a VAT payer and with the turnover not exceeding AZN 200,000 in any consecutive 12-month period.
  • Income from writing-off tax debts to the state budget.
  • 50% of taxpayer’s income from disposal of shares and participating interests owned at least for three years.
  • Up to AZN 10 of winnings received from lotteries.