A resident’s taxable income in Azerbaijan is comprised of worldwide income (i.e. income generated in and outside Azerbaijan).
A non-resident’s taxable income in Azerbaijan is comprised only of the income generated from sources in Azerbaijan.
The taxable base of residents is determined as the difference between gross income for a calendar year and expenses (or deductions).
Where income from dependent employment has been taxed at source, no further income tax or deductions are calculated.
The taxable base for non-resident physical persons engaged in activity in Azerbaijan through a permanent establishment (PE) is the difference between gross income generated in a specific period from Azerbaijan sources with regard to the PE and the amount of expenses (or deductions) with respect to the generation of income during that period.
Personal income tax rates
From 1 January 2019, monthly income of employees who are engaged in employment for non-oil-gas and non-government sectors shall be exempted for a seven-year period, as follows:
|Taxable monthly income
|Up to AZN 8,000
|Above AZN 8,000
|14% of the amount exceeding AZN 8,000
The standard rates that are applicable to the employees of the oil and gas and government sectors, and which will be applied after the seven-year grace period, are as follows:
|Taxable monthly income
|Up to AZN 2,500
|Above AZN 2,500
|AZN 350 + 25% of the amount exceeding AZN 2,500
Withholding tax (WHT) rates
WHT at the following rates is withheld from specified Azeri-source income:
- Dividends: 5%.
- Interest (currently interest paid for bank deposits is not subject to tax): 10%.
- Rental fees for movable and immovable property, and royalties: 14%.
- Payments for goods or services provided by physical persons not registered as independent entrepreneurs (i.e. having no Tax ID): at monthly income tax rates (14% to 25%).
- Taxes deducted from incomes of non-resident physical persons not attributed to a PE (base) in Azerbaijan:
- Leasing or insurance payments under risk insurance or reinsurance agreements: 4%.
- Telecommunication or international transport services: 6%.
- Other income: 10%.
Direct or indirect payments to a person in a country with a favourable tax regime are considered income from an Azerbaijani source and subject to 10% WHT. The list of countries concerned is determined annually (see Foreign income in the Income determination section of the Corporate tax summary for a link to the list).
Banks and the national operator of the postal service must deduct 10% WHT from funds transferred by residents to digital wallets, which refer to software to carry out electronic payments.
Special oil and gas tax regime
The other type of tax regime applicable in Azerbaijan is the tax regime applicable under special agreements concluded between the Azerbaijan government and foreign oil companies: Product Sharing Agreements (PSAs) and Host Government Agreements (HGAs). This regime applies to all foreign investors involved in PSAs and HGAs, including foreign oil companies functioning as contractor parties and foreign service companies providing services to the contracting parties or the operating company.
Expatriate employees that are tax resident in Azerbaijan are taxed only on income earned in connection with their employment in Azerbaijan. PSAs and HGAs generally exempt non-residents from tax in Azerbaijan and define tax residents as those who spent more than 30 consecutive days or 90 cumulative days (in the case of PSAs) or more than 182 days (in the case of HGAs) during a calendar year in Azerbaijan.
Azerbaijan citizen employees are taxed in accordance with the statutory legislation of Azerbaijan.