Individual taxation
Rates
Individual income tax rate, oil and gas industry employment:
- Up to AZN 2,500: 14%
- Over AZN 2,500: AZN 350 + 25% of amount exceeding AZN 2,500
Individual income tax rate, private sector employment:
- Up to AZN 8,000: 0%
- Over AZN 8,000: AZN 350 + 14% of amount exceeding AZN 8,000
Individual entrepreneurs: 20%
Capital gains tax rate: same as above
Residence
Unless otherwise provided in an applicable tax treaty, individuals generally are considered to be tax resident if they are physically present in Azerbaijan for a period of more than 182 cumulative days in a calendar year (regardless of nationality).
Basis
Azerbaijan residents are subject to income tax on taxable income, which is defined as gross income received from all sources, regardless of where the income was earned or paid, less allowable deductions.
A 50% exemption from personal income tax is granted to individuals who hold an investment promotion certificate for seven years from the date of obtaining the certificate.
A 75% exemption is granted for income of entrepreneurs participating in micro enterprises, and income from innovative activities of entrepreneurs participating in micro or small enterprises is exempt from taxation for three years from the date a start-up certificate is obtained.
Nonresidents are subject to Azerbaijan income tax on Azerbaijan-source income.
Taxable income
Taxable income includes income from employment, income from entrepreneurial activities, and passive income. Certain income, such as property inherited from family members, alimony, etc., is exempt.
Rates
Rates are progressive up to 25%. Employment income of up to AZN 8,000 per month is exempt from personal income tax for seven years for private sector employees (other than those working in the oil and gas industry). The excess and any investment income are taxed at a rate of 14%. Individual entrepreneurs are taxed at a 20% rate.
Capital gains
Capital gains are treated as normal income and taxed at the ordinary personal tax rate.
Deductions and allowances
Expenses incurred by an entrepreneur may be deducted in computing taxable income.
Foreign tax relief
Individual income taxes paid outside Azerbaijan may be credited against Azerbaijan tax due. Excess foreign tax credits may not be offset against a resident taxpayer’s Azerbaijan tax liabilities on any domestic-source income, nor may they be carried forward or back.
Compliance for individuals
Tax year
The tax year is the calendar year.
Filing status
Each taxpayer must file an individual tax return; joint returns are not permitted.
Filing and payment
Tax returns are due by 31 March following the tax year. However, a tax return for employment income withheld at source is filed by the employer on a quarterly basis by the 20th day of the month following the end of the reporting quarter. Payers of the simplified tax and VAT must submit the tax return on a quarterly basis by the 20th day of the month following the end of the reporting quarter. Personal income taxes, which generally are withheld by the employer, must be remitted to the state budget within 20 days of the following month.
Penalties
Penalties apply for late filing, failure to file, or tax avoidance or evasion.
Rulings
An individual entrepreneur may apply for an advance tax ruling for each transaction (separately) exceeding a value of AZN 10 million.
Controlled foreign companies
An Azerbaijan resident that holds, directly or indirectly, more than 20% of the charter capital or voting shares of a foreign legal entity that receives income from a low-tax jurisdiction must include its proportionate share of that foreign entity’s income in its taxable income. A foreign jurisdiction is considered a low-tax jurisdiction if the tax rate is 50% or less than the rate in Azerbaijan, or if the country has laws on the confidentiality of information about companies, or laws that allow secrecy of financial information or information on the actual owner of property or income (property) recipient.
Foreign exchange control
There are no restrictions on the import or export of capital. Supporting documentation, including tax payment documents and bank statements, must be submitted when cash withdrawals exceed amounts previously imported into the country. Amounts may be repatriated in any currency, and both residents and nonresidents can hold bank accounts in any currency.
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