Azerbaijan: Business Environment

Company Tax

20%

Tax Rate For Foreign Companies

Azerbaijan resident companies are subject to a profit tax on their worldwide income. Foreign companies are taxed uniquely on their Azerbaijan-source income.
In addition to the profit tax paid by a permanent establishment of a non-resident company, the amount repatriated from the net profit of such PE to the non-resident entity is taxed at the source of payment at a rate of 10%.
Taxation applies to the income generated by a permanent establishment (PE) of a foreign legal entity. A PE is defined as an establishment, whether fully or partially, where a foreign legal entity conducts commercial activities. Examples of PE include a management unit, office bureau, agency, construction site, and so on. The threshold for determining a PE is when these activities are carried out for a total of 90 or more days within any 12-month period.

Capital Gains Taxation

Capital gains are included in taxable income and taxed at the standard corporate tax rate of 20%.

Main Allowable Deductions and Tax Credits

In general, expenses incurred to generate income are tax-deductible.
Depreciation of tangible and intangible assets is tax-deductible at rates varying between 7% (building and premises) and 25% (technological material, expenses incurred for geological works and exploitation of natural resources, means of transportation). The Azerbaijani tax legislation does not define nor provide for any tax deduction for goodwill.
Interest expenses may be deducted, but up to the limit of the interest rate on loans with similar currency and maturity at the interbank credit auction. If there is no such auction, the deduction is limited to 125% of the interbank auction credit rates published by the Central Bank of Azerbaijan.
Bad debts are considered tax-deductible (double debt deduction is possible if the debt is written off as worthless in the taxpayer's books).
Other deductible expenses include business trip costs (with varying limits) and repair expenses (for buildings and premises, the limit is 2%; for machinery and equipment, the limit is 5%; and for other fixed assets, the limit is 3%. Any amount exceeding the abovementioned limits shall be taken as an increase of the residual balance value of the fixed assets in the appropriate category).
Fines and penalties are not deductible. Contributions transferred to the funds created for public and social purposes shall be tax-exempt for an 8-year period (capped at 10% of the reporting year's profit).
Net operating losses can be carried forward for up to five years. Carryback of losses is not permitted.

Other Corporate Taxes

Real property tax is levied at a 1% rate on the average annual book value of the property (imposed on legal entities, natural persons are liable for property tax that is calculated by square metre). Land tax is levied on Azerbaijan’s land resources that are in the possession of or used by individuals or companies (legal entities holding an investment promotion certificate are exempt from land tax for seven years from the date of obtaining the certificate). The tax is calculated per square metre at varying rates depending on the type of land (agricultural, commercial, industrial). Azerbaijan does not levy transfer tax, but transferring property may incur notary fees. Similarly, there are no stamp duties except for certain notary fees.
 Social security contributions payable by the employer amount to 3% of the employee's gross salary up to AZN 200 and 10% on the excess. Employers are also liable for unemployment insurance contributions amounting to 0.5% of the gross salary of the employee. Employers (and employees) are required to make monthly medical insurance contributions calculated at 2% of monthly income up to AZN 8,000, and 0.5% on the excess.
The state provides subsidies for a portion of social insurance contributions paid by employers and employees in the private sector, excluding those involved in the oil and gas operations of the liberated territories. The subsidy rates are as follows: (i) 100% from January 1, 2023, to December 31, 2025; (ii) 80% from January 1, 2026, to December 31, 2028; (iii) 60% from January 1, 2029, to December 31, 2030; and (iv) 40% from January 1, 2031, to December 31, 2032. Additionally, the state also subsidizes the following: (i) 100% of the mandatory state social insurance fee paid by individuals who receive income from non-employment-related activities; and (ii) 100% of the mandatory state social insurance fee paid by self-employed individuals operating without hiring employees.
Mining activity is subject to a separate tax on the final product's wholesale price (crude oil: 26%; natural gas: 20%; all types of metals: 3%; non-metallic minerals: AZN 0.04 to AZN 10 per cubic metre, depending on the type of the mineral resources).
50% of income derived from the disposal of shares held for at least three years is exempt from income tax. Furthermore, the tax code provides for a 50% exemption from profit tax for legal entities holding an investment promotion certificate.

Other Domestic Resources

Consult Doing Business Website, to obtain a summary of the taxes and mandatory contributions.

Tax Rate

Allowable Deductions and Tax Credits

In the case of entrepreneurial activity, the portion of deductible expenses exceeding income may be carried forward for three years without limitations to offset future taxable income.
Business expenses can be deducted when calculating taxable income for entrepreneurs. This includes one-time allowances for medical treatment, such as surgery within or outside Azerbaijan, up to AZN 10,000 and AZN 50,000 respectively. Additionally, financial aid of up to AZN 20,000 per calendar year can be provided to family members of servicemen and nonmilitary personnel who have been killed or disabled as a result of military operations. Moreover, individual entrepreneurs involved in the production of food products that serve as substitutes for imported goods with locally-produced or processed goods will be eligible for a 50% exemption from individual income tax for a period of seven years, starting from the year the list of eligible goods is approved.

From January 1, 2023, individuals who are registered with the tax authorities in the liberated territories and are directly engaged in activities within these territories (referred to as "residents of the liberated territories") will be exempt from paying profit tax for a duration of 10 years.

Special Expatriate Tax Regime

Residents are taxed on their worldwide income, whereas non-residents are taxed on their Azerbaijani income (at the same rate as nationals).
An individual is considered to be a tax resident if he/she is physically present in Azerbaijan for a period of more than 182 cumulative days in a calendar year.