Baku
EY
Port Baku Towers Business Centre
South Tower
9th Floor 153 Neftchilar Avenue Baku AZ1010 Azerbaijan
Executive and immigration contact
Arzu Hajiyeva
+994 (12) 490-7020
Fax: +994 (12) 490-7017 Email: arzu.hajiyeva@az.ey.com
The exchange rate is AZN1.7 = USD1.
A. Income tax
Who is liable. Residents are taxed on worldwide income. Non residents are taxed on Azerbaijani-source income only.
For tax purposes, individuals are considered resident if they are present in the country for 183 days or more in a calendar year.
Income subject to tax
Employment income. Taxable income from employment consists of all compensation, whether received in cash or in kind, subject to certain minor exceptions as discussed below.
Income received in foreign currency is translated into Azerbaijani manats (AZN) at the official exchange rate of the Central Bank of Azerbaijan on the date the income is received.
Education allowances provided by employers to their employees’ children aged 18 years and younger are taxable for income tax and social security purposes.
Self-employment income. Tax is levied on an individual’s annual self-employment income, which consists of gross income less expenses incurred in earning the income.
Non-employment income. Interest on securities and deposits, copyrights, royalties and rental income are taxable.
Capital gains. Capital gains derived from the sale of most mov able tangible property that is not used for business purposes are exempt from tax in Azerbaijan.
Deductions
Income exclusions. The following specific tax exemptions apply for resident and nonresident individuals:
• The cost of renting accommodations in Azerbaijan if paid or reimbursed by the employer
• Food expenses paid or reimbursed by the employer
• Expenses paid or reimbursed by the employer for business trips
Personal allowances. The monthly taxable income of individuals with three or more dependents, including students under the age of 23, is reduced by AZN50.
Business deductions. Deductible business expenses include expenditure for materials, amortization deductions, lease pay ments, wages, state social security payments, payments for therapeutic nourishment, milk and similar products provided to employees (deductible within the established limits), payments of interest and expenses for repairs to capital production assets.
Rates. The following tax rates apply to an individual’s monthly taxable income earned from employment activities in the oil and gas and public sectors.
Monthly taxable income Tax rate Tax due Cumulative tax due AZN % AZN AZN
Up to 2,500 14 350 350
Above 2,500 25
Individuals whose monthly gross salary is less than AZN2,500 are exempt from tax on AZN200 of their monthly salary.
Individuals engaged in employment activities in the non-oil and gas and nonpublic sectors are subject to the following tax rates, effective from 1 January 2019, for a period of seven years.
Monthly taxable income Tax rate Tax due Cumulative tax due AZN % AZN AZN
Up to 8,000 0 0 0
Above 8,000 14 —
An individual’s taxable income earned from non-entrepreneurial activities (includes specific items, such as dividends, interest, royalties and gains received on the disposal of assets that are not used for entrepreneurial activities) is subject to a 14% personal income tax.
The taxable income of an individual who conducts entrepreneur ial activities without creating a legal entity is subject to tax at a flat rate of 20%.
Relief for losses. Individuals may carry forward losses for up to three years if they are related to entrepreneurial activities.
B. Other taxes
Estate and gift tax. Azerbaijan does not levy estate or gift tax.
The value of gifts and/or material assistance for education and medical treatment up to a limit of AZN1,000 is exempt from income tax, while the value of material assistance for medical treatment abroad is exempt up to a limit of AZN2,000. The value of an inheritance up to a limit of AZN20,000 is exempt from income tax. Gifts, material assistance and inheritances received from family members are exempt from income tax without limit.
Property tax. Azerbaijan levies an annual property tax on each square meter of building area. The following table provides the property tax rates for residential and nonresidential premises that are privately owned by individuals.
Areas Amount of tax per square meter (AZN)
Baku 0.4*
Gyanja, Sumgait cities and Absheron region 0.3 Other cities (except for regional subordination towns) and regional centers 0.2 Cities, towns and villages of regional subordination (except for settlements and villages of Baku, Sumgait cities and Absheron region) 0.1
* For buildings located in Baku, a coefficient of at least 0.7 and not more than 1.5 must be applied to the rate.
C. Social security
Employers engaged in the oil and gas and public sectors must make social insurance contributions at a rate of 22% of employ ees’ gross salary to the Social Protection Fund. In addition, 3% is withheld from the employee’s salary and is payable to the Social Protection Fund.
Social insurance contribution rates for individuals engaged in employment activities in non-oil and gas and nonpublic sectors are calculated differently from the above, effective from 1 January 2019, for a period of seven years. For individuals whose gross taxable monthly income is above AZN200, 10% of the amount exceeding AZN200 plus AZN6 should be withheld from the employee and 15% of the amount exceeding AZN200 plus AZN44 should be paid by the employer.
In addition, unemployment insurance contributions are due on the employment income of individuals holding local employment agreements. For such individuals, employers must make a pay ment of unemployment insurance contributions at a rate of 0.5% of employees’ gross salary, withhold 0.5% from their salary and pay the total amount (1% of gross salary) to the Unemployment Fund.
Under amendments introduced to the Law on Medical Insurance, effective from 1 January 2021, medical insurance contributions at 2% of salary up to AZN8,000 and 0.5% of the part above AZN8,000 must be withheld from salaries of employees. A 50% discount is applied to medical insurance fees paid from gross salary up to AZN8,000 in non-oil and gas and private sectors until 1 January 2022.
D. Tax filing and payment procedures
The tax year is the calendar year.
Employers in Azerbaijan (Azerbaijani entities, joint ventures and foreign representative offices) must withhold tax from the salaries of resident and nonresident employees paid in Azerbaijan. With holding is required regardless of whether payments are made in manats or in foreign currency. The tax filing period is the calen dar quarter.
Resident and nonresident individuals are not required to file tax returns if they receive income from employment and do not have income from other sources.
Resident and nonresident individuals engaged in self-employment in Azerbaijan must comply with the following filing and payment requirements:
• They must pay estimated taxes of one-fourth of the tax paid for the prior tax year or tax on actual income for the quarter, as measured at the effective tax rate for the prior year, due in four equal installments by 15 April, 15 July, 15 October and 15 January.
• They must submit an annual tax return no later than 31 March of the year following the reporting year.
• They must submit a final tax return within 30 days following the end of activities in Azerbaijan.
The final tax due for the year is determined from the final tax return after it is filed with the tax authorities. However, the final tax must be paid by the deadline for filing the final tax return.
E. Double tax relief and tax treaties
Foreign taxes paid by residents on foreign-source income may be credited against Azeri tax, but the credit may not exceed the amount of the Azeri tax payable on the same income. To obtain relief, the taxpayer must present the appropriate form from the tax authorities of the foreign state verifying that tax has been paid in that country.
According to information provided on the official site of the Ministry of Taxes, double tax treaties with the following jurisdictions are effective in Azerbaijan.
Austria Israel Romania Belarus Italy Russian Belgium Japan Federation Bosnia and Jordan San Marino Herzegovina Kazakhstan Saudi Arabia Bulgaria Korea (South) Serbia Canada Kuwait Slovenia China Mainland Latvia Spain* Croatia Lithuania Sweden Czech Republic Luxembourg Switzerland Denmark Malta Tajikistan Estonia Moldova Turkey Finland Montenegro Turkmenistan France Netherlands Ukraine Georgia North Macedonia United Arab Germany Norway Emirates Greece Pakistan United Kingdom Hungary Poland Uzbekistan Iran Qatar Vietnam
* This treaty is effective from 1 January 2020.
F. Visas
Foreigners who want to visit Azerbaijan and who are from countries with which Azerbaijan has a visa regime should obtain entry visas from the respective embassy or consulate of Azerbaijan. In general, entry visas are granted to foreign individuals for entry into the country. Under recent changes to the migration legislation, several types of entry visas are
available. These visas are based on the purpose of the visit and include, but are not limited to, the following:
• Visa for business trip purposes
• Visa for labor activity conduction purposes
• Tourist visa
• Visa for official visit
• Visa for personal visit
• Transit visa
• Visa for medical treatment
• Science or education visa
• Visa for cultural and sports events
Visas are divided into single and multiple entries with the valid ity period of stay ranging from one month for single-entry visas to 180 days for multiple-entry visas.
To obtain a visa from the diplomatic representations, embassies and consulates of Azerbaijan abroad or from the Consular Department of the Ministry of Foreign Affairs of Azerbaijan, applicants must present the following items:
• Letter of invitation provided by a legal entity registered in Azerbaijan that is approved and certified by the Consular Department of the Ministry of Foreign Affairs in Azerbaijan before its submission to the respective Azerbaijan embassy (this is not required in the case of obtaining a transit visa, a tourist visa, a visa for official visit, a medical treatment visa or a visa for personal visit)
• A completed application
• Passport-size photographs
• A passport
• Document confirming reason of invitation (this is not required in the case of obtaining a transit visa, a tourist visa or a visa for personal visit)
• Copy of medical insurance
• Applicable fee
• Additional document required depending on the trip purposes
The following are two exceptions:
• Citizens of certain countries under several international agree ments to which Azerbaijan is a party can obtain the visa on arrival at international airports by submitting a set of documents to state officials.
• Citizens of countries that have direct airline relations with Azerbaijan but do not have embassies and accredited consulates of Azerbaijan can apply for visas on arrival at international airports by submitting a set of documents to state officials.
Electronic application forms for obtaining Azerbaijani visas may be used.
In addition, permits for staying in Azerbaijan temporarily or per manently are obtained through the “one window” principle or through the migration online system, which is designed to ease the application process. Under the “one window” principle, all documents necessary for the registration of expatriates in Azerbaijan or for the obtaining of work permits for them are submitted to one state body (State Migration Service), which, in turn, coordinates the work with other state authorities and issues identification cards and work permits for expatriates.
The “one window” principle is likewise used to register expatri ates who have already been granted permits for staying in Azerbaijan temporarily or permanently and to obtain special iden tifications for them.
Citizens of countries that have a non-visa regime with Azerbaijan, such as the Russian Federation, do not need a visa to enter Azerbaijan.
G. Work permits
Expatriates must obtain a work permit to work in Azerbaijan. Work permits are obtained through the “one window” principle or the migration online system (see Section F).
H. Family and personal considerations
Vaccinations. Although no vaccinations are required, a vaccina tion for malaria is recommended. Malaria is not a threat in Baku, but it exists in other regions of the country.
In addition, as a result of the COVID-19 pandemic, passengers over 18 years of age arriving in the country by air transport must provide a COVID-19 passport (a document confirming full vaccination against COVID-19) and a medical certificate confirming a negative COVID-19 polymerase chain reaction (PCR) test result issued at most 72 hours before the flight.
Driver’s permits. A foreign national may drive legally using his or her home country driver’s license if the license is legally trans lated into Azerbaijani and notarized. Azerbaijan has driver’s license reciprocity with other CIS countries.