Taxes in Azerbaijan. Tax Consulting and Planning

December 6, 2023

Business people, particularly when planning to start activities in any new country, including Azerbaijan, naturally consider taxes as one of the primary nuances. Consequently, understanding the types and rates of taxes, as well as tax incentives and exemptions, forms an important part of entrepreneurs’ business planning.

With this blog post, we aim to provide you with basic details about taxes and tax rates, along with tax incentives and exemptions, applicable to entrepreneurial activities in Azerbaijan. If you require consulting in Azerbaijan related to tax matters, feel free to apply for the expertise Tax Lawyers of DLB Consulting.

Types and Rates of Taxes in Azerbaijan:

Corporate Tax:

Corporate Tax, also known as Profit Tax or Income Tax, is a tax on the net profits of businesses in Azerbaijan, a practice common in many countries. In accordance with Article 105 of the Tax Code, the general corporate tax rate in Azerbaijan is 20%. Additionally, micro businesses in Azerbaijan, as outlined in Articles 102.1.30 and 106.1.20 of the Tax Code, are exempt from paying 75% of the total profit tax, a significant relief for smaller enterprises. To clarify, businesses in Azerbaijan with an annual turnover of up to 200,000 AZN and fewer than 10 employees only pay a 5% corporate tax.

Simplified Tax:

Simplified Tax in Azerbaijan is a type of tax applied to businesses at a standard rate based on their turnover. Furthermore, let us add that simplified tax is mostly paid by micro and small businesses in our country. So, businesses with an annual turnover of up to 200,000 AZN can qualify as simplified tax payers if they meet the additional conditions defined by the legislation. Additionally, it’s important to note that public catering businesses, even if their annual turnover exceeds 200,000 AZN, are still eligible to be simplified tax payer. In accordance with Article 220 of the Tax Code, the simplified tax rate in Azerbaijan is set at 2%. Furthermore, it should be noted that for public catering businesses with an annual turnover exceeding AZN 200,000, the simplified tax rate is 8%.

For clarification, it’s important to note that businesses in Azerbaijan do not pay both Simplified and Corporate Tax simultaneously. Therefore, they only pay one of these tax types, which depends on factors such as the nature of their business activity and the volume of their annual turnover.

Value-Added Tax or VAT:

Value-Added Tax, commonly referred to as VAT, is a consumption tax. According to the Article 105 of the Tax Code, the Value-Added Tax (VAT) rate in Azerbaijan is 18%. However, it’s worth noting that according to the Tax Legislation, micro businesses in Azerbaijan are exempt from paying Value-Added Tax (VAT).

Property Tax:

Property Tax refers to a tax that is calculated and paid based on the fixed assets that companies own and utilize for income generation. Thus, companies in Azerbaijan are required to pay property taxes on real estate they own, as well as on certain categories of movable property. To clarify, by ‘a certain category of movable property,’ we specifically refer to water and air vehicles. It’s important to note that the property tax on real estate is calculated based on the city it is located and its area. Additionally, the property tax for movable properties is calculated by considering either the volume of their engines or their market value.

Social Security Contributions:

Social Security Contributions are payments made towards employees’ pension provisions, based on their wages. Furthermore, the amount of Social Security Contributions varies depending on the salary level and the specific sphere of labor activity. However, it’s important to note that the standard rates for Social Security Contributions amount to an average of 25% of the salary. Of this, the employer covers 22%, while the employee contributes the remaining 3%. Additionally, employers are required to make contributions towards Social Security. This includes contributions for Unemployment Insurance (UIC) and Mandatory Medical Insurance.

Tax Concessions and Exemptions in Azerbaijan:

The Legislation of the Republic of Azerbaijan determines certain tax concessions and exemptions for many business areas and types of activities. Furthermore, the range of tax concessions and exemptions is expanding over time to further encourage the growth of the business environment in Azerbaijan. Additionally, it’s important to note that these concessions and exemptions are not solely for developing the business environment. Furthermore, they aim to support certain business sectors of strategic importance.

Consequently, this approach leads to a yearly increase in interest in various business areas and activities within the country. Furthermore, it’s worth noting that the number of foreign investors in business sectors where these concessions and exemptions apply has also increased in recent years.

Let us add that the tax concessions and exemptions outlined in the legislation are highly specific. In other words, the legislation offers tax concessions and exemptions for certain specific types of businesses or activities, but only under defined conditions. We have already mentioned certain types of concessions and exemptions earlier in this article. For personalized consulting from our tax lawyers specific to your business activity in Azerbaijan, you can contact DLB Consulting.

Tax Planning and Compliance:

In Azerbaijan, much like in any other country, tax regulations vary specifically according to the types of business activities. More specifically, Legislation defines various types of taxes, along with particular incentives and exemptions, according to the type of business activity. Therefore, we strongly recommend that those starting a new business in any country, including Azerbaijan, seek the expertise of tax lawyers. This is important for understanding the tax regulations specific to your business and for effective tax planning. Effective tax planning, in turn, is essential for understanding the tax obligations and incentives applicable to your business in Azerbaijan.

DLB Consulting Services:

We believe this blog post has provided informative insights into taxes, tax concessions, and exemptions in Azerbaijan. Please remember to contact our Tax Lawyers if you require tax consulting services in Azerbaijan. DLB Tax Lawyers are ready to provide you with legal services related to tax planning and compliance, tax disputes, litigations. Looking forward to working together!