Taxation in Azerbaijan

Tax Procedures

The tax year in Azerbaijan starts in January, 1st and ends in December, 31st. The tax declaration has to be filled in and submitted by enterprises no later than 31 March following the calendar year and users of simplified tax should submit the declaration no later than 20 April. Natural persons who have stayed in Azerbaijan 182 days in a calendar year are accounted as residents and are responsible for paying the taxes. Residents of Azerbaijan are taxable on their international income, whereas non-residents are taxable on the Azerbaijani source income only.

Taxes can be withhold from people who are related to employment activities, as well as non-entrepreneurial activities such as interest income, dividends, capital gains and royalties.

Agricultural income, gifts and inheritance from family members, capital gains, income from crafts production, lottery prizes, alimonies and compensation receipts are exempt from taxation. Standard deductions are applicable for war heroes, their families and military officials.

Tax Registration

Both individual entrepreneurs and legal entities must be registered by the tax authority (State Tax Service) and obtain Tax Identification Number. Under 'one-stop-shop' principle, no separate social security, corporate, statistical or other registrations needed; that is, tax registration will be sufficient for such related purposes and no separate application or procedures are needed. Only after obtaining TIN a business/corporate bank account may be opened.

In practice, the following steps are taken in order to fully complete tax and business registration processes: - The type of business or company is selected - The company name is determined - The charter and incorporation documents are prepared - Shareholders, the capital structure and the director are determined - The legal address is determined. - The tax regime is selected. - An application is submitted through the State Tax Service. - A registration certificate is obtained from the state register and a TIN is assigned. - A bank account is opened. - The required capital is paid. - If the field of activity requires a license or permit, these are obtained. - If there are employees, employment contracts, work permits and social security obligations are fulfilled.

State Taxes

Income tax from individuals

Income taxes in Azerbaijan are set at progressive rate. The taxable base for residents is income which has been earned in or outside of Azerbaijan. For non-residents income which is taxed are the following – income which is both connected and not connected with employment and also all other kinds of income which are not tax-exempt or arose from revaluation of assets. Tax rate on income of natural persons receiving less than 2500 AZN is 14%, if income is more than 2500 AZN, then 25% tax is levied on the proportion which is exceeding 2500 AZN.

Profit tax from legal persons

Profit is defined as the difference between income and expenses. The profits of all resident-enterprises should be taxed. If legal person is permanently established in Azerbaijan – then its profits should be taxed. Otherwise, it should be taxed at the source of payment without subtracting its expenses. Gains, which arise from revaluation of assets are not subject to taxation. The profits are taxed at 20% rate.

Value Added Tax

Value Added Tax (VAT) rate is 18%. All works, goods, services provided and taxable imports constitute the base for taxation. There also exists zero (0) rate VAT in the country for the issues related with financial aids, diplomacy, cargo and valuable goods.

Excise Tax

Excise taxes are indirect taxes which are included in the sales price of goods. All excise goods that are produced or imported to Azerbaijan are subject to taxation. Alcohol and all types of alcoholic beverages, tobacco products, light vehicles, leisure and sports floating transports, imported platinum, gold and jewelry are subject to excise tax. There is no fixed tax rate for all types of goods, instead, there are different rates for each of the product and its amounts. For example, wine and vineyard materials are taxed at 0.1 AZN per liter.

Property Tax

Taxable base of property tax for physical persons are the value of buildings and their parts, any water and air transportation or facility. For legal enterprises it is only average annual value of fixed assets. The rates are specified based on the area where buildings are located. Thus, for Baku it is 0.4 AZN per each square meter, Gyandja, Sumgait, and Absheron regions – 0.3 AZN, other cities and regions – 0.2 AZN, cities and towns of regional subordination – 0.1 AZN.

Tax on land

Residents, as well as non-residents and businesses are obliged to register for paying taxes after proving their rights to use the land, and regardless of the results of economic activities on the land itself it is mandatory to pay land tax. The tax rates differ by the purpose of use and the area where the land is located. Generally, the tax rates are higher for the big and industrial cities. Land tax rates for agricultural use is 0.06 AZN for each conventional point.

Taxes to the Road

The taxable base for this type of tax constitutes the motor vehicles which are imported to the country by non-residents and are used for transportation, as well as all motor fuels, diesel that has been either produced or imported to Azerbaijan Republic for domestic use. Taxes for motor cars are calculated depending on engine cubic capacity and period of presence, for buses – number of seats and period of presence, for trucks – number of axis and period of presence. Generally, these taxes may vary from US$20 to US$2800 and higher. For transportation, delivering dangerous cargo there is specific procedure of calculation.

Royalty (Mining Tax)

These taxes are paid by physical entities and enterprises which extract mineral resources from the territory of Azerbaijan Republic, including area of Caspian Sea which belongs to the country. Tax rates for crude oil is 26%, natural gas – 20%, all types of metals – 3%.

Simplified Tax

Simplified tax is applicable to entities, whose volume of transactions does not exceed 200.000 AZN in 12 consecutive months. Gross volume of revenue received in respect of goods and services provided is subject to taxation. Simplified tax rate is – 2% (applicable when the annual revenue is below 200 000 azn); for public catering activity where the annual revenue is above 200 000 az – 8%.

When taxpayers are engaged in sales to commercial entities and private entrepreneurs (buyers for commercial use) along with individual customers (buyers for personal use), where income from buyers for commercial use is less than 30 percent of total sales, they would also be entitled to pay simplified tax with the rate of 2%. https://www.caspianlegalcenter.az/insights/more/corporate-tax-azerbaijan