Accounting Outsourcing and
Tax compliance in Azerbaijan

Azerbaijan – Accounting Outsourcing and Tax Compliance

Global Expansion Plus provides accounting outsourcing and tax compliance in Azerbaijan. We provide services with support of our local accountants and tax specialists. We will perform bookkeeping, accounting and filling tax return on your behalf bearing all associated compliance risks. Being an entity in Azerbaijan, it is mandatory to pay taxes, which amounts to government revenue. For a state to state operations, funds have to be spent. This is where taxation plays a pivotal role in ensuring that the collection of taxes is smooth and decisive.

Azerbaijan in facts

  • Location: Caucasian State
  • Territory: 86,600 square kilometers
  • Capital: Baku
  • Official language: Azerbaijani
  • Currency: Azerbaijani Manat (AZN)
  • Population: 10,02 million

Corporate income tax (CIT) in Azerbaijan

It encompasses businesses with a corporate title, operating in Azerbaijan, regardless of whether they are residents or non-residents. A fixed-rate of 20%, on the gross profit, less the allowable deductions, applies.
In Azerbaijan, small and medium enterprises (SMEs) benefit from a simplified tax system. It involves charging the SMEs a lower rate than normal, based on their annual revenues. To qualify, the revenue is capped at AZN 200,000, and a reduced rate of 2% is imposed.
For businesses in the catering industry, with revenues more than AZN 200,000, an 8% CIT is applicable. Such companies can, nonetheless, apply for the simplified tax system and benefit from the low rates.
The simplified tax system is not only for the SMEs. The government of Azerbaijan offers tax incentives to entities in the real estate industry. Those involved in construction are subject to pay AZN 45 per every square meter, with an applied co-efficient as the multiple of the amount payable.
Entities operating in Azerbaijan, and involved in the selling of buildings, are subject to a fixed rate of AZN 15 for every square meter, with a co-efficient applied as the multiple of the amount payable. In the case of selling buildings, the building must not have been occupied for more than five years.
The co-efficient, in this case, is not standard, as the regional authorities determine it based on the location.

For the gaming industry, 6% CIT applies to the overall sales registered by the operators due to the provision of gambling services. For those selling the games, a 4% rate is imposed.

Value-added Tax (VAT) in Azerbaijan

Not all supplies or transactions in Azerbaijan will qualify for VAT imposition. Even so, a standard rate of 18% is applicable.
For those with zero-rating on VAT, the following factors have to come in play:
  • They have to be exports of goods or services;
  • For the imports, the taxpayer has to have an exemption certificate under the HGA and PSA regimes;
  • All gold and valuable supplies to the National Bank of Azerbaijan have zero-rating on VAT.
  • All supplies, whether imports or local, as long as they are as a result of grants from abroad, are not vatable;
  • Services offered for accommodation purposes – this will expire on 1st January 2023.
To register as a VAT agent, one has to achieve annual revenue of more than AZN 200,000. For entities or individuals with a one-time transaction of more than AZN 200,000, they also have to register for VAT.
To register as a VAT agent, one has to achieve annual revenue of more than AZN 200,000. For entities or individuals with a one-time transaction of more than AZN 200,000, they also have to register for VAT.

Personal Income tax (PIT) in Azerbaijan

Personal incomes in Azerbaijan are subject to VAT. Starting from 2019, a tax code on how taxation of personal income should be coordinated was set forth. For individuals earning up to AZN 8,000 per month, underemployment, in the non-governmental and non-oil-gas sectors, shall be exempt from taxation for seven years. Any income over the AZN 8,000 will be subject to 14% PIT of the excess amount.
After the seven years, monthly incomes up to AZN 2,500 will be subject to 14% PIT, while those earning more than AZN 2,500 will pay a fixed rate of AZN 350 plus a 25% of the excess amount. Individuals working in the governmental and oil-gas sectors will not enjoy the 7-year tax haven.

Withholding Tax (WHT) in Azerbaijan

Tax at source, for incomes generated in Azerbaijan, varies based on the basis and the type of income. The following rates apply:
  • Dividends, interest incomes, low tax jurisdiction payments, and other incomes – 10%;
  • Royalties and rental revenues – 14%;
  • Reinsurance and insurance payments – 4%;
  • Revenues due to transport or telecommunication services – 6%;
Any payment, whether direct or indirect, made to persons of countries considered to be having favorable tax regimes, a 10% WHT applies. It is the same case with transfers made to digital wallets by Azerbaijani residents. Banks and postal service providers must deduct the 10% WHT.

Payroll-Related Taxation in Azerbaijan

For all employees earning salaries, withholding of amounts, in the form of taxes, is applicable. Employers should do so according to the laid out procedures, as stated in the PIT rates, plus the tax incentives thereof.
Employers are required to contribute to the social security funds basing on the gross amount payable to their employees. A 22% rate of the gross salary applies. In addition to this, employers withhold 3% of the amount due to the employee as a contribution to the same fund.
These rates were, however, revised as from 1st January 2019, where the employer’s contribution was lowered to 15% and the employee’s spiked to 10%.
For the contribution to the unemployment insurance fund, employers pay a rate of 0.5% on the gross amount payable, and 0.5% is withheld from the employees’ income.

Import/ Export related taxation in Azerbaijan

Custom duty

The government of Azerbaijan, under strict and coherent tax rules, has put in place procedures, measures, and practices on how imports should be handled. Custom taxes are due to imports. The state has set aside duty-free zones, and bonded warehouses, to help execute those procedures and measures.
The rates will vary from 0% to 15% according to product type and value. For example, agents and contractors under the PSA regime enjoy duty-free incentives with no restriction on imports or exports.

Excise taxes

Duties on some of the imports and locally produced goods are applicable. The rates will vary depending on the type of good and the value that comes with it. In most cases, the more the product is harmful, the higher the excise duty imposed.
The rates are as follows:
  • Alcoholic products with concentrations over 80% and Vodka – AZN 2 per liter;
  • Beer – AZN 0.2 per liter;
  • Wine – AZN 0.2 per liter;
  • Cognac products – AZN 6 per liter;
  • Cigars – AZN 20 per 1,000 units;
  • Cigarettes (tobacco-related) – AZN 12 per 1,000 units;
Other products, such as vehicles and petroleum products, their rates are controlled by the ministers in a cabinet set.
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