The tax system of Azerbaijan is governed by the Tax Code, effective since July 11, 2000, which serves as the primary legal framework in this domain. The Code takes precedence over other laws in matters of taxation. In recent years, the country has actively implemented reforms aimed at enhancing transparency, digitizing processes, and promoting cashless transactions.
Key Taxes
- Corporate Income Tax – the standard rate is 20%, with a preferential rate of 5% for micro-enterprises.
- Personal Income Tax – applied on a progressive scale ranging from 14% to 25%, depending on income level.
- Value Added Tax (VAT) – the standard rate is 18%. A zero rate (0%) applies to export and import transactions, as well as certain categories of goods and services.
- Excise Duties – levied on specific goods, including alcoholic beverages, tobacco products, and petroleum products.
- Property Tax for Legal Entities – calculated at 1% of the average annual value of the company’s assets.
- Land Tax – varies depending on the category and location of the land plot.
- Road Tax – paid by vehicle owners and included in the cost of fuel.
- Mineral Extraction Tax – rates differ: for example, 26% for oil and 20% for natural gas.
- Simplified Tax – applicable to small enterprises and individual entrepreneurs with annual turnover up to 200,000 AZN. The rate is 2% for most activities and 8% for public catering establishments.
Simplified Taxation Regime
The simplified tax is designed for small businesses and individual entrepreneurs not registered as VAT payers.
- Rates:
- 2% of turnover – for most types of activities;
- 8% – for public catering enterprises;
- Special rates – for construction and transportation companies;
- 6% – for operators of sports betting and lotteries;
- 4% – for ticket sellers;
- 1% – on cash withdrawals by legal entities and individual entrepreneurs2
- Restrictions: Banks, insurance companies, investment funds, and certain other categories are not eligible to apply the simplified regime.
- Rates:
Value Added Tax (VAT)
- Rates
- 18% – standard VAT rate.
- 0% – applies to:
- export of goods and services;
- international and transit transportation;
- supplies under grants received from abroad;
- contributions of fixed assets to the authorized capital;
- delivery of gold and valuables to the Central Bank;
- shipbuilding and repair services provided to non-residents.
- VAT Exemptions
- Medical and educational services;
- Leasing of residential property;
- Sale of agricultural products by local producers;
- Activities under international agreements;
- Financial services (including leasing interest);
- Sale of shares and equity interests;
- Import and sale of electric and hybrid vehicles (until 2026);
- Industrial equipment imported by residents of industrial-technological parks (for 10 years);
- Goods imported into special economic zones (except excisable goods).
- VAT Reporting
- Declarations must be submitted by the 20th of the following month;
- Reporting is conducted electronically via the tax authority’s portal;
- Penalties and fines apply for late submission or errors.
- Mandatory VAT Registration
- If turnover exceeds 200,000 AZN over 12 months;
- If the value of a single transaction exceeds 200,000 AZN;
- For all importing companies.
- Electronic Services Provided by Non-Residents If a local entity pays for services rendered by a non-resident (e.g., digital services), the bank withholds and remits VAT on behalf of the purchaser. Such VAT is not eligible for input tax credit.
Recent Reforms
- Additional tax incentives have been introduced for small businesses;
- Rates for certain types of taxes have been reduced;
- Taxation of salaries in the non-oil private sector has been exempted;
- Oversight of ultimate beneficial owner disclosure has been strengthened;
- Deadlines for submitting changes to the register of legal entities have been shortened.
The tax system of Azerbaijan combines traditional taxes with modern administration mechanisms, including electronic services and simplified regimes for small businesses. Particular emphasis is placed on the accurate calculation and payment of VAT, as it represents one of the most significant sources of budget revenue in Azerbaijan.
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