The taxation is the rules applied by the state to form budget revenues through mandatory payments from legal entities and individuals.
The taxation in Azerbaijan acquired its modern form during the country’s independence and the taxation process is carried out on the basis of a single legislative framework and is divided into 3 parts according to the payment of taxes:
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Below is a detailed tax overview of Azerbaijan, summarizing the main types of Azerbaijan taxes that apply to individuals and legal entities:
It is levied on the income of individuals, such as wages, royalties, rent, etc. Currently, individuals with a monthly income of up to 2,500 manat are taxed at a rate of 14%, and the increasing part of the income above 2,500 manat is taxed at a rate of 25%. Income tax is not applied to the part of the monthly income of employees working in the non-oil private sector up to 8,000 manat for a seven-year period (2019–2025); a 14% rate is applied to the part exceeding 8,000 manat.
It is calculated on the profit earned by companies and other legal entities (the amount remaining after deducting expenses from income). Resident enterprises are subject to tax on profits earned both within the country and abroad; non-resident companies are subject to taxation only on profits earned from their activities in Azerbaijan.
The profit tax rate in Azerbaijan is usually 20%. That is, one fifth of the net profit of companies is paid to the budget as tax.
Is an indirect tax applied during the sale of goods, provision of works and services, and import transactions. The standard VAT rate is set at 18%. VAT is applied at a zero rate in some specified areas. Certain categories, such as simplified taxpayers and agricultural producers, are exempt from VAT (information about this is provided in the exemptions section below).
A simplified taxation in Azerbaijan intended for small business entities. Mainly, entities with an annual turnover below a certain threshold (currently 200,000 manats) can become simplified taxpayers. In this regime, instead of profit tax, a small percentage of the total income (turnover) is paid as tax. The standard simplified tax rate is 2% nationwide. Legal entities that are simplified taxpayers are exempt from profit tax, and simplified taxpayers are generally exempt from VAT.
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Excise taxes applied to luxury consumer goods and certain harmful products are also a type of indirect tax. Excise tax is included in the selling price of those goods. In Azerbaijan, the goods subject to excise tax mainly include alcoholic beverages, tobacco products, some vehicles (light cars, yachts, etc.), precious metals, and jewelry. Excise tax rates vary depending on the type of goods. For example, 0.1 manat for 1 liter of wine, a certain fixed amount for 1,000 cigarettes, differential rates are applied to cars depending on engine capacity, etc.
A tax levied on property owned by individuals and legal entities (buildings, structures, structures, water and air transport vehicles, etc.). The amount of property tax for individuals is calculated mainly based on the area of real estate and the area in which it is located. For example, in Baku, the annual rate is 0.4 manat per square meter of living space, in other large cities it is 0.3 manat, and in regional centers it is 0.1 manat.
A tax paid by individuals who have the right to own or use a certain land plot. Land tax rates vary depending on the purpose of the land plot (agriculture, residential, industrial, etc.) and the area in which it is located. For example, the base tax rate for agricultural land is 0.06 manat per unit measured in conventional points.
A tax levied on the use of motor vehicles within the country. In particular, foreign vehicles temporarily entering the territory of Azerbaijan, as well as gasoline, diesel fuel and other motor fuels produced or imported within the country, are subject to road tax. Road tax for motor vehicles is calculated based on the engine capacity, type of vehicle and duration of stay in the country. For example, for passenger cars, road tax can be levied from 20 USD to 2800 USD, depending on the engine capacity.
A tax paid by individuals and legal entities using the country’s natural resources – oil, gas, ore, etc. mineral resources. The rates of mining tax are determined by the type of resource extracted. According to Azerbaijani legislation, 26% of the value of extracted crude oil, 20% of natural gas, and 3% of the sales value of all extracted metal ores are paid to the state budget as mining tax. This tax ensures the state’s share in the exploitation of the country’s subsoil resources.
