Tax Residency of Individuals and Legal Entities in the Republic of Azerbaijan

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Citizenship and tax residency

Not everyone knows that being a citizen of a country is not the same as being a tax resident of that country. You do not have to be an Azerbaijani citizen to be considered a tax resident of Azerbaijan. Tax residency in the Republic of Azerbaijan is determined based on a number of conditions.

Citizenship is a legal status that may be acquired by birth, descent or naturalisation. It generally describes the legal relationship between a person and a country. Tax residency, on the other hand, determines whether an individual or legal entity belongs to a country’s tax system. The applicable tax rates and obligations are determined according to the domestic legislation of the country where the person is considered a taxpayer.

An Azerbaijani citizen may be a tax resident of another country, while a foreign citizen may be a tax resident of Azerbaijan. Citizenship usually lasts for life and can be difficult to lose. Tax residency, however, can change much more easily depending on where a person lives, works or manages a business.

Citizenship gives a person certain rights, such as:

• owning property;
• using social services;
• applying for a passport;
• other rights provided by law.

However, citizenship does not necessarily mean that a person must live or work in that country. For example, an Azerbaijani citizen may work in Türkiye, Russia or another country.

A person’s residency status usually depends on their actual presence and personal or economic connections with a country. Tax residency, sometimes also referred to as fiscal residency, generally determines the country where a person may be required to pay tax, including tax on worldwide income.

Legal framework

Article 13.2.5 of the Tax Code explains the conditions for tax residency in the Republic of Azerbaijan. Tax residency rules for individuals are set out in Article 13.2.5.1, while the rules for legal entities are provided in Article 13.2.5.3.

The Tax Code also uses the terms “resident of an industrial park” and “resident of a technology park.” These concepts are defined in Articles 13.2.52 and 13.2.53 respectively.

Chapter XIX of the Tax Code regulates specific taxation rules applicable in the territories liberated from occupation. For the purposes of this chapter, the term “resident of the liberated territories” is used. These are individuals and legal entities that are registered for tax purposes in the liberated territories and directly carry out activities there, as provided in Article 226.2.

Article 13.2.5 explains tax residency in the Republic of Azerbaijan in a broader sense. Articles 13.2.52, 13.2.53 and 226.2 relate to residency status in specific areas within Azerbaijan. An individual or legal entity may be considered a tax resident of more than one country at the same time.

In such cases, international double taxation agreements, commonly known as DTAs, may be used to prevent double taxation. The relevant procedures are regulated by the Rules for the Administration of International Agreements on the Avoidance of Double Taxation.

Tax residency of individuals in Azerbaijan

The main criterion for determining the tax residency of an individual in Azerbaijan is the period of their physical presence in the country. According to the Tax Code, the following criteria apply:

1. The individual is physically present in the Republic of Azerbaijan for more than 182 days during a calendar year.
2. The individual serves in the public service of the Republic of Azerbaijan in a foreign country during the calendar year.

If the individual spends no more than 182 days in Azerbaijan or in a foreign country under the circumstances mentioned above, tax residency in Azerbaijan is determined by applying the following criteria in sequence:

• Permanent place of residence: if the individual has a permanent place of residence in Azerbaijan, they may be considered a tax resident of Azerbaijan.
• Centre of vital interests: if the individual’s main personal and economic interests are concentrated in Azerbaijan, this may determine their tax residency in the country.
• Habitual place of residence: if the previous criteria do not provide a clear result, the person’s usual place of residence may be considered. A person does not necessarily have to live there permanently. For example, owning residential property in Azerbaijan may be one of the relevant factors.
• Citizenship of the Republic of Azerbaijan: if the previous criteria are not sufficient, Azerbaijani citizenship may be taken into account when determining tax residency.

To avoid double taxation, it is important to understand both domestic and international tax rules and to apply the relevant requirements correctly.

Professional advice can help reduce the risk of unnecessary financial losses

Tax residency of legal entities

A legal entity may be considered a tax resident of the Republic of Azerbaijan if at least one of the following two conditions applies:

1. Registration in Azerbaijan: the legal entity is established in accordance with Azerbaijani legislation and carries out business activities in the country.
2. Place of management in Azerbaijan: the main place where commercial decisions necessary for the management of the legal entity are made and where its day-to-day management is carried out is located in Azerbaijan. The location of the company’s main supervisory bodies is not decisive for this purpose.

Correctly determining the tax residency of a legal entity is important for meeting tax obligations. The relevant criteria under Azerbaijani legislation must be applied accurately, and the requirements of applicable international agreements should also be taken into account.

If you need help understanding your tax obligations, our tax consulting service can support you!

Tax residency in the Republic of Azerbaijan can be confirmed by a tax residency certificate issued by the relevant authorities of the State Tax Service.

Tax residency and double taxation

An individual or legal entity may be considered a tax resident of several countries at the same time. If there is no international double taxation agreement between these countries, this may result in the same income being taxed in more than one jurisdiction. If a DTA exists, the agreement usually contains rules for determining which country the person should be treated as a resident of for the purposes of that agreement.

The Republic of Azerbaijan has entered into double taxation agreements with a number of countries to reduce the risk of double taxation for persons considered tax residents of Azerbaijan. These agreements may:

• establish rules for determining tax residency;
• determine the country in which a taxpayer should be treated as a resident for the purposes of the agreement;
• provide certain tax benefits and reliefs.

The information above about determining tax residency in the Republic of Azerbaijan is general in nature. Each situation may involve different facts and should be assessed individually. If you need professional support, you can contact us and choose the service that best suits your needs.