EY
Port Baku Towers Business Centre
South Tower (Block A) 9th Floor
153 Neftchilar Avenue
Baku AZ1010
Azerbaijan
Business Tax Advisory
Arzu Hajiyeva
+994 (12) 490-7020
Fax: +994 (12) 490-7017
+994 (12) 490-7020
Mobile: +994 (50) 335-1964
Email: arzu.hajiyeva@az.ey.com
Because of the rapidly evolving economic situation in Azerbaijan, readers should obtain updated information before engaging in transactions.
A. At a glance
(a) These are final withholding taxes applicable to payments to Azerbaijani and foreign legal entities.
(b) This is a final withholding tax applicable to payments to foreign legal entities unless the payment is made to foreign legal entities incorporated or registered in jurisdictions with a preferential tax regime or payments made to bank accounts located in such jurisdictions.
(c) Direct or indirect payments made by residents of Azerbaijan or permanent establishments of nonresidents located in Azerbaijan to persons incorporated or registered in jurisdictions with a preferential tax regime or payments made to bank accounts located in such jurisdictions are considered to be income from an Azerbaijani source and are subject to a 10% withholding tax on the gross amounts of the payments. The list of jurisdictions with a preferential tax regime is approved by the President of Azerbaijan on an annual basis. Certain payments are specifically excluded from the list of payments considered to be made to the countries and territories with preferential tax regimes
(principal amount of a loan, dividends derived from investments to Azerbaijan, interest from deposits held in financial institutions of Azerbaijan and purchase of bonds, remittances of net profit of permanent establishments of a nonresident to that nonresident, and others).
(d) Transfers of funds to accounts created in the electronic wallets of nonresidents (online payment systems) by residents of Azerbaijan not registered for tax purposes are subject to a 10% withholding tax. This tax must be withheld by a local bank, branch of a foreign bank located in Azerbaijan or national postal operator from the residents making the transfers.
B. Taxes on corporate income and gains
Corporate profit tax. Enterprises carrying on activities in Azerbaijan, including enterprises with foreign investment, joint ventures and legal entities operating through a permanent representation, are subject to tax.
Azerbaijani resident legal entities are subject to tax on their worldwide income. For tax purposes, Azerbaijani resident legal entities are entities incorporated in Azerbaijan and entities that have their effective management located in Azerbaijan, including 100%-owned subsidiaries of foreign companies.
Nonresident legal entities are subject to tax on profits earned through a permanent representation only. A permanent representation is defined as a place where the entrepreneurial activities of a nonresident are carried out in Azerbaijan for a period amounting to or exceeding 90 days in the aggregate. The term permanent representation includes, but is not limited to, the following:
• Persons who are performing the function of a permanent establishment of a nonresident legal entity or a person acting on their behalf, accumulating a client base for their benefit and organizing works with their clients, entitled to prepare and conclude contracts in the name thereof and commonly carrying out the enlisted responsibilities
• A place of management, a bureau, an office, a branch or an agency
• Construction and repair sites, installation, commissioning or assembly object, as well as supervisory activities associated therewith
• A place of exploration, exploitation or extraction of natural resources or drilling equipment or a vessel used for such purposes, as well as supervisory activities over such items
• A place where the business activity of a nonresident is carried out, including a place where goods are produced or services, including consulting services, are performed
• A person who acts in Azerbaijan on behalf of a nonresident and who has and habitually exercises an authority to negotiate and conclude contracts on behalf of that nonresident
The Azerbaijan Law on the Protection of Foreign Investments allows foreign investment in various forms, including investment through 100% foreign-owned subsidiaries, share participations in joint stock companies and in joint ventures with Azerbaijani legal entities, individuals and establishments of branches and representative offices.
Tax rate. All entities operating in Azerbaijan are subject to corporate profit tax at a rate of 20%.
Capital gains. Capital gains are included in taxable income and taxed at the regular rate.
Nature of tax Rate (%)
if a nonresident provides electronic commerce services to a person not registered as a VAT payer, the bank, branch of a foreign bank located in Azerbaijan or national postal operator from the resident making the transfer is obliged as tax agent to withhold VAT from the payer and remit it to the state budget; if a nonresident provides electronic commerce services to a person registered as VAT payer, the respective person acts as a tax agent and accrues VAT on payment made to the nonresident. 18 Assets tax, on the annual average net book value of fixed assets or the market price of the asset if the insurance value of assets exceeds the net book value 1 Import tariffs 0 to 15
E. Miscellaneous matters
Foreign-exchange controls. The manat (AZN) is a non-convertible currency outside Azerbaijan. Enterprises may buy or sell foreign currency through authorized banks or foreign-exchange offices in Azerbaijan.
To receive foreign-currency income in Azerbaijan, an enterprise must obtain a license issued by the Central Bank of Azerbaijan.
Transfer pricing. Recent legislative amendments to the Tax Code of the Republic of Azerbaijan introduced transfer-pricing rules, effective from 1 January 2017. These rules are conceptually based on the arm’s-length principle outlined in the transfer-pricing guidelines developed by Organisation for Economic Co-operation and Development (OECD). The new rules apply to Controlled Transactions, as defined in the rules. The following are Controlled Transactions:
• Transactions between residents of Azerbaijan and nonresident related parties of such residents, as well as between the same residents and any of their establishments, branches or other subsidiaries located in another country or territory
• Transactions between permanent establishments of nonresidents and such nonresidents, as well as representative offices, branches and other establishments of such nonresidents in other countries and any other persons located in other countries that are related parties of such nonresidents
• Transactions between residents of Azerbaijan and/or permanent establishments of nonresidents in Azerbaijan and persons incorporated or registered under the laws of the jurisdictions recognized as preferential tax regime countries under the laws of Azerbaijan
• Transactions between a resident of Azerbaijan or a permanent establishment of a nonresident in Azerbaijan and an unrelated nonresident party if the following conditions are met: The transaction involves sales commodities traded on international commodity exchanges.
The total turnover of a resident of Azerbaijan or a permanent establishment of a nonresident in Azerbaijan exceeds AZN30 million and the share of a transaction with any nonresident exceeds 30% of total revenue or expenses, respectively.