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Azerbaijan Corporate Tax Rate & Incentives

Azerbaijan’s history with hydrocarbons runs deep: the world’s first industrial oil well was drilled in 1847 in Bibi-Heybat near Baku. By the early twentieth century, the country was supplying more than half of global oil production. For decades, Azerbaijan’s economic growth has been shaped largely by its oil and gas sector. 

In the mid-2000s, projections suggested that Azerbaijan’s oil reserves would run dry by 2025. However, improved extraction technologies and the discovery of additional fields have pushed that timeline forward, with current reserves now expected to last another twenty-five years. This extended window gives Azerbaijan the opportunity to demonstrate that its economy can evolve beyond hydrocarbons. 

Geographically, Azerbaijan sits between the Caspian Sea and the Caucasus, making it a crucial node in trans-Eurasian transport networks. In 2024 alone, Azerbaijan Railways handled over 18.5 million tons of cargo, including 7.3 million tons in transit, representing a 5.7% increase year-on-year. By capitalizing on this strategic position, Azerbaijan has increasingly leveraged logistics and connectivity as a core economic strength, positioning itself as a stable and attractive destination for regional and global investors seeking Azerbaijan business setup. 

Diversification 

The Azerbaijani government officials proposed a framework for economic diversification by investing in developing the country’s considerable wind and solar energy potential. Along with supporting its economy, it attracts investors by being a key transport and logistics hub in Eurasia.  

According to Lika Merabishvili, Regional Director for the Caucasus at StrategEast,  

“The South Caucasus has tremendous potential to position itself as a connected and complementary regional market. Joint efforts in infrastructure development, logistics, and digital transformation can significantly enhance the region’s investment attractiveness and economic resilience.” 

Azerbaijan Corporate Tax Rate & System 

Azerbaijan corporate tax incentives suggest that a shift has arrived hand-in-hand with a revamped corporate tax regime. The targeted incentives are designed to signal that Baku welcomes capital. 

Azerbaijan corporate tax rate and system is primarily governed under The Tax Code of the Republic of Azerbaijan. In general, Azerbaijan resident entities are subject to a profit tax on their worldwide income. Under Azerbaijan’s corporate tax rate, domestic enterprises and PEs of non-residents are subject to profit tax at the flat rate of 20%. 

For non-resident companies having a permanent establishment in Azerbaijan, the corporate tax rate applies to gross income earned from Azerbaijan sources, but only after deductions. Gross income here includes revenues received by a taxpayer by way of all of his economic activities. Some revenues are exempted under the law. On the other hand, deductions made are the expenses that took place in the future of the business. 

Azerbaijan corporate tax rate covers expenses determined as non-deductible under the Tax Code of the Republic of Azerbaijan. It does not cover deductible expenses. Gross income shall be taxed at the source of payment in cases where a non-resident enterprise generates gross income from Azerbaijan sources and does not have a Permanent Establishment. No deductions will be allowed for expenses in this scenario. 

Exemptions from the General Azerbaijan Corporate Tax Rate & System

Several categories of income are not subject to corporate income tax in Azerbaijan. These include: 

1. Earnings of charitable Organisations, provided they do not arise from commercial activities. 

2. Income of international, interstate, and intergovernmental bodies, unless generated through business operations. 

3. Funds received by state authorities, budget-funded institutions, and local administrative bodies, except linked to entrepreneurial activity. 

4. Profits of resident companies operating within industrial or technological parks, which enjoy a 10-year exemption from the date of registration. 

5. Insurance-related payouts. 

6. Income earned by educational institutions created to support individuals with health limitations, when not derived from business activity. 

Azerbaijan Corporate Tax Rate: Simplified Tax in Azerbaijan 

Under the Azerbaijan Corporate Tax rate mechanism, Azerbaijan allows certain taxpayers to pay simplified tax instead of corporate income tax and VAT. Under this regime, qualifying businesses pay tax on their total turnover, with no deduction of expenses. 

2% Simplified Tax 

Under the Azerbaijan corporate tax rate, taxpayers may pay a 2% simplified tax on turnover if: 

• They are not VAT-registered 

• The turnover does not exceed 200,000 AZN in any continuous 12-month period. 

Additionally, taxpayers selling to both commercial buyers and individual customers may still use the 2% regime if sales to commercial buyers are less than 30% of total turnover. 

8% Simplified Tax 

Under the Azerbaijan corporate tax rate, taxpayers may opt to pay an 8% simplified tax (instead of CIT and VAT) if: They are public catering entities with a turnover exceeding 200,000 AZN in any consecutive 12-month period. 

Azerbaijan Corporate Tax Rate Regimes 

To attract foreign capital into the oil and gas sector, Azerbaijan has entered into a series of Production Sharing Agreements (PSAs) and Host Government Agreements (HGAs) with international oil companies. There are currently 30 ratified PSAs and two HGAs, each operating under its own distinct tax regime. 

Under PSAs, contractor parties and foreign subcontractors are taxed only on their income from hydrocarbon activities. Contractors pay profit tax on earnings from petroleum operations, while foreign subcontractors are taxed on income from services and mark-ups on goods supplied within Azerbaijan. Local subcontractors, however, remain subject to the standard domestic tax rules. 

For HGAs, the regime is even more favorable: HGA subcontractors are exempt from corporate tax, and HGA participants are taxed solely on their transportation income. 

Current Status: Azerbaijan Corporate Tax Rates and Tax Mechanism  

Azerbaijan’s current corporate tax framework combines a standard nationwide rate with a layered system of incentives, sector-specific exemptions, and alternative tax regimes depending on business activity and entity type.  

1. Standard Azerbaijan Corporate Tax Rate:  
   Under the Azerbaijan corporate tax rate, it continues to apply a unified 20% profit tax for most resident companies and non-resident entities operating through a Permanent Establishment. 

2. Preferential Tax Regimes & Reduced Burden 
   Azerbaijan offers significant sector-based exemptions, including 10-year tax holidays for industrial and technology parks, exemptions for agricultural income, and simplified tax options for small businesses. 

3. Industry-Specific Variations 
   Under the Azerbaijan corporate tax rate, special regimes and incentives apply to key industries such as the Alat Free Economic Zone (0% CIT), insurance sector exemptions, education-based exemptions, and unique taxation under oil & gas production agreements. 

Sector-Specific Incentives Under the Azerbaijan Corporate Tax Rate  

Azerbaijan’s tax rate system is applied by sector-specific tax with targeted incentives to encourage investment in emerging industries and attract foreign investment. Look below to know Azerbaijan’s tax system is levied across sectors? 

1. Public–Private Partnership & Renewable Energy Incentives 
   Azerbaijan provides tax benefits for public–private partnership projects and renewable energy initiatives. It reduces reliance on the hydrocarbon sector. Tax benefits include exemptions from profit tax, VAT on imported machinery and equipment, and relief from property and land taxes. 

2. Cultural and Cinematic Arts Incentives 
   Theatres, museums, symphony orchestras, and local film studios or producers engaged in film production or dubbing benefit from significant tax reductions. They receive a 90% exemption on profit tax related to these activities and full relief from land tax for a five-year period. 

3. Alat Free Economic Zone (AFEZ) 
   AFEZ offers one of the most advantageous tax regimes in the region, granting a 0% rate on corporate income tax, VAT, property tax, and customs duties. 

4. Industrial and Technological Parks 
   Businesses operating in industrial or high-tech parks receive a 10-year exemption from corporate income tax, property tax, and land tax, encouraging growth in manufacturing, R&D, and technology-driven sectors. 

5. Agriculture 
   Under the Azerbaijan Corporate Tax Rate Mechanism, income derived from agricultural activities is fully exempt from profit tax, supporting national strategies for food security and rural development. 

6. Tourism and IT Sectors 
   Tourism investments benefit from VAT and customs relief on eligible imports, while IT companies in high-tech parks enjoy 10-year corporate tax holidays along with additional employee-related tax incentives. 

Foreign Investor Benefits in Azerbaijan  

In order to attract foreign capital, Azerbaijan has provided several provisions that ensures the region remains a competitive and an obvious option for foreign investors. Look below the benefits given for foreign investors.  

Repatriation of Profits 

Azerbaijan, by allowing unrestricted repatriation of profits, has declared itself as one of the most attractive destinations for foreign investors. 

• Under the Law of the Republic of Azerbaijan, “On Protection of Foreign Investments” guarantees investors the right to transfer profits abroad (Articles 4 and 5). It provides foreign companies freely transfer net profits, dividends, interest, royalties, management fees, capital gains, and liquidation proceeds abroad. 

• This is successful since the foreign company has complied with and met its domestic tax obligations. 

• This right to repatriate profits, along with The Law of the Republic of Azerbaijan “On Protection of Foreign Investments”, comes from The Alat Free Economic Zone (AFEZ) Law (2021). This provides an enhanced level of repatriation freedom, expressly allowing zone residents to move profits offshore without limitation. 

• Thus, establishing a transparent and stable mechanism smoothly streamlines the earnings of foreign companies. Also, it simplifies approval involving currency controls or administrative barriers.   

Double Taxation Treaties 

Apart from attractive Azerbaijan tax incentives, Double Taxation Treaties play an essential role in inviting foreign investment. Also, it stabilizes the regional rules and regulations where foreign companies would be operating their day-to-day businesses. 

• Azerbaijan has established a broad network of double taxation treaties (DTTs). 

• Double Taxation Treaties includes major partners like India, China, United Kingdom, Turkey, Russia, UAE and most of the EU. 

• By establishing DTTs, Azerbaijan allows reduced tax friction for cross-border investors. 

• Double Taxation Treaties network ensures that profits earned in Azerbaijan are not subject to duplicate taxation in the investor’s home jurisdiction, making the country significantly more attractive to multinational enterprises. 

The above given measures have resulted in facilitating ease of doing business within the region, leading to enhanced freedom for both the newly entered businesses in Azerbaijan as well as the existing business owners. 

Azerbaijan Corporate Tax Compliance 

Tax Returns  

1. Profit tax returns for a calendar year must be filed by 31st March of the following year. 

2. In case the entity wants to liquidate itself, tax return shall be submitted within 30 days from the date of adoption of decree of liquidation. 

The above applies to both resident enterprises and PEs of non-residents. 

Tax Compliance Under the Azerbaijan Corporate Tax Framework 

A non-resident company without a Permanent Establishment in Azerbaijan is normally taxed through withholding tax on its gross income. However, it may choose to file a tax return and claim the expenses related to earning that income, allowing the tax authorities to reassess its liability under the standard 20% profit tax. This option can reduce tax payable. 

Legal entities and entrepreneurs that withhold tax at the source of payment are obligated to file the WHT report with the tax authorities within 20 days following the end of the quarter. 

There is also a provision for if one wants to extend the tax filing period. If a taxpayer applies an extension of time to file the profit tax return before the original filing deadline and simultaneously pays the full tax amount due, the filing deadline may be extended by up to three months. Importantly, the extension applies only to the filing of the return; it does not change the deadline for tax payment, which must still be settled on time. 

Azerbaijan Corporate Tax Process 

• Taxpayers must make advance quarterly tax payments of profit tax by the 15th day of the month following the end of the calendar quarter. 

• Payments are determined either:  

(i) as 25% of tax for the past fiscal year or  

(ii) by multiplying the amount of actual income through the quarter by a ratio of tax to gross income for the previous year. 

• If the taxpayer did not generate a taxable profit or was not a profit taxpayer in the preceding year, the advance profit tax payment is determined on the basis of profit generated in each quarter. 

• The final payment of profit tax coincides with submission of the declaration of profit tax (i.e. 31 March). 

Azerbaijan Corporate Tax Audit 

1. The ordinary on-site tax audit shall be conducted not more than once in a year. Additionally, off-site tax inspection is mandated to be conducted within 30 working days from the date when a tax return is provided by the taxpayer to the tax office. 

2. Along with the above two, Azerbaijan also has a provision for extraordinary tax audit. It can be performed at any time, under certain conditions. Some examples include: 

• If incorrect information is found in the report made on the results of tax inspection. 

• When a taxpayer requests a refund of excess tax, interest, or financial penalties. 

• When tax authorities receive credible information that the taxpayer has concealed or underreported income or taxable items. 

• When a court or law-enforcement body orders a tax audit under criminal law. 

• When the taxpayer fails to submit documents required under the Tax Code. 

• When the taxpayer applies for liquidation or reorganization, or when an individual ceases business activities. 

•  If taxpayers who do not agree with the results of the tax audit request to conduct an extraordinary on-site tax audit. 

•  If the taxpayer fails to submit documents during the on-site tax audit and the decision on the results of the tax audit is appealed to the higher tax authority by submitting the said documents. 

Tax Authorities: Common Challenges  

During a tax audit, there have been observed some of the most common issues that are usually challenged by the tax authorities in Azerbaijan. Some issues include: 

• Application of the 20% profit tax on income treated as “deemed profit.” 

• Withholding taxes on payments to foreign suppliers when their income is classified as Azerbaijan-sourced. 

• VAT assessed on the market value of assets written off, given away, or sold below market price. 

• Disputes related to transfer pricing. 

• Deductibility of expenses charged by a head office. 

• Deduction of fees for management or administrative services. 

The Final Words: Azerbaijan Corporate Tax Rate 

Azerbaijan has an investment-friendly tax system with its corporate tax rate at 20%. The country offers great incentives including tax holidays and special regimes to support key industries such as technology, logistics, renewable energy, and agriculture.  

Foreign investors benefit from double taxation treaties, profit transferring rights, and flexible options for business setup. Plus, it must be followed for reporting rules, auditing requirements, and withholding procedures.  

To know more about the Azerbaijan Corporate Tax System, visit Enterslice. Connect with today and talk to our expert team for more assistance.  

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