Azerbaijan's Tax System and Structure

Azerbaijan operates a hybrid tax regime combining territorial and residency-based principles. The country's tax laws apply to all Azerbaijani citizens, foreign nationals residing long-term in Azerbaijan, legal entities registered within the country, and foreign companies earning income from sources within Azerbaijan—even if they do not have a formal presence there. According to Azerbaijan’s Tax Code, taxation is structured at three levels: national, autonomous republic (specifically Nakhchivan), and local jurisdictions. Despite this tiered structure, the nation maintains a unified tax framework across all regions.

Main Taxes and Rates in Azerbaijan

Personal Income Tax

Personal income tax is a national levy collected annually, applicable to both residents and qualifying foreign individuals with permanent residency rights. A special tax relief policy has been in place since January 1, 2019, offering a seven-year exemption for non-oil & gas sector employees and non-government workers: those earning up to 8,000 manats per month are fully exempt from income tax. For earnings above this threshold, the tax is calculated as (income – 8,000 manats) × 14%.

For employees in the oil and gas industry or public sector—and after the expiration of the seven-year window for all other employees—the rules differ. Individuals earning up to 2,500 manats monthly pay a flat 14% rate. Those exceeding that amount owe 350 manats plus 14% on any income over 8,000 manats.

A separate incentive applies to IT professionals: under a three-year preferential period starting January 1, 2023, those earning up to 8,000 manats per month faced a 0% tax rate. As of January 1, 2026, a new seven-year scheme begins, imposing a flat 5% tax on total monthly income regardless of amount—designed to boost digital innovation and attract tech talent.

Corporate Profit Tax

This national annual tax applies equally to foreign-invested enterprises and domestic companies operating in Azerbaijan. The standard rate is 20% of taxable profits derived from activities within the country, calculated after deducting VAT and excise duties. Notably, socially oriented enterprises where more than half the workforce consists of people with disabilities benefit from a reduced rate of 10%, reflecting government support for inclusive employment.

Value Added Tax (VAT)

VAT is a cornerstone of Azerbaijan’s revenue system, levied at a standard rate of 18%. It applies broadly to goods and services supplied domestically, as well as imported products. However, certain exemptions exist by law—for example, foreign firms engaged in mineral resource development under production-sharing agreements (PSAs) may be exempt from VAT obligations. The government periodically revises the list of VAT-exempt imports, allowing flexibility in trade policy and economic stimulus measures.

Excise Tax

Excise duties are imposed on specific luxury and consumption-sensitive goods, including tobacco, alcohol, refined petroleum, passenger vehicles, and yachts. While general rates are set nationally, the executive branch retains authority to adjust them based on economic or health objectives:

1. In February 2020, the Cabinet of Ministers approved an increase in excise taxes on imported tobacco and alcoholic beverages, effective March 19, 2020, aimed at curbing consumption and raising fiscal revenues.
2. Passenger cars (excluding specially equipped service vehicles) are taxed based on engine displacement in cubic centimeters, encouraging fuel efficiency and environmental responsibility.
3. Yachts and other recreational watercraft are subject to a rate of 6 manats per cubic centimeter of engine capacity, targeting high-end consumer spending.

Refunds or exemptions may also apply in cases such as re-exportation or transit trade, supporting Azerbaijan’s role as a regional logistics hub.

Other National Taxes

Besides the major categories, additional national taxes include property tax, land tax, extraction tax (on natural resources), and road tax. These contribute to infrastructure funding and sustainable resource management.

Taxes in the Autonomous Republic

The Nakhchivan Autonomous Republic follows the same national tax structure but excludes road tax. All other national taxes apply with identical rates, ensuring consistency while respecting its semi-autonomous status.

Local-Level Taxes

Municipalities impose local taxes such as personal property tax, individual land tax, locally sourced construction material extraction fees, and municipal corporate profit tax. Rates align with corresponding national taxes, preventing duplication and maintaining clarity for taxpayers.

Tax Incentives for Foreign Investors

Azerbaijan grants foreign enterprises national treatment under its legal framework, meaning no discriminatory taxation. Limited but strategic tax incentives are available in specific circumstances:

1. Imported equipment, raw materials, and capital goods brought into Azerbaijan as part of foreign direct investment, along with personal belongings of expatriate employees and their families, are typically exempt from customs duties and VAT—lowering entry barriers and setup costs.
2. For large-scale foreign investment projects, especially in energy or critical infrastructure, the government may negotiate bespoke tax arrangements through individual contracts. For instance, international oil and gas developers often secure comprehensive relief—including import duty and VAT waivers—under bilateral production-sharing agreements, enhancing project viability and attracting long-term capital.

These targeted incentives reflect Azerbaijan’s broader strategy to diversify its economy beyond hydrocarbons and strengthen integration into global value chains. Companies exploring expansion into the South Caucasus region can benefit from these policies, particularly when partnering with experienced offshore HR and compliance providers such as SailGlobal, which offers tailored solutions for international workforce deployment and cross-border payroll management.