Withholding Tax in Azerbaijan

Updated on Tuesday 26th January 2021

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Azerbaijan’s taxation system is made of several levies imposed on both natural persons and corporations on the income generated in the country and/or outside it, depending on their residency. Just like in other countries, these taxes are direct or indirect.

One of the most important levies is the withholding tax in Azerbaijan and it is applied on various types of incomes to both individuals and companies.

Below, our company formation agents in Azerbaijan explain how the withholding tax is imposed here. Also, if you need tax advice, you can rely on our specialists.
 

How is the withholding tax levied in Azerbaijan?


Compared to other countries, the withholding tax in Azerbaijan is deemed as a form of levy imposed on the income generated in or outside the country.

There are two ways of collecting this tax:
 
  • the first one implies the income obtained by non-resident companies paying various amounts of money to Azeri residents,
  • the second one implies Azeri residents who are withheld the due tax for the income obtained from non-residents who are not registered for taxation in this country.

In other words, non-resident companies and individuals will be imposed the withholding tax on an income obtained in Azerbaijan which is will be deducted at source and paid directly to the state treasury by a resident.

Our company registration advisors in Azerbaijan can assist foreign investors who want to set up businesses in this country and need to understand how the withholding tax is levied.
 

The withholding tax applied to natural persons in Azerbaijan


In 2019, the Azeri personal taxation system has suffered a change that provides for the exemption of the income tax on employment for natural persons operating in non-oil and non-government sectors. These will benefit from a 7-year exemption for incomes of 8,000 AZN.

When it comes to the withholding tax applied in Azerbaijan on locally-sourced income, the following rates are available:
 
  1. dividend payments are subject to a 10% tax rate,
  2. rental fees for various properties are set at a rate of 14%,
  3. royalties payments are also levied at a rate of 14%,
  4. payments for goods and services made by natural persons are taxed at rates ranging between 14% and 25%,
  5. interests are imposed the withholding tax at a rate of 10%.

There are also a few particularities when it comes to the collection of the withholding tax with respect to interest payments, as interests for bank deposits are not subject to taxation. Also, when it comes to the tax levied on natural making payments for goods and services, this is imposed only on private persons who are not registered as sole traders.

When it comes to non-resident natural persons, the following taxes can be deducted from the incomes these generate in Azerbaijan:
 
  • leasing or insurance payments which are levied at a rate of 4% provided they are covered by risk insurances or reinsurance contracts.
  • services related to telecommunication or international transport which is levied at 6%,
  • other incomes are imposed with a 10% withholding tax.

If you have any questions about the withholding tax in Azerbaijan, our consultants are at your disposal. We can also offer accounting services if you need assistance in taxation matters.
 

Companies and the withholding tax in Azerbaijan



Domestic and foreign companies operating in Azerbaijan through branches or subsidiaries are also subject to the withholding tax.

The incomes obtained in Azerbaijan and that cannot be attributed to the permanent establishment created by a non-resident company will be subject to the following withholding tax:
 
  • a 10% tax on dividends issued by domestic businesses,
  • a 10% tax on interest payments made by residents, or permanent establishments of non-resident companies,
  • a 14% tax as rental fees,
  • a 14% tax on royalties payments,
  • a 4% tax on insurance and reinsurance payments,
  • a 6% tax on telecom and international transport services.

Payments made to companies in low-tax jurisdictions are imposed a 10% withholding tax. Even if most taxes are collected through the State Tax Office in Azerbaijan, the withholding levy is retained by the company and sent directly to the government.
 

The Azerbaijan withholding tax under double tax treaties


Azerbaijan has double taxation agreements with numerous countries and their provision affects directly the taxation of foreign companies and individuals including when it comes to the withholding tax which can be levied at lower rates or even exempt from taxation.

If you need information or guidance in collecting and paying the withholding tax in Azerbaijan, do not hesitate to contact our specialists for assistance.