Ministry of Taxes of the Republic of Azerbaijan 

INCOME TAX OF PHYSICAL PERSONS 

Resident and non-resident physical persons are payers of income tax.
Income of resident physical persons consists of income generated in and outside the Republic of Azerbaijan.
Income of non-resident physical person consists of income generated from the sources in the Republic of Azerbaijan.

Income includes:

• income received as a result of employment;
• income from activity which is not connected with employment;
• all other kinds of income except for tax-exempt income.

Income received as a result of employment;

Income received as a result of employment - salary or wage, any payment or benefit received by a physical person from such employment.
Reimbursement of actual travel allowances, and also daily allowances paid to the members of deck crew instead of travel allowances at sea transport or other expenses are not included in income.
Indicated amounts and costs include excise, value added tax and any other tax which is subject to payment by employer in relation to the Contract value.

Income from activity which is not connected with employment;

Income received from activity which is not connected with employment consists of the following:
Income from entrepreneurial activity, including:

• income from the realization of assets used for the purposes of entrepreneurial activity;
• income received due to the restriction of entrepreneurial activity or agreement to its termination;
• amounts received from the realization of fixed assets;  
• amounts reimbursed, deducted from income or from the reduction of resources.

Income from non-entrepreneurial activity, including:

• interest income;
• dividends;
• income from the lease of the property;
• royalty;
• gains received from the sale of assets not used for entrepreneurial activity;
• amount of taxpayers written-off debt (except the amount of employees debt or obligation to the employer, when such debt or obligation is written-off);
• amount of presents and heritage received during the calendar year (except the fair market value of goods, works and services when such goods, works or services are sold or gratuitously transferred to the employee by his/her employer);
• any other income that indicates the increase of the net price of taxpayers assets (in the event when such asset is sold or depreciated for taxation purposes) - other than salaries and wages;
• difference between insurance premiums paid for life insurance and insurance payments.

Taxable base

The taxable base, i.e. taxable income with respect to the personal income tax of residents is the difference between their gross income for tax year and expenses (or deductions) for this period.
If tax is withheld at payment source the taxable base shall be the taxable income.
Taxable income of a non-resident engaged in activity in the Republic of Azerbaijan through a permanent establishment is the difference between gross income generated in a specific period from Azerbaijani sources with regard to the permanent establishment and the amount of expenses with respect to the generation of said income during that period.
Non-resident’s gross income is subject to taxation at the source of payment without consideration of amounts deducted from income.

Adjustment of income

Dividends, interests, rent and royalties received by physical persons and previously taxed at the source of payment are excluded from income and not taxed repeatedly.
All expenses connected with obtaining income, except for non-deductible expenses are deducted from gross income of physical person.
The portion of actual travel costs exceeding the established limit is not deducted from income from business activities.

Exemptions from income tax

The following incomes of physical persons are not subject to income tax:

• wages obtained abroad by employees of diplomatic services, assigned to work in foreign states within rotation program, or engaged in administrative and technical services, and income from official employment received by employees of diplomatic and consular services who are not the citizens of Azerbaijan;
• income from the work-place of a person who is not a resident of the Republic of Azerbaijan - if this income is paid by an employer or on behalf of an employer who is not a resident of the Republic of Azerbaijan, and is not paid by a permanent establishment of a non-resident or on its behalf or in connection with the activity at permanent establishment;
• gifts received during a calendar year, financial aid for the purposes of education or medical care,– up to 1000 manats, the value of financial aid for the medical expenses abroad - up to  2000 manats, and inheritance up to  20000 manats of the value of granted consumptions;
• the entire value of the gift, inheritance or the financial aid in case these are received from family members of the taxpayer;
• state benefits, uncompensated state grants, state pensions, state stipends, except for benefits for temporary disability, lump sump amounts paid according to the Labour Code of the Republic of Azerbaijan when terminating the labour contract as a result of downsizing of staff, individual lump sums or financial aid at the expense of funds of the state budget on the basis of the laws of the Republic of Azerbaijan and the decree of the President of the Republic of Azerbaijan;
• alimony;
• income from the realization of movable tangible assets, except for precious stones and metals, precious stone and metal products, fine art works, antique items as well as property which is used in the entrepreneurial activity of a taxpayer;
• funds paid by money or in kind in the event of insurance case for compensation of damage to the life of insurant, as well as damages to his property and property interests, as well as insurance premiums for all kinds of voluntary or compulsory life insurance paid by the employer, insurance premiums paid by the employer for the life or pension insurance under the insurance contract for not less than 5 years, any amount paid to the insured person after expiration of the 5 years period from the date of entrance of the insurance contract into force;
• income from the realization of immovable property which was the place of residence of a taxpayer for not less than 3 years;
• compensation payments related to the compensation of losses caused;
• income received directly from production of agricultural products;
• income of physical persons from handicraft;
• the amount of wins received from lotteries officially registered by state, as well as obligations of the internal state winning bonds;
• different payments to physical persons of compensation nature
• All types of payments to military servicemen, prosecutor office employees, associates of law-enforcement agencies and special telecommunications services, having special ranking (with exception of official payments and for military (special) rankings),as well as all types of wages and other financial payments to persons cooperating with investigation authorities, intelligence and counter-intelligence services;
• Amount of allowance paid by the employer in accordance with legislation of due to call of the employee for military and alternative service;
• the complete value of prizes received as goods on competitions and tournaments;
• the monetary prizes received on international competitions and tournaments up to 4000 manats;
• the value of monetary prizes received in in-country competitions and tournaments up to 200 manats;
• lump sum payments to civil servants for their voluntary retirement on the basis of reaching the retirement age;
• additional monthly payments to deputies of the National Assembly of the Republic of Azerbaijan for fulfilling deputy duties and additional monthly payments to the officials of executive bodies and other state authorities (establishments) of Azerbaijan Republic appointed by the decree of the President of the Republic of Azerbaijan to cover representation expenses in connection with the fulfilment of official duties.

Tax relief

The monthly taxable income from any type of employment is reduced by the amount of 400 manats for following persons:

• National Heroes of the Azerbaijan Republic;
• Heroes of the Soviet Union and Social Labour;
• persons awarded with all three degrees of the Honorary Order;
• disabled people of military of disability groups I and II;
• widowed wives (husbands) of war participants who were killed at war or died later;
• income of persons who were awarded orders and medals for heroic labour in the home front during the years of 1941-1945.
• persons who received the status of war veterans in accordance with legislation;
• persons who acquired radiation and radiation sickness or had these diseases as a result of accidents at Chernobyl AES, radiation accidents in civil or military atomic facilities.

• The monthly taxable income of disabled people of I and II groups from any type employment is reduced by the amount of 100 manats.
• The taxable income of the following persons from employment is reduced by the amount of 55  manats:

• parents of war participants who were killed at war or died later, including parents and spouses of people in state service who died during the performance of their duties. Such privilege is granted to the spouses of these persons, provided that they have not married again;
• parents and spouses, including children living together with them, of persons who were killed as a result of the intervention of Soviet troops on January 20, 1990 and during the protection of the integrity of the territory of the Republic of Azerbaijan. Such privilege is given to the spouses of these persons, provided that they have not married again;
• military officials involved in the training and test gatherings and military servicemen in Afghanistan and other countries where war operations were conducted;
• any of the parents (according to their own decision), spouse, guardian or patron taking care of a person with whom they live together, who need a permanent care and who is an invalid from childhood or belongs to the 1st group of disability;
• displaced people and persons of similar status. This privilege is not applied to permanently inhabited persons who have obtained dwelling floor area in accordance with housing legislation and civil legal acts.

If a physical person has several grounds for the right to privileges mentioned above such person shall be entitled to one of these privileges which is greater in amount.

• The taxable monthly income of a spouse caring for three persons, to include pupils and students under the age of 23, is reduced by an amount of 20 manats of such spouse.

This rule is applied until children are 18 and until pupils and students are 23, as well as in cases when children and persons under care die, until the end of the year in which they have died.
During calculation of tax levied from the salary, a physical person’s right to tax privileges arises upon the submission of documents determined by the legislation and is exercised at the place where such physical personнs labour record is maintained.

Income tax rates

Monthly income of physical persons are taxed at following rates:

The taxable monthly income of physical persons received as a result of employment is taxed at source of payment at the rates indicated above.
The monthly income of a physical person is reduced for 30 manats if the monthly income is below than 200 manats.
Income tax for physical persons employed at two or more workplaces is calculated separately for each workplace and is paid to the state budget.
With the exception of pensions paid under the state social security system, the legal persons making pension payments to other persons and to employers, taxpayers who are not registered at the tax authorities as taxpayers, in respect to the services (works) of physical persons who are not assigned the TIN and legal persons and individual entrepreneurs who pays to those physical persons who have income to be taxed at source of payment, must impose income tax according to the rates indicated above at source of payment.
Annual incomes of physical persons are taxed at following rates:

The annual income of a physical person is reduced for 360 manats if the annual income is below than 2400 manats.
Individual entrepreneurs are obliged to make current payments to the state budget not later than the 15th day of the month following each quarter, submit income tax return not later than March 31 of the year following the accounting year. Final calculations must be carried out with consideration of current payments by that time and income tax must be paid to the state budget.

Financial sanctions and interests on overdue payments

On the basis of the decision of the head (deputy) of the tax authority the financial sanction at the value of 40 manats is applied to the taxpayer, who did not submit in timely manner the tax report and certificate on tax obligation without valid reasons.
If the taxpayer has reduced the amount of tax (including the tax at the sources of payment), specified in the report, in comparison with the amount, which should be specified in the report, as well as if he did not submit the report and evaded from transfer of required amount of tax to the state budget, the financial sanction at the rate of 25 percent of the reduced or evaded tax amounts is applied to such a person.
For failure to pay the tax or current tax payment during the period determined by law, the interest at the rate of 0, 1% of the amount of tax or current tax payment is imposed on the taxpayer or tax agent for each day of delay. This interest is applied in respect to current tax payments for the whole period of delay but not more than for 1 year.