Azerbaijan Customs: Package Tax Rules And Regulations

Azerbaijan's tax legislation is comprised of state taxes, taxes of the autonomous republic, and local (municipal) taxes. State taxes include personal income tax, corporate tax, value-added tax (VAT), excise tax, property tax, land tax, road tax, and mineral royalty tax. When shipping a package to Azerbaijan, it may be subject to a custom duty and import tax. The import duty and taxes are calculated based on the value of the imported goods and shipping costs. The standard VAT rate is 18%, and there is also a 20% VAT on certain imports. Tariffs are typically set at 15%, 5%, 3%, or 0.5%, with most goods carrying a 15% import customs duty.

Value-added tax (VAT)

Businesses in Azerbaijan that are required to collect tax will be issued an identification number. Tax identification numbers can be verified with the Ministry of Taxes, and will follow a certain format. The number format is a Tax Identification Number (TIN) with 10 digits.

There are revenue thresholds at which businesses in Azerbaijan are required to start collecting and remitting tax. These are:

• Taxable turnover exceeding AZN200,000 for a period of 12 consecutive months.
• A cumulative taxable income of over AZN 200,000 for a consecutive 12-month period.
• The value of one taxable transaction exceeds AZN 200,000.

VAT exemptions are available for certain transactions, including:

• Exportation of goods and services.
• Importation under the PSA and HGA regimes if the taxpayer obtains a VAT exemption certificate.
• Importation of goods, the supply of goods, and the implementation of works and the provision of services to grant recipients on the expense of financial aid (grants) received from abroad.
• International and transit cargo and passenger transportation, as well as the supply of works and services directly connected with international and transit flights and freight forwarding services related to international and transit cargo transportation.
• Investment of fixed assets in the form of shares in the charter fund (capital) of the enterprise (if the investment of fixed assets is not related to the acquisition of other property in exchange).
• The supply of gold and other valuables to the Central Bank of Azerbaijan.

In addition to the above, specific transactions are exempt from VAT, including:

• Provision of financial services.
• Sale of participation interests or shares of a legal entity.
• Provision of paid educational services.
• Investment of any property (other than fixed assets) in the form of a share into the charter fund (capital) of an enterprise, with the exception of imported property (if the investment of property is not related to the acquisition of other property in exchange).
• Imports of fixed assets being a subject-matter of leasing agreements.
• Turnover of agricultural products producers (including by industrial process) for the sale of agricultural products produced by them for a 13-year period beginning from 1 January 2014.
• Payment for rent or lease of aircraft and aircraft engines from non-residents of Azerbaijan who do not have a PE in Azerbaijan within the scope of this activity.
• Industrial and technology equipment imported by taxpayers is exempt from VAT for the period of ten years since their registration as a resident of the industrial and technological park.
• The VAT exemption is also applicable to goods imported into special economic zones (excluding those that are subject to an excise tax).
• Additionally, certain categories of imported goods are exempt from VAT as defined by the Cabinet of Ministers.

The taxable base is established by starting with the value of the goods and services without adding the VAT amount, but including any customs duty and excise duty, if applicable. The value of taxable imports consists of the value of the goods determined in accordance with customs legislation and taxes and duties (other than VAT) to be paid upon importation to Azerbaijan.

Corporate income tax (CIT)

Resident entities are taxed on their worldwide income, while non-resident enterprises operating in Azerbaijan through a permanent establishment (PE) are taxed on their income generated from Azerbaijani sources. Gross income from Azerbaijani sources that is not connected to a PE is taxed at the source of payment without any deductions for expenses.

The standard profit tax rate for domestic enterprises and PEs of non-residents is 20%. However, there are special tax regimes for companies operating under Production Sharing Agreements (PSAs) and Host Government Agreements (HGAs) with the Azerbaijani government. These agreements typically apply to foreign oil companies and related service providers. Under PSAs, contractor parties pay profit tax on income derived from hydrocarbon activities, while foreign subcontractors are taxed only on income from services and mark-up on goods supplied within Azerbaijan. Local subcontractors follow the standard statutory tax regime. As for HGAs, no corporate tax is applicable to subcontractors, and participants only pay tax on their transportation income.

In addition to CIT, businesses in Azerbaijan may also be subject to other taxes such as value-added tax (VAT), excise tax, property tax, and land tax.

Personal income tax (PIT)

Azerbaijan's Personal Income Tax (PIT) rates vary depending on whether an individual is a resident or non-resident, and whether they are employed in the oil and gas or government sectors.

Resident Taxable Income

A resident's taxable income in Azerbaijan includes all income generated in Azerbaijan and outside of Azerbaijan. The taxable base for residents is calculated as the difference between gross income for a calendar year and any expenses or deductions.

Non-Resident Taxable Income

A non-resident's taxable income in Azerbaijan only includes income generated from sources within Azerbaijan. The taxable base for non-residents is calculated as the difference between gross income generated in a specific period from Azerbaijani sources and any expenses or deductions incurred during that period.

Personal Income Tax Rates

From 1 January 2019, employees in the non-oil-gas and non-government sectors have had their monthly income exempted for a seven-year period. The taxable monthly income is as follows:

Up to 8,000 Azerbaijani manats (AZN): 14% of the amount exceeding AZN 8,000

After the seven-year grace period, the standard rates for employees in the oil and gas and government sectors will apply:

AZN 350 + 25% of the amount exceeding AZN 2,500

Withholding Tax (WHT) Rates

Withholding tax is levied on specified Azerbaijani-source income at the following rates:

• Interest (not currently including bank deposits): 10%
• Rental fees for movable and immovable property, and royalties: 14%
• Payments for goods or services provided by individuals not registered as independent entrepreneurs: 14% to 25% (monthly income tax rates)

Tax Administration

The following individuals are required to file an annual PIT return to the Azerbaijani tax authorities by 31 March of the following year:

• Residents with taxable income that was not taxed at source or with income derived outside of Azerbaijan
• Non-residents with taxable Azerbaijani-source income that was not taxed in Azerbaijan through withholding mechanisms

Independent entrepreneurs who cease their business activities must submit a tax declaration within 30 days of cessation. Taxpayers who are not required to submit a tax declaration may still do so to request a recalculation and refund of overpaid taxes. Additionally, taxpayers may apply for a three-month extension to the filing deadline, provided that the due taxes have been paid.

Withholding tax (WHT)

Withholding Taxes of Non-Residents (Foreign Companies)

These are taxes deducted by resident taxpayers from the income of non-residents deriving from Azerbaijani sources. The following rates are applied:

• Dividends: 10%
• Payments from permanent establishments to non-resident head offices: 10%
• Interests: 10%
• Insurance premiums: 4%
• International transportation and telecommunication: 6%
• Income from Azerbaijani sources: 10%
• Rental fees: 14%
• Royalty: 14%
• Payments to electronic money accounts: 10%
• Payments to bank accounts in low-tax jurisdictions: 10%

Withholding Taxes Within Azerbaijan

These are taxes deducted by resident taxpayers from the income of non-taxpayers (persons without tax registration) in Azerbaijan. The following rates are applied:

• Dividends: 10%
• Interests: 10%
• Salary of Employees/Income of non-taxpayers: 14% or 25%
• Rental fee: 14%
• Royalty: 14%
• Income tax from the sale of real estate: Varies according to the rates specified by the Tax Code

In addition, the Tax Code specifies certain cases where the resident taxpayer is required to deduct the income of private individuals at the source while processing the payment within Azerbaijan.

Excise tax

• Alcoholic beverages, including food alcohol, vodka, strong drinks, cognac, sparkling wines, wine, and beer.
• Tobacco products, including cigarettes, cigarillos, liquid for e-cigarettes, tobacco for hookah, and disposable e-cigarettes.
• Light vehicles, such as motorcycles.
• Leisure and sports yachts, and other floating transports.
• Petroleum products, such as motor oils and lubricants.
• Imported luxury goods, including platinum, gold, jewellery, diamonds, fur, and leather goods.
• Energy drinks, both alcoholic and non-alcoholic, and electronic cigarettes.

Excise duties are paid by individuals, companies, and registered foreign companies in Azerbaijan that import and produce excise goods. The relevant executive authority in Azerbaijan determines the rates of excise tax for imported goods, except for certain categories. For goods produced in Azerbaijan, specific excise rates are set for each product and its quantity. For example, wine and vineyard materials are taxed at AZN 0.2 per litre, while cigarettes are taxed at AZN 45.5 per 1,000 items.

Frequently asked questions