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8.1.1. Corporate Income Tax

The standard corporate tax rate for companies is 20%.

Capital Gains

Capital gains are taxed at the standard corporate tax rate. Effective 1 January 2019, gains on the disposal of shares held for at least 3 years are exempt for  50% of their amount.

Dividends

Dividends paid to resident companies are subject to withholding tax at the rate of 10%.

Petroleum and Gas Industry

Petroleum activities are generally subject to tax at pre-agreed rates in specific profit-sharing agreements (PSAs), Risk Service Agreements (RSAs), or host government agreements (HGAs, with respect to pipelines). The rates usually range from 20% to 32%. In the absence of a specific agreement, the standard corporate tax rules and rates apply.

Tax is imposed on the taxable profits of each main exporting pipeline (MEP) participant for a year relating to MEP project activities at a flat rate of 27%.

Mining Tax

A mining tax is due on proceeds from the extraction of natural resources and minerals from subsurface strata on the territory of Azerbaijan, including those parts of the Caspian Sea on which Azerbaijan exercises its sovereignty. Mineral tax rates vary depending on the minerals extracted. The tax is due on the wholesale price, which is the market price or the price determined by the State, where the price of the product in question is government-regulated. The applicable rates are 26% for crude oil, 20% for natural gas, and 3% for metals. With respect to non-ore products, the tax is calculated as a monetary value per cubic meter extracted. Some indicative values are AZN 0.5 for quartz sands, AZN 0.5 for limestones and similar, AZN 1 for marble and similar, AZN 4 for rock salt, and AZN 6 for mineral waters.

Local Income Taxes

Local income taxes apply only to the companies that are in the property of municipalities with tax rates not exceeding 20% for profit taxpayers and 2% to 8% for simplified taxpayers.

Simplified Tax System

A simplified tax system applies to enterprises not registered for VAT and having cumulative gross revenue during any consecutive 12-month period not exceeding AZN 200,000. Enterprises producing excisable goods, credit and insurance organizations, investment funds, and professional participants in the securities market are not eligible for the simplified tax system. Furthermore,

effective 1 January 2019, the following persons/enterprises are not eligible for the simplified tax system:

  • Enterprises engaged in wholesale trade;
  • Enterprises with more than 5 employees engaged in production;
  • Professional participants of the insurance market;
  • Enterprises providing services to tax registered persons;
  • Enterprises engaged in license-required activities (other than construction activities); and
  • Enterprises engaged in trade and catering services with taxable transactions exceeding AZN 200,000 during any consecutive 12-month period.

Dividend income received by shareholders from companies operating under this regime is exempt from tax.

Simplified regime taxpayers are subject to profit tax at specified rates ranging from 2% to 8%. Effective 1 January 2019, the simplified tax rate is 2% throughout Azerbaijan except for catering, where the simplified tax rate is maintained at 8% as also trade services, where the simplified tax rate has been increased from 6% to 8%. Special rates apply to taxpayers engaged in specific industries.

Simplified tax is calculated at 1% for cash withdrawals by legal entities and sole traders.