As it is known, taxes are a mandatory, individual, and non-refundable payment transferred to the state and local
budgets in the form of the alienation of monetary assets owned by taxpayers for the purpose of financial support for
the activities of the state and municipalities. Unless otherwise specified in the Tax Code, this is the only
situation foreseen. It is also worth noting that the payment of taxes and other state fees is defined as one of the
main duties in the country’s constitution. Furthermore, the state applies certain exemptions or reductions for taxes
and other payments aimed at ensuring the status of individuals and legal entities, supporting specific vulnerable
groups of the population, and promoting entrepreneurial activities. In this context, we present a list of the
exemptions and reductions for taxes and other payments defined by legislation, which will be effective until the end
of 2025:
In taxpayers who are not involved in the oil and gas sector and belong to the non-state sector, income tax at
a 0% rate will be applied on the portion of monthly wages up to 8,000 manat.Tax rate of 14% will be applied
to part of the income exceeding 8000 AZN. Additionally, a 3% social insurance contribution will be deducted
from part of the income up to 200 AZN, and a 10% social insurance contribution will be deducted from part of
the income exceeding 200 manat.For example, if a person working in non oil and gas and private sector has a monthly income of 7150 AZN(below
8000 AZN) there is no personal income tax to be paid( 0% tax rate). But social contribution will be as
follows:
200 AZN x 3% + (7150 – 200)( part of income exceeding 200 AZN) x 10% = 6 AZN + 695 AZN = 701 AZN
If the person working in non oil and gas and private sector has a monthly income of 8400 AZN, then taxes to
be paid are calculated as follows:
(8400-8000)(part of income exceeding 8000 AZN) x 14% = 56 AZN
As residents of the technology park, in taxpayers who carry out activities such as system integration,
software development, and improvement that operate outside the technology park, income tax at a 0% rate will
be applied to the portion of the monthly wages of specialists working in this field, up to 8,000 manat.The
part exceeding 8000 AZN, will be subject to tax at the rate of 5%.
The income generated by media entities (excluding audiovisual media entities) from their activities
(including advertising revenue), as well as the financial assistance provided by the competent authority,
shall be exempt from income, profit, and simplified taxes.Until 2026, January 1st, media entities will be exempt from income,profit and simplified taxes.
We should note that, Corporate Income Tax is 20%, Personal Income Tax depends on the sector the person is
working (mentioned in above sections) and Simplified Tax rate is 2%, generally, if otherwise is not
mentioned in the Tax Code.
Most probably, the government will continue to extend the year this law is in effect as for some years this
industry benefited from this exemption rule.
The presentation of media products produced by media entities (excluding audiovisual media entities), as well as the performance of media-related tasks and the provision of services by non-resident individuals who do not establish permanent representation in the Republic of Azerbaijan, shall be exempt from VAT.In this case, both local media entities and non-residents not operating through Permanent Establishments, are exempt from VAT in the situation where media products are supplied(local),and media-related tasks and provision of services done (non residents operating through PE).
This rule can change in the next year as the media entities are becoming more popular day by day and abuse of this rule may happen. Nevertheless, government can also choose to extend this rule and help this industry grow bigger in the upcoming years.
The import of all types of goods for the purposes of activities carried out by the resident of the industrial park, who is engaged in the activity specified by another competent authority in the industrial park created by the competent authority (institution), shall be exempt from VAT until May 1, 2026, based on the relevant supporting document.This rule helps the industry park development by exempting them from paying VAT and thus feel less tax burden. This encourages the residents of Industrial Parks to import more needed material and enhance the specific mission they are working on more.
This matter is also questionable whether if the government will decide to extend the law time or stop this exemption altogether. It would be beneficial to continue extending the time the law is enforced as developments made in Industrial Parks are contributing to the society, mostly in a good way, if we do not take into account the possible pollution made by these parks.
Exemption from VAT on the presentation of non-performing (toxic) assets within the resolution and rehabilitation measures of insolvent banks, as determined by the competent authority, as well as on the presentation of assets within the bankruptcy procedure of the bank
If a bank goes bankrupt, the amount received from the presentation (sale) of its assets has been exempt from VAT since January 1, 2017. However, unless any extension or amendment is made, VAT will be applied to this process starting from January 1, 2026. If no extension is granted, VAT will be applied, and the party acquiring these assets will be required to pay both the VAT amount and the principal amount. In this case, the buyer may offset the VAT amount. However, to ensure a fast execution of this process and make these assets attractive for buyers, the government may extend the VAT exemption period.
The government has applied this exemption to encourage the transition to environmentally friendly transportation. The implementation of this exemption, along with other related incentives, has increased interest in such vehicles in Azerbaijan and benefited the public. The inclusion of the “three-year” condition aims to reduce the number of old, fuel-powered vehicles in the country. As highlighted in UTB’s article here, this exemption has had a very positive impact on the transport sector in Azerbaijan, achieving the intended results. However, starting from 2026, unless the exemption period is extended, VAT will be applied to this sector as well.
The application of this exemption has had a very positive impact on the oil sector and the state. It has encouraged foreign companies to invest in Azerbaijan and facilitated investment in the country. These foreign or local companies have been able to import materials and equipment for these projects without VAT, allowing them to carry out their activities without excessive financial burdens. However, Azerbaijan has now almost achieved its desired results, and the oil sector has been developed accordingly.
Exemption from VAT on the import of equipment and spare parts within the framework of the restructuring project of the authorized body (institution) based on the relevant supporting document.
Exemption from property and land tax on assets received in exchange for problem assets (debts) acquired by the competent authority within the framework of the resolution and rehabilitation of insolvent banks, which are owned (on balance) by the institution and whose list is agreed upon with the competent authority
Ensuring Financial Stability – The resolution and rehabilitation of insolvent banks (i.e., measures taken to prevent bankruptcy) are essential for maintaining the stability of the financial system. Tax exemptions facilitate the execution of these processes more effectively and with lower financial burdens.
Reducing the State’s Financial Burden – The management of problem assets is usually carried out by the state or relevant financial institutions. If additional taxes are imposed on these assets, the state’s expenses will increase. The tax exemption helps to reduce this burden and allows for the optimal use of state resources.
