Tax guide 2020Foreign nationals coming to Azerbaijan

Abbreviations 06

Arrival,Registration andWorkPermits 07

TaxResidencyStatus, Taxesand TaxRates 14

FilingRequirements 22

TaxPayments 28

TaxableIncome 32

SocialInsuranceContributions 36

UnemploymentInsurance 40

CompulsoryMedical Insurance 42

DoubleTaxTreaties 46

Contacts 48

Deloitteispleasedtoprovideyouwith thisbriefoverviewof theAzerbaijanipersonaltaxand complianceprocedures.For your convenience,thisguideis presentedasalistofFAQs

WelcometoAzerbaijan!

WiththeAzerbaijanitaxsystemundergoingconstantrapid development,werecommendthatyouuse this brochureforgeneralguidancepurposesonly.Azerbaijancurrentlyhasthreetaxationregimes—a statutoryregime,aPSAregime,andanHGAregime.Since mostPSAsin Azerbaijanaresimilar,wewillbereferringto the Azeri-Chirag-GuneshliPSAthroughoutthisbrochure.We will provideyouwithinformationonthesethreetaxationregimesinturn(foreachquestion,answer1willberelatedto thestatutorytaxationregime,answer2tothePSAtaxationregime,andanswer3totheHGAtaxationregime).Please contactustodiscussyourspecificsituation.

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Arrival, Registration and Work Permits

QuestionDoIhaveto notifythe taxauthoritiesuponmyarrival/departure?

Answer1. No,thereisnosuchrequirement.

However,ifyouareengagedinentrepreneurialactivityin Azerbaijanandareplanningto leavethecountry,youmustfileafinaltaxreturnwithin30daysof ceasingyouractivities.

2. No,therearenosuchrequirementswithregardtoPSAs.

3. No,therearenosuchrequirementswithregardtoHGAs.

Abbreviations

PSA ProductionSharingAgreement

HGA HostGovernmentAgreement

AZN AzerbaijaniManat

USD U.S.Dollar

PIT PersonalIncomeTax

VAT ValueAddedTax

SIC SocialInsuranceContributions

SSPF StateSocialProtectionFund

CMICCompulsoryMedicalInsuranceContributions

DTT DoubleTaxationTreaty

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QuestionDoIrequirea visatoenterAzerbaijan?If so, wheredo I obtainit?

Answer1. Ifyouareplanningtovisit

Azerbaijan,youmustobtainavisaifthereisavisaregimeapplicablebetweenAzerbaijanand your countryofresidence. AvisacanbeobtainedatAzerbaijaniembassiesandconsulatesinyourcountryofresidenceorotherdesignatedcountries.Alternatively,itispossibletoobtainanelectronicvisa(foranytypeofvisa)onlinethroughthewebsite:www.evisa.gov.az.Suchvisashallbeconsideredane-visa.Pleasenotethatane-Visaisonlyasingleentryvisavalidfortheperiodof90daysandtheperiodofstayunderane-visacannotexceed30days.E-visasshallbeprintedandprovidedattheborderalongwithapassporttobestamped.

2. Thesamerulesapplywith regard to PSAs.

3. Thesamerulesapplywith regard to HGAs.

QuestionDoIneedto registerwiththeAzerbaijanstateauthoritiesuponarrival?

Answer1. Yes.RegistrationwiththeState

MigrationServiceattheplaceof stay,mustbeperformedwithinfifteendaysofyourarrivalinAzerbaijan. Thisrequirementisapplicableonlyif youintendtostayfor more than fifteendaysin Azerbaijan.You orthe hostpartymayfilean application(togetherwithyourpassport)to the StateMigrationServiceviapost,email or inperson.

2. Yes,theaboverulesalso apply underPSAs.

3. Yes,theaboverulesalso apply underHGAs.

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withinacalendaryearwithinspecificfieldsofbusiness(i.e.miningindustry,processingindustry,electricity,gas,steamandairconditioningsupply,informationandcommunication,financeandinsurance,education,transport,watersupply,wastewaterandrefusetreatment); Aworkpermitisissueduponyour employer’sapplicationto theStateMigrationService.Generallythetimeframeforobtaininga workpermitis 20 workingdaysafterthesubmissionof the complete applicationpackage.The state fee payablefor a workpermitandfor anyextensionof thetermof the permitis AZN 350 for uptothreemonths,AZN 600foruptosixmonths,AZN 1,000 for one year.

2. ThesameconditionsapplywithregardtoPSAs.PriortothesubmissionoftheapplicationtotheStateMigrationService,theendorsementoftheStateOilCompanyoftheAzerbaijanRepublicneedstobeobtained.

3. ThesameconditionsapplywithregardtoHGAs.PriortothesubmissionoftheapplicationtotheStateMigrationService,theendorsementoftheStateOilCompanyoftheAzerbaijanRepublicneedstobeobtained.

QuestionDoIrequirea workpermittoworkin Azerbaijan?Ifso,howdoI obtaina permit,forhowlongis it valid,and whatis the timeframeand cost of obtainingit?

Answer1. Yes,foreignindividualswishing

to workinAzerbaijanmustobtainaworkpermitfromtheStateMigrationServiceoftheRepublicof Azerbaijanthroughtheiremployers.Aworkpermitisissuedforanunlimitednumberoftimeseachbeingnomorethan oneyear. However,youdonotrequireaworkpermitifyouare: – a permanent resident of Azerbaijan

– marriedtoanAzerbaijanicitizen,providedyourspouseisregisteredathis/herplaceofresidence

– engagedinentrepreneurialactivity

– employedinamanagerialpositionatanorganizationestablishedunderaninternationalagreement

– employedatadiplomaticrepresentativeofficeor an internationalorganization

– theheadordeputyheadof a branchorrepresentativeofficeofaforeignlegalentity in Azerbaijan

– theheadordeputyheadofalocallegalentitywithforeignshareholder

– assignedonbusinesstripsnotexceeding90dayscumulatively

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QuestionDoIneedalocalcontract?

Answer1. Yes,ifyouarelocallyemployed

atanAzerbaijanientity,or if you areemployedatabranchor representativeofficeofaforeignlegalentityinAzerbaijanandhavenotconcludedanemploymentagreementwiththeheadofficeof thatforeignlegalentity.

2. ThesamerulesapplywithregardtoPSAs.

3. Thesamerulesapplywithregardto HGAs.

QuestionDoIrequirea temporaryresidencepermit?Ifso,howdoIobtainoneand forhowlongisitvalid?

Answer1. Yourworkpermitservesas the basis

forobtaininga temporaryresidencepermit.Temporaryresidencepermitsareinitiallyissuedforupto oneyearbasedonthesubmittedapplicationand maysubsequentlybeextendedfornomorethantwoyearsata time.Thetimeframefor obtaininga temporaryresidencepermitis20workingdaysaftersubmissionof thecompleteapplicationpackage. Inordertoqualifyforatemporaryresidencepermitasaprivateentrepreneur,foreignnationalsengagedinentrepreneurialactivitymusthaveatleastfivefulltimeor10parttimeemployeeshiredunderlegally-bindingemploymentagreements.Atleast80percentoftheseemployeesmustbeAzerbaijanicitizens.

2. Thesamerulesapplywithregardto PSAs.

3. Thesamerulesapplywithregardto HGAs

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QuestionTowhattaxeswillmyincomebesubject?What rateswill apply?

Answer1. Taxresidentsaregenerallytaxed

attheratesdetailedinthetablebelow.Theseratesareapplied totheirworldwideincomepaid incashand/orin-kind:

Allindividualsengagedinentrepreneurialactivitywillbetaxedatafixedrateof20percent.Taxableincomefromnon-entrepreneurialactivitieswillbetaxedattherateof14percent.

Monthly Taxable Income Tax Rates

UptoAZN2,500 14%

OverAZN2,500AZN350+25%of the amountexceedingAZN 2,500

Reducedtaxrateswillbeinforceforasevenyearsperiodstartingfrom1January2019foremployeesoftheprivateand non-oilandgassectors.

Monthly Taxable Income Tax Rates

UptoAZN8,000 0%

OverAZN8,00014%oftheamountexceedingAZN8,000

AnincomeofAZN200isexemptfromtaxationifthemonthlyincomeisbelowAZN2,500,andanincomeofAZN2,400isexemptiftheannualincomeisbelowAZN30,000.

QuestionWhatarethetaxresidencyrulesin Azerbaijan?

Answer1. YouareconsideredanAzerbaijani

tax residentifyouhavebeenphysicallypresentinAzerbaijanforaperiodofmorethan182dayscumulativelyinacalendaryear(regardlessofnationality).

2. UnderPSAstherearethreetaxresidencyrulesforexpatriateemployees: – Anexpatriateemployeespendingmorethan30consecutivedaysinacalendaryearinAzerbaijanforordinarybusinesspurposesbecomesataxresident.Incomeearnedafterthe30thdayis taxable inAzerbaijan.

– Individualsspendinglessthan30consecutivedaysbutmorethan90cumulativedaysinAzerbaijaninacalendaryearalsobecometaxresidents.Incomeearnedafterthe 90thdaybecomestaxable.

– Individualsonrotationand expatriateswhoseprimaryplaceofemploymentis Azerbaijanarealsoconsideredtobetaxresidentsif theyspendmorethan90 cumulativedaysin Azerbaijanin acalendaryear.Theseindividualsaretaxedfromthefirstdayoftheirpresencein Azerbaijan.

Tax Residency Status, Taxes and Tax Rates

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asmicroorsmallentrepreneursareexemptforthreeyearsfromthedateofobtainingastartupcertificateand

• aportionofincomeofsmall-mediumenterprise(“SME”)clustermemberindividualentrepreneurearnedfromtheprovisionofgoods(services,works)underthecontractconcludedwithanSMEclustercompanyspentforcapitalexpendituresareexemptfromincometaxforsevenyears.

Inaddition,theincometaxamountpayablebytheentrepreneursengagingintradingandpubliccateringactivitiesfortheprovisionofgoodsunderretailsale,isdecreasedby25percentofthetaxamountgeneratedfromtheincomereceivedviaPOSterminalsforathreeyearperiodstartingfrom1January,2019. IfyouconductbusinessactivityinAzerbaijan,andthevolumeofyourtaxableoperationsdoesnotexceedAZN200,000inanyconsecutive12-monthperiod,youhavearighttoregisterasasimplifiedtaxpayer.

Theincomeofsoleentrepreneursoperatingintheindustrialparksisexemptfromtaxation.Moreover,50percentexemptiononpersonalincometaxisconsideredforindividualswhogetaninvestmentpromotioncertificate. Alongwiththeaboveexemptions,startingfrom2019newincometaxexemptionshavebeenstipulatedinthetaxlegislation;

• dividendincomeofindividualswhoarethefounders(shareholders)ofaresidententityisexemptfromincometaxifaresidententityisnotregisteredforVATpurposes,andthetaxableturnoverofsuchentityisuptoAZN200,000ina12-monthperiod,

• 50percentofataxpayer’sincomefromtheprovisionofsharesandparticipatinginterestsownedatleastforathreeyearperiod,

• 75percentoftheindividualentrepreneurs’incomefromentrepreneurialactivitiesclassifiedasamicro-entrepreneur,

• incomeofstartupsfromsuchactivitiesperformingtheirbusinessasindividualsclassified

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ThemaximumamountoftaxableoperationsthatenablesindividualentrepreneurstobecomesimplifiedtaxpayersissetasAZN200,000inanyconsecutive12-monthperiod.

Ifyourincomeexceedstheabovethreshold,youwillbeobligatedto registerforVATpurposes. Simplifiedtaxiscalculatedfromtherevenuereceivedfromthesupplyofgoods,servicesandworkattherateoftwopercent.

PersonsengagedinpubliccateringactivitieswhosetaxableturnoverexceedsAZN200,000inanymonthwithinconsecutivetwelvemonthsareentitledtoregisterassimplifiedtaxpayersattherateofeightpercent.

Soleentrepreneurs’cashwithdrawalsfromtheirbankaccountsaresubjecttosimplifiedtaxatarateofonepercent,whichshallbewithheldbylocalbanks,branchofficesofforeignbanksintheRepublicofAzerbaijan,andnationaloperatorsofpostalservices.

Incomefromthesaleofresidentialandnon-residentialproperty,includingpropertyacquiredfrompersonsengagedinconstruction,issubjecttosimplifiedtaxatarateofAZN15persquaremetermultipliedbythelocationzonerate,whichvariesfrom0.5to4.0.Theratefornon-residentialbuildingsis1.5regardlessofthelocation.

2. PITratesappliedunderPSAstoAzerbaijanitaxresidents’incomeearnedasadirectresultoftheiremploymentinAzerbaijanareasfollows:

3. ThesamePITratesasaboveapplyunderHGAsafteryoubecomeataxresident.

Monthly Taxable Income Tax Rates

UptoAZN2,500 14%

OverAZN2,500AZN350+25%oftheamountexceedingAZN2,500

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QuestionDoIpaytaxin Azerbaijanif I qualifyas a non-residentfortaxpurposes?

Answer1. Yes.Ifyouhavebeenphysicallypresent

inAzerbaijanfor a periodof lessthan183daysin a calendar year,youwillqualifyasanon-residentfortaxpurposesand will betaxedat the above ratesonyourAzerbaijani-sourcedemployment income. Non-residentsaretaxedontheirincomeobtainedfromotherAzerbaijansourcesasfollows:A. dividends—10%B. Interest,includingloaninterest

paidinconnectionwithfinancialleasingtransactions—10%

C. Royaltiesandrent—14%D. Internationalfreightor

communication—6%E. Insuranceandre-insurancefees

—4%F. OtherAzerbaijani-sourcedincome

—10%G. Paymentstocountrieswith

preferentialtaxation—10%. Azerbaijani-sourcedincomeincludesincomerelatedtodutiesperformedorservicesrenderedinAzerbaijanandincomefrompropertylocatedinAzerbaijan,irrespectiveofwhereitispaid.

2. No.

3. No.

QuestionArethereanyspecialtaxexemptionrules?Ifyes,whichindustriesaretheyapplicableto?

Answer1. Yes.TheAzerbaijanigovernment

offersaninvestmentpromotioncertificatethatgrantsexemptionfromseveraltypesoftaxesforsevenyearsinthoseindustriesthatareconsideredtobehighpriority.Moreover,small-mediumenterprisemembersandcompaniesenjoyseveraltaxexemptionsforsevenyearsfromthedatetheyreceiveacertificateofanSMEclustercompanyorSMEclustermember.Startupsclassifiedasamicroorsmallentrepreneurshipareexemptfromcertaintaxesforthreeyearsfromthedateofobtainingastartupcertificate.Also,75percentoftheincomeofindividualentrepreneursandprofitoflegalentitiesfromentrepreneurialactivitiesclassifiedasamicro-entrepreneurshipareexemptfromincometaxandprofittaxrespectively.

2. No.

3. No.

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Filing Requirements

QuestionDoIneedto fileataxreturnin Azerbaijan?

Answer1. No,providedyouronlyincome

is fromemployment,whichis subjecttowithholdingtax,deductedbytheentityorindividualfromwhichyoureceivetheincome However,ifyouareengagedinentrepreneurialactivityin AzerbaijanyouhavetofileeitheraPITreturnorasimplifiedtax return. VATpayersmustfileVATreturnson amonthlybasis.

2. No.However,anemployeris responsibleforfilingareturnto thetaxauthoritiesregardingallAzerbaijanPITpaymentsmadeduringthecalendarquarterinrespectofforeignemployeetaxresidents.

3. No.However,anemployeris responsibleforfilingareturnto thetaxauthoritiesregardingall AzerbaijaniPITpaymentsmadeduringthecalendarquarterinrespectofforeignemployeetaxresidents.

QuestionWhatis the taxyearin Azerbaijan?

Answer1. Thetaxyearisacalendaryear.

2. UnderPSAsthetaxyearisalsoa calendaryear.

3. Similarly,underHGAsthetaxyearis acalendaryear.

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QuestionWhendoIhaveto fileataxreturn?

Answer1. Youremployerisresponsiblefor

filingquarterlyPITreturnsbythe20th dayof themonthfollowingthe calendar quarter. IndividualentrepreneursareobligedtofileaPITreturnon31Marchoftheyearfollowingthetaxyearattheplaceoftaxregistration(residence).Thisdeadlinecanbeextendedbyuptothreemonthsuponfilinganapplication,providedthattheamountoftaxdueispaid. Thedeadlineforfilinga simplifiedtaxreturnisthe20dayof the monthfollowingtheendof thecalendarquarter. Ifyouceaseyourentrepreneurialactivityduringthetaxyear,youarerequiredtofileataxreturnwithin 30days. VATpayersmustfileVATreturnsno laterthanthe20th

of the monthfollowingtheendof the calendar month.

2. Youremployerisresponsiblefor

filingareturntothetaxauthoritiesinregardtoPITpaymentsmadeduringthecalendarquarterinrespectofitsforeignemployeetaxresidentsbythe20thdayofthemonthfollowingtheendofthecalendarquarter.Inaddition,theemployermustprovideStateTaxServiceundertheMinistryofEconomywithasummaryofallAzerbaijaniPITpaymentsmadeduringthecalendaryearinrespectofitsforeignemployeetaxresidentsintheformofanaddendumtothePITreturnforthefourthquarter.

3. Similarly,underHGAs,youremployerisresponsibleforfilingareturntothetaxauthoritiesin regardtoPITpaymentsmadeduringthecalendarquarterin respectofitstaxresidentforeignemployeesbythe20thdayofthemonth followingtheendof the calendarquarter.

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QuestionIsthereanyrequirementforfilingadvancetaxreturnsinAzerbaijan?

Answer1. No,unlessyouareanentrepreneur

subjecttoPIT.Ifyouare,youmayberequiredtofilequarterlyadvancetaxcalculationsby the 15thdayof themonthfollowing the calendar quarter.

2. No.

3. No.

QuestionInwhatcurrencyshouldIreportmytaxableincome?

QuestionAretherepenalties for late filingof taxreturns?

QuestionCanjointreturnsbefiled(taxpayerandspouse)?

Answer1. Allincomereceivedshouldbe

reportedinAZN.

2. YouremployershouldreportyourtaxableincomeinAZNorUSD.

3. YouremployershouldreportyourtaxableincomeinAZNorUSD.

Answer1. Yes,penaltiesmaybecharged

in an amountuptoAZN40.

2. Thesamepenaltyappliesto taxpayersworkingunderthe PSA regime.

3. Thesamepenaltyappliesto taxpayersworkingunderthe HGA regime.

Answer1. No.

2. No.

3. No.

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Tax Payments

QuestionHowistaxpaidin Azerbaijan?

Answer1. PITcanbepaideithervia

withholdingatsourcewhenthe payingentityisobligatedto do so,orpersonallyifyouare obligatedtofileataxreturn. PayersofsimplifiedtaxandVATare obligedtopaytaxpersonally.

2. UnderPSAs,PITispaidviawithholdingatsourceby the employer.

3. UnderHGAs,PITispaidviawithholdingatsourceby the employer.

Answer1. Ifyouronlyincomeisfrom

employmentinAzerbaijan,youremployerisresponsibleforwithholdingincometaxand remittingittotheStateBudget. However,ifyoureceiveincomefromentrepreneurialactivityandyouareaPITpayer,theincometaxdueforthecurrentyearshouldbepaidinadvancetotheStateBudgetbyonlyawiretransferfromyourpersonalbankaccountbythe15thdayofthemonthfollowingeachquarter.Itshouldbenotedthattheamountofadvancepaymentsshouldnotbelessthan75percentofthetotalincometaxdueforthatspecifictaxyear.Thefinalpaymentshouldbemadebeforefilinganannualincometaxreturn,i.e.before31Marchofthefollowingyear. Ifyouareasimplifiedtaxpayeryouareobligedtomakeataxpaymentnolaterthanthe20thdayofthemonthfollowingtheendofthecalendarquarter.

QuestionIfIhavetopaytaxpersonally,howdoIdothis?

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Ifyougenerateincomefromthesaleofresidentialandnon-residentialproperty,thesimplifiedtaxshallbewithheldandpaidbynotary. IfyouareaVATpayeryoushouldmakeataxpaymentnolaterthanthe 20thdayofthemonthfollowingthe endofthecalendarmonth.

2. No,youdonothavetopayany PIT personally.

3. No,youdonothavetopayany PIT personally.

Answer1. AzerbaijaniPITshouldbepaid

in AZN.

2. UnderPSAs,anemployermaypaytheAzerbaijanPITofitsforeignemployeetaxresidentsinAZNor USD.

3. UnderHGAs,anemployermaypaytheAzerbaijanPITofitsforeignemployeetaxresidentsinAZNor USD.

QuestionInwhatcurrencydoIpaytax?

Answer1. Yes,youremployermustremit

thetaxestotheStateBudgeton your behalf.

2. Employersarerequiredtomakethesepaymentsonyourbehalfin accordancewithPSAs.

3. Employersarerequiredtomakethesepaymentsonyourbehalfin accordancewithHGAs.

Answer1. Yes,latepaymentinterestischarged

atarateof0.1percentofthetaxpayableforeachdayofdelay.

2. UnderPSAs,anemployershouldpayinterestatarateofLIBOR+ 4 percentperannumforeachdayofdelayof thetaxpayment.

3. UnderHGAs,anemployershouldpayinterestatarateofLIBOR+ 3.5 percentperannumforeachdayof delayofthetaxpayment.

QuestionCanmyemployermaketaxpaymentson my behalf?

QuestionArethereanypenaltiesforlatepaymentoftax?

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Taxable Income

Answer1. Employmentincome,including:

– Salary – Bonuses – Otherin-kindbenefits. Incomefrominvestments,including:

– Dividends – Interest – Rent – Royalties – CapitalgainsMiscellaneous: – Inheritance – Gifts – Winningsfromsportsgambling Incomefromentrepreneurialactivity,includingincomefrom:

– Supplyofgoods – Provisionofservices – Performanceofwork.

QuestionWhataspectsof myremunerationare taxable?

2. UnderPSAs,almostallincomeofforeignemployeesearnedin Azerbaijanistaxable,includingwages,salaries,bonuses,personaltravelcosts,educationexpensesfor familymembers,etc.

3. Similarly,inaccordancewithHGAs,almostallincomeofforeignemployeesearnedinAzerbaijanis taxable,includingwages,salaries,bonuses,personaltravelcosts,educationexpensesforfamilymembers,etc.

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Answer1. Thereareseveraltypesof income

thatareexemptfromtaxin Azerbaijan.Theseinclude: – Gifts,financialaidandinheritancereceivedfromfamilymembers

– Alimony – Saleofimmovablepropertywhereataxpayerhasregisteredand residedduringatleastfive years

– Compensationfeesfordamages – Certainbusiness-relatedexpenses – Dividendincomeofindividualswhoarethefounders(shareholders)ofaresidententityisexemptfromincometaxifaresidententityisnotregisteredforVATpurposes,andthetaxableturnoverofsuchentityisupto200,000manatswithinanymonth(months)ina12-monthperiodandtheentitykeepsrecordsofitsincomeandexpenseinaccordancewiththerespectivelegislation.

– AnnualinterestincomepaidtoindividualsbyalocalbankorabranchofaforeignbankinAzerbaijanforsevenyearsbeginningfrom1February2016.

QuestionWhatincomecanIexcludeordeductfromtaxableincome?

Deductionsincludeallexpensesincurredwithinincome–generatingactivities,withspecificexceptionsprovidedforbythelaw

2. AccordingtoPSAs,incomesuchashousingallowance,meals,transportation expenses are not taxableprovidedthattheyarewellsupported(e.g.byarentalagreement,checks,invoices,etc.).

3. Similarly,accordingtoHGAs,in determiningAzerbaijantaxableincome,foreignemployeesareentitledtoapplytheexemptionsprovidedbytheTaxCodeasdetailedintheanswerabove.

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Social Insurance Contributions

Answer1. Yes.SICarechargedata

rateof threepercentofyourAzerbaijani-sourcedincome.Inaddition,employersare requiredtopaySICatarateof22percentof the grossincomeofemployees.Youremployerisresponsiblefor remittingthreepercentand22percentSICon the dayofsalarypaymentthanthe15thdayof the monthfollowingthecalendarmonthtowhichtheSICisrelated.

Theincomeofinsuredpersonsworkinginprivateandnon-oilandgassectorsissubjecttoSICatthefollowingratesforaseven-yearperiodstartingfrom1January2019.

QuestionDoIpaySICinAzerbaijanwhileIamon an assignmentor engaged in entrepreneurialactivity?How areSICpaid?

Monthly Taxable Income

Total Social insurance contribution rates

Deduction from income of insured

Paid at the expense of the insurer

UptoAZN200 25% 3% 22%

OverAZN200 25%

AZN6+10%oftheamountexceedingAZN200

AZN44+15%oftheamountexceedingAZN200

Individualentrepreneurscarryingoutoperationsintradeandconstructionareobligatedtopay50percentoftheminimummonthlysalarysetinAzerbaijan,i.e.AZN125;inotherfieldstheyareobligatedtopay25percentoftheminimummonthlysalary,i.e.AZN62.5.Please,notethatminimummonthlysalaryisAZN250asof1September2019.

2. ForeignemployeesofcontractorsandforeignsubcontractorsoperatingunderPSAsare exempt fromSIC.

3. ForeignemployeesofcontractorsandforeignsubcontractorsoperatingunderHGAsare exempt fromSIC.

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Answer1. Yes.SICappliesatarateof22

percentofthegrossincome.Ifanemployeeisemployedinaprivateandnon-oilandgassectors,theSICratewillbe15percentofthegrossincomepaidattheexpenseoftheemployer.

2. No.

3. No.

Answer1. Ifyouronlyincomeisfrom

employment,youremployeris responsibleforfilingareportto theStateTaxServiceundertheMinistryofEconomyinrespectof itsforeignemployeesbythe20th dayof the monthfollowingtheendof thecalendarquarter. Ifyouareanentrepreneur,it willbe yourresponsibilitytofilea reporttotheMinistryofTaxesby the20thdayofthemonthfollowingtheendofthecalendarquarter.

2. No.

3. No.

QuestionDoesmyemployerpaySIC?Ifyes,whatis theapplicableSICrate?

QuestionDoIneedto filea reporttotheSSPFin Azerbaijan?If yes,whendoIhavetofilethe report?

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Unemployment Insurance

Answer1. Employeesasinsuredparties,

employersasinsurersandtheSSPFasanintermediarygovernmententitymanagingtheprocessoftheunemploymentinsurancearesubjectsoftheLaw“Onunemploymentinsurance”dated30June2017whichiseffectivestartingfrom1January,2018. Unemploymentinsurancecontributionsaremandatoryandchargedatarateof0.5percentofyourAzerbaijani-sourcedincome.Inaddition,employersarerequiredtopayunemploymentinsurancecontributionsatarateof0.5percentofthegrossincomeofemployees.Youremployerisresponsibleforremitting0.5percentasyourportionand0.5 percentasitsportiononthedayofsalarypaymentbutnolaterthanthe15thdayofthemonthfollowingthecalendarmonthtowhichtheunemploymentinsurancecontributionisrelated.

QuestionIsunemploymentinsuranceamandatorysocialcontribution?Howareunemploymentinsurancecontributionspaid?

2. ForeignemployeesofcontractorsandforeignsubcontractorsoperatingunderPSAsareexemptfromanycontributionsofthe Azerbaijanistatesocialinsuranceandotherpaymentsof a similarnature.

3. ForeignemployeesofcontractorsandforeignsubcontractorsoperatingunderHGAsareexemptfromanycontributionsofAzerbaijanstatesocialinsuranceandotherpaymentsofasimilarnature.

Answer1. Youremployerisresponsible

forfilingareporttotheStateTaxServiceundertheMinistryofEconomywithregardtotheunemploymentinsurancepaidduringacalendarquarterinrespectofitsforeignemployeesbythe20th

dayofthemonthfollowingtheendofthecalendarquarter.

2. No.

3. No.

QuestionHowisthereportingoftheunemploymentinsurancecarriedout?

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Compulsory MedicalInsurance

Answer1. Yes.RecentchangestotheLaw

“OnMedicalInsurance”introducedcompulsorymedicalinsurancewhichwillbeeffectivefrom1April2020.Asapartofthestatesocialinsuranceprogram,compulsorymedicalinsurancewillensureprovisionofmedicalservicestotheinsuredpersonsinaccordancewithservicepackage. TheemployeesandemployersareobligedtomakethefollowingCMICpayments:

QuestionIsCMICamandatorysocialcontribution?HowareCMICpaid?

However,itisworthmentioning,thatforemployeesengagedinprivateandnon-oilandgassectorstheLaw“OnMedicalInsurance”provides50%discountfortheportionofsalaryuptoAZN8,000until1January2021.Thus,CMICrateseffectivefortheperiodApril-December2020arepresentedinthetablebelow:YouremployerisrequiredtopayCMIC

atthesametimewithsalarypaymentbutnotlaterthanthe15thdayofthemonthfollowingthemonthtowhichtheCMICisrelated.

Monthly Taxable Income

Total Compulsory Medical Insurance Contribution rates

Deduction from income of insured

Paid at the expense of the insurer

UptoAZN8,000 4% 2% 2%

OverAZN8,000 1%

AZN160+0,5%oftheamountexceedingAZN8,000

AZN160+0,5%oftheamountexceedingAZN8,000

Monthly Taxable Income

Total Compulsory Medical Insurance Contribution rates

Deduction from income of insured

Paid at the expense of the insurer

UptoAZN8,000 2% 1% 1%

OverAZN8,000 1%

AZN160+0,5%oftheamountexceedingAZN8,000

AZN160+0,5%oftheamountexceedingAZN8,000

Tax guide 2020

43

Tax guide 2020

42

Answer2. Foreignemployeesofcontractors

andforeignsubcontractorsoperatingunderPSAsareexemptfromCMIC.

3. ForeignemployeesofcontractorsandforeignsubcontractorsoperatingunderHGAsareexemptfromCMIC.

Answer1. Youremployerisresponsiblefor

filingareporttotheStateTaxServiceundertheMinistryofEconomywithregardtotheCMICpaidduringacalendarquarterinrespectofitsforeignemployeesbythe20thdayofthemonthfollowingtheendofthecalendarquarter.

2. No.

3. No.

QuestionHowisthereportingoftheunemploymentinsurancecarriedout?

Tax guide 2020

45

Tax guide 2020

44

Double Tax Treaties

Answer1. Youshouldfindoutifyourhome

countryhasconcludedaDTTwith Azerbaijan.SomeDTTscontainprovisionsprovidingexemptionfromAzerbaijanitaxforcertaintypesofincome.

2. ThesameshouldbeconsideredifyoufallunderthePSAtaxation regime.

3. ThesameshouldbeconsideredifyoufallundertheHGAtaxation regime.

QuestionIsitpossiblefor anexpatriatetobeexemptfromAzerbaijaniincometaxes?

Answer1. Inordertoclaimtheexemption,

youneedtofileataxreturnandanapplicationfortheexemption.YoushouldalsobepreparedtoprovidetheAzerbaijanitaxauthoritieswithanofficialconfirmationfromthetaxauthoritiesofyourcountryofresidence.Inaddition,theAzerbaijanitaxauthoritiesmayrequestconfirmationofthetaxespaidinyourhomecountry.Bothdocumentsmustbeissuedbythetaxauthoritiesofthecountryoftaxresidency.ObtainingDTTreliefinAzerbaijanhashistoricallybeenacomplicatedandtime-consumingprocess.

2. ThesameproceduresapplyifyoufallunderthePSAtaxationregime.

3. ThesameproceduresapplyifyoufallundertheHGAtaxationregime.

QuestionHowcanIclaima DTTexemption?

Tax guide 2020

47

Tax guide 2020

46

Contacts

Pleasedonothesitatetocontactus:

Nuran Kerimov PartnerTax&LegalDepartmentnkerimov@deloitte.az

Our Baku Office Address:DeloitteandToucheLLACBakuWhiteCityOfficeBuilding25ENobelAve.,Baku,AZ1025,AzerbaijanTel:+994(12)4041210Fax:+994(12)4041211www.deloitte.az

.

Notes

Tax guide 2020

48

Notes

Tax guide 2020

51

Tax guide 2020

50

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