Azerbaijan payroll and tax overview.

Your guide to doing business in Azerbaijan

Doing Business in Azerbaijan

Situated at the meeting point between southwest Asia and southeast Europe, Azerbaijan has long been regarded as a gateway between two continents. A post-soviet state, and now a presidential republic, Azerbaijan emerged on the world stage after it regained independence in 1991. Since then, the country has developed an impressive economic profile driven by vast oil reserves which account for the bulk of national exports and continue to attract significant foreign investment. Despite the importance of oil and gas, Azerbaijan’s economy has diversified: today, important sectors include agriculture, housing, healthcare, education, energy, telecoms and IT - backed by developing communication and transport infrastructures. Azerbaijan’s government remains committed to reforming and diversifying the economy with efforts to deregulate and boost foreign investment and help new businesses gain a foothold. In 2019, Azerbaijan’s GDP was around $45.2 billion with a growth rate of 2.22%. Azerbaijan is a member state of the Council of Europe, the UN, and the OSCE and has observer status in the World Trade Organisation. In 2019, Azerbaijan was ranked 34 on the World Bank’s Ease of Doing Business survey.

Why Invest in Azerbaijan ?

Investors interested in Azerbaijan may find a number of reasons to consider the country a financial target, including:

  • Oil and gas: Azerbaijan’s oil and gas industry continues to experience rapid growth and development. Oil reserves are estimated (conservatively) at over 7 million barrels, while pipelines are in place to run oil and gas to Asian and Western markets. The momentum of oil and gas trade is having positive effects on adjacent sectors, including construction, catering and telecommunications.
  • Geographic location: A crossroads between Asia and Europe, Azerbaijan offers businesses access to markets of over 600 million customers. Having grown into a trade hub for businesses all over the world, Azerbaijan now hosts the biggest airport, seaport and railway network in the region.
  • Trade and investment climate: Azerbaijan enjoys excellent trading relationships with countries all over the world, and benefits from an EU Partnership and Cooperation Agreement, and membership of the CIS bloc There are no restrictions to foreign investment in Azerbaijan, and the country has 47 bilateral investment treaties and 44 double taxation treaties.
  • Educated workforce: With over 30 thousand university-level graduates every year, Azerbaijan’s workforce is skilled, educated, and highly literate. Azerbaijan hosts the National Academy of Sciences, which boosts R&D across the country with 28 research institutes.
  • Government tax support: As part of an effort to encourage foreign investment, the Azerbaijani government is working to streamline its tax regime and has introduced a variety of incentives for business. Within the last decade, Azerbaijan has reduced its corporate tax rate to 20% and fully digitised its payment system.

Foreign Direct Investment in Azerbaijan

Azerbaijan is a rich country with abundant mineral and climatic resources and a favourable geographical location on the most convenient route from North-Eastern Europe to Central Asia and the Middle East.

It has a rapidly improving business environment, offering Foreign Direct Investment friendly legislation and a favourable tax system with a competitive production base. Azerbaijan has a strong industrial tradition, a skilled and low-cost labour force and growing R&D capacity which contributes to the country's attractiveness as much as its attractive domestic market. The latter is generated by the huge oil and gas sector, the wealthy State, the growing demand of local firms for Western expertise and the increasing purchasing power.

Registering a Company and Establishing an Entity in Azerbaijan

A company is not required to have a legal entity established in Azerbaijan in order to process a payroll.

With regards to the statutory payroll registrations, the company’s tax & social security registrations are completed during the incorporation process.

Once the social security registration is completed, the sub obligation is to be set in line with the activity of the company. The next step would be for the employees to be registered with the social security.

For establishment of legal entities, branches and representations of foreign legal entities, an application should be sent to the applicable state registration body. Application must be signed by the founder (one of the founders) or by the authorized person (persons) in an established order.

After applying with all the required documents, a company is registered within two business days.

Business Banking in Azerbaijan

In Azerbaijan, it is mandatory that the payments to employees must be through the employer’s bank account, meaning that payments cannot be made to the employees or third parties on the customer’s behalf. Payment options in Azerbaijan include bank transfers and cash to both employee’s and local authorities.

Some bank transfers and transfers with other banks within Azerbaijan will usually be within 1 day. International bank transfers will usually take place within 3 - 5 days.

All payroll payments (to employees or the authorities) can be processed via in-country bank accounts only.

Taxpayers engaged in entrepreneurial activity are obliged to notify the tax authorities about opening any offshore bank accounts.

Working Week in Azerbaijan

A standard working week is 40 hours over 5 or 6 days.

Overtime and work during days-off (which are Saturdays, Sundays, public holidays and a mourning day) are compensated in the manner provided for in law.

Basic Facts about Azerbaijan

General Information

Bordered by Russia, Georgia, Armenia, and Iran to the north, west, and south - and by the Caspian Sea to the east - the Republic of Azerbaijan has long been considered a meeting point between East and West. Early settlements in the territory which became Azerbaijan stretch back to the 9th century BC, but modern history saw the country contested by regional powers including the Russian, Persian, and Ottoman Empires. In the 20th century, Azerbaijan became part of the Soviet Union, but declared its independence in 1991, and became a democratic presidential republic. Today, Azerbaijan’s population stands at over 8.5 million people, with almost 49% living in rural areas of the country. Azerbaijan holds a mix of landscapes including the northern Caucasus Mountains, and long stretches of Caspian coastline. A subtropical climate brings hot summers and mild winters each year, while a spectrum of flora and fauna can be found in rural environments across the country.

Full Name: Azerbaijan

Population: 9.898 million (World Bank, 2018)

Capital: Baku

Area: 86,600 km²

Major Language: Azerbaijani

Major Religion: Muslim

Currency: Azerbaijanian New Manat (AZN)

Main Industries: Petroleum and Natural Gas, Petroleum Products, Oilfield Equipment; Steel, Iron Ore, Cement; Chemicals; Petrochemicals; Textiles; Machinery; Cotton; Foodstuffs

Internet Domain: .az

International Dialling Code: +994

Income Tax & Social Security in Azerbaijan

The tax year in Azerbaijan is from 1st January to 31st December.

All payments in Azerbaijan (salaries & 3rd party payments) have to be made by the employer, however the payroll provider can take care of the monthly tax & social security submissions.

The tax submission is made electronically once the payroll provider receives the company's password which much be supplied by the customer.

Social Security submissions are also made electronically.

Income Tax in Azerbaijan

Tax on income is calculated by the employer and deducted from the employees pay each month. This must be reported within 20 days after the end of a reporting month. An individual must file additional income that is generated in an annual tax return, no later than 31 January after the financial year ends.

Residents of Azerbaijan are subject to income tax on taxable income, which is defined as gross income received from all sources (both Azerbaijani and non-Azerbaijani) during the tax year, regardless of where the income was earned or paid, less allowable deductions.

Non-residents are subject to Azerbaijani income tax only on income received from Azerbaijani sources.

Representatives of diplomatic missions, international organisations, representatives of foreign companies in Azerbaijan, their employees and family members are not classed as residents for tax purposes.

Monthly taxes are paid by 20th of the following month.

There is a late payment penalty of 0.1% for each day of delay. However, blocking on bank account is applicable if the payments have not been made for a long period of time.

Social Security in Azerbaijan

Both Azerbaijani nationals and foreign individuals, excluding certain categories of foreign employees working in the oil & gas sector, pay compulsory state social insurance contributions ("SIC”). Employers are liable for paying social insurance contributions at rates that depend on whether they are operating or not operating in the oil and gas industry or in the state or non-state sector.

For taxpayers who are operating in the oil and gas industry and those who pertain to the state sector SIC still apply at a rate of 22% and 0.5% (for unemployment insurance) of the employee’s gross payroll.

3% and 0.5% (for unemployment insurance) are deducted from the employee’s gross salary as the employee’s portion of the social insurance and unemployment insurance contribution.

The employer is responsible for making the monthly payment of social insurance contributions on the day that the employees’ salary is paid but no later than the 15th day of the month following the month when the income was accrued.

Employers are also responsible for submitting quarterly reports to the social fund authorities in respect of the social insurance contributions calculated and paid for local employees as well as foreign employees who are on the local payroll by the 20th of the month following the reporting quarter.

Social insurance covers:

  • Labour pensions
  • Temporary disability payments
  • A maternity allowance
  • A lump sum payment for childbirth
  • In special circumstances, benefits for families taking care of a child or children
  • A funeral allowance
  • An allowance for medical treatment at resorts (full or partial payment)
  • Sick leave allowances

Reporting Tax in Azerbaijan

All taxpayers shall conclude a contract with the tax authorities for obtaining reporting software which allows them to submit tax, social insurance and unemployment insurance reports to the tax authorities in electronic format. Alongside these reports, the employer should also submit relevant statistics and employment reports to the appropriate government authorities on a regular basis.

Monthly

The tax filing is made electronically once the payroll provider receives the company's password from the customer.

All taxes withheld at the source should be transferred to the State Budget of the Republic of Azerbaijan no later than the 20th day of the month following the month when the tax was withheld.

Quarterly

Quarterly personal income tax reports (for small businesses) must be filed within 20 days after the end of each calendar quarter.

Quarterly social security reports must be filed within 20 days after the end of each calendar quarter.

Yearly

End of Year Forms:

Personal Income Tax (Yearly Cumulative)

The form can be submitted by the payroll provider

Mode of Delivery: Electronic submission

Statistics Report (1 and 4 emek) (Yearly Cumulative)

The form can be submitted by the payroll provider

Mode of Delivery: Electronic submission

Social Security Report and Unemployment Insurance Report (Quarterly)

The forms can be submitted by the payroll provider

Mode of Delivery: Electronic submission

New Employees in Azerbaijan

New employees’ employment agreements must be registered in the electronic information system no later than the first day of employment.

New employees (those who do not have social insurance number) are required to be registered with social security 5 days after starting work.

New employees are also required to hold compulsory insurance to cover for professional disability, industrial accidents and professional diseases disability.

The necessary documents to register a new employee are:

  • Labour book
  • Health certificate for jobs involving heavy and dangerous labour harmful to employee health
  • ID card
  • Social security ID card
  • Work And Residency Permit for expats
  • Refugee ID card for people having refugee or displaced-persons status
  • Diploma

Expats are required to hold both a work and residency permit.

Leavers in Azerbaijan

All obligations to a resigning employee shall be paid no later his/her last working day. The resignation of employment agreement should be registered in electronic information system on his/her last working day.

Payroll in Azerbaijan

The payroll provider does not need any specific licensing to make the tax and/or social security filing on behalf of the customer, however a license is required for independent external audit services.

Payroll data is archived for 5 years.

Companies have to transfer accounting records into the new National Accounting Standards based on International Financial Reporting Standards (IFRS). Independent audits are mandatory for limited liability companies.