Azerbaijan operates a residence-based profit tax system administered by the State Tax Service, with resident entities taxed on worldwide income and non-residents taxed on Azerbaijan-source income. Separate production sharing agreement (PSA) and host government agreement (HGA) regimes apply negotiated terms to foreign oil and gas contractors and subcontractors outside the standard profit tax rules. Azerbaijan joined the OECD/G20 Inclusive Framework on BEPS in December 2022 and has since adopted CFC rules, updated permanent establishment provisions, transfer pricing regulations, and country-by-country reporting.
The tax year is the calendar year. Annual profit tax returns are generally due by March 31 of the following year, with advance quarterly payments required during the year based on the prior year's tax liability.
Azerbaijan's headline corporate income tax (CIT) rate is 20%.
The headline personal income tax (PIT) rate is 25%.
The standard VAT/GST (or equivalent consumption tax) rate is 18%.
An individual is resident in Azerbaijan if physically present for more than 182 days in a calendar year. An entity is resident if incorporated in Azerbaijan; branches and representative offices of foreign legal entities are treated as non-resident. Resident entities are taxed on worldwide income at a flat 20% profit tax rate; a non-resident entity operating through a permanent establishment is taxed on PE-attributable Azerbaijan-source gross income less related deductions, while non-PE Azerbaijan-source income is taxed at source without any expense deductions. Separate production sharing agreement (PSA) and host government agreement (HGA) regimes apply to foreign oil and gas contractors and subcontractors under specially negotiated terms.
A non-resident enterprise creates a permanent establishment in Azerbaijan through a fixed place of business or a dependent agent habitually concluding contracts on its behalf. Profits attributable to the permanent establishment are taxed at the standard 20% profit tax rate on Azerbaijan-source gross income less related deductions, and a further 10% additional tax applies to after-tax profits repatriated abroad from the permanent establishment, for an effective combined rate of roughly 28% on fully repatriated PE profits.
Azerbaijan introduced CFC rules effective 2020 as part of a broader package of anti-avoidance amendments (alongside economic substance requirements, thin capitalization rules, and "risky taxpayer" provisions). Under the regime, profits of a controlled foreign corporation incorporated in a tax haven become taxable in Azerbaijan where an Azerbaijani resident, alone or together with an interdependent resident or non-resident, holds more than 50% of the voting rights or charter capital of the foreign corporation (or the right to more than 50% of its profits); a separate, less detailed source cites a lower 20% ownership threshold, which is not used here given the first source's greater specificity on this exact provision. To prevent double taxation once CFC profits are taxed in Azerbaijan, the resident receives a tax offset for tax already paid on that profit abroad, and dividends actually received from the CFC, along with certain other categories (including income already attributed to a resident subsidiary of the CFC, and income from the CFC's Azerbaijan permanent establishment), are excluded from the CFC inclusion to avoid double-counting.
Thin capitalization rules were introduced effective 1 January 2019. Interest on loans from overseas lenders and/or related parties is deductible only up to the interbank credit auction rate for loans of similar currency and maturity; where no such auction rate exists for comparison, the deduction is capped at 125% of the published interbank auction credit rate of the Central Bank of Azerbaijan - a rate-based cap rather than a debt-to-equity ratio.
Azerbaijan classifies entities under its own domestic tax code rather than offering an elective check-the-box system. The 2020 anti-avoidance reforms that introduced CFC rules also introduced economic substance requirements and a concept of multinational corporations, functioning together as an anti-hybrid backstop against artificial low-tax structures, though a dedicated ATAD2-style anti-hybrid mismatch regime denying deductions for double-deduction or deduction-without-inclusion outcomes has not been identified.
No domestic FBAR-equivalent regime requires Azerbaijani residents to separately disclose foreign financial accounts. Azerbaijan is a signatory to the CRS Multilateral Competent Authority Agreement and exchanges financial account information as a CRS participating jurisdiction. US persons remain independently subject to FinCEN Form 114 (FBAR) and potentially Form 8938 regardless of Azerbaijan's own rules.
No general participation exemption for dividends or capital gains from a qualifying subsidiary was identified in Azerbaijan's Tax Code. Dividends are instead subject to a 10% withholding tax for both resident and non-resident recipients, with dividends actually received from an already-taxed CFC excluded from further inclusion to avoid double-counting.
Azerbaijan provides a foreign tax credit for tax already paid abroad on income also taxed in Azerbaijan, including an offset for a resident shareholder where the underlying profits of a controlled foreign corporation have already been taxed in Azerbaijan under the CFC rules, preventing the same profit from being taxed twice.
Azerbaijan maintains approximately 52 double tax treaties. Azerbaijan signed the OECD's Multilateral Instrument (MLI) on 20 November 2023 (the 102nd signatory), which was ratified by Azerbaijan's Milli Majlis (parliament) and entered into force for Azerbaijan on 1 January 2025, modifying the application of a number of Azerbaijan's existing bilateral treaties for BEPS purposes from that date. As a former Soviet republic, some of Azerbaijan's older treaty coverage traces back to the historic US-USSR tax treaty via Commonwealth of Independent States (CIS) succession arrangements.