Taxation

Chapter 4
Taxation of individuals: Personal Income Tax
 Content

After completing this chapter, you will learn the following:

 Calculate the Personal Income Tax

 Determine employment and non-employment Income

 Determine the payment deadline of Personal Income Tax

 Determine the submission deadline of Personal Income Tax

Report
 Reference: TC Art. 95, 97

Personal Income Tax

A Personal Income Tax is a levy on income of individuals.

Taxpayers: Both resident and non-resident individuals should

be payers of income tax.

 Residents are liable to pay personal income tax from his/her

worldwide income.
Non-residents are liable to pay personal income tax only

from his/her Azeri source income.

Ch. 4-3
 Reference: TC Art. 96

Personal Income Tax

Taxable base:
The income after deduction of deductible costs from revenue
of residents and non-residents operating through a permanent
establishment (“PE”) (i.e. branch, rep. office and etc.).
For non-residents the payment amount of income is taxable
base.

Ch. 4-4
 Reference: TC Art. 97

Personal Income Tax

Types of Personal Income

Revaluation of Fixed Assets is not related to Income for tax purposes .

In case WHT is already levied on any income, this income is ignored in
identification of taxable income.
 Reference: TC Art. 98

Employment Income
Employment income
► Any salaries, payments or benefits received by an individual in respect of current
employment, or otherwise from a former workplace, or income received for future
employment should be treated as income received from employment.
►Positive difference between the interest paid at the inter-bank loan auction and

interest paid with respect to loan by an individual;

►In case of sale or gratuitous transfer of any goods/ services/ gifts by an employer

to an employee - the fair market value of such goods (works, services);

►In the event of reimbursement of expenses to an employee (with the exception of

expenses as per Article 119.2) - the amount of such reimbursement;

►In the event of debt relief to an employee - the amount of such debt or obligation

and etc.
►Insurance premiums paid by the employer.

►if the cash amount given by the employer to the employee (imprest account) are

not returned in the manner determined by legislation - the amount of those funds.
 Reference: TC Art. 98

Employment Income
Exceptions and additional notes:
Reimbursements of actual business trip expenses including

per diem payments

The income received by employer as the result of
representation or entertainment expenses, as well as
expenses connected with food (with exception of costs on
preventive health food, milk and equivalent products) and
accommodation shall not be a taxable income.
 Reference: TC Art. 98

Employment Income
Exceptions and additional notes:
For example, if the employer who is a VAT payer has donated

the goods to his employee, he should add VAT to his value and
relate it to the employee's income. It means that the employer
presented to his employee in April a set of furniture worth AZN
500. In this case, 90 AZN (500*18%=90) VAT should be applied
to the value of the furniture set at 18%. AZN 590 added to the
taxable monthly income of the employee when calculating the
income tax.
In case the employer incurs food, accommodation and other

social expenses at his own it is not related to Income of

individual, but if it gives cash to employee it is related to Income
of Individual.
 Example 1

ENG: The company sells a car with a market price of 15,000 manats to
its employee at a discounted price of 13,400 manats. In this case, what
amount should be considered as the employee's income and taxed?

AZE: Müəssisə bazar qiyməti 15 000 manat olan avtomobili öz işçisinə

güzəştli qiymət əsasında 13 400 manata satır. Bu halda hansı məbləğ
işçinin gəliri hesab olunaraq vergiyə cəlb edilməlidir?

Solution/Həlli: 15 000 – 13 400 = 1 600

 Reference: TC Art. 99

Non-employment income
Business income
Income from entrepreneurial activity includes the following:

 Income from sale of assets used for the purposes of

entrepreneurial activity;
 Income received under restriction (limitation) or cessation of an
entrepreneurial activity;
 Income gained from sale of fixed assets;
 Reimbursement of previously deducted expenses, losses, or bad
debts.
 Example 2

Question. Individual entrepreneur Mahmud Hasanov deducted from

his income in 2019 the remaining 5,000 manat doubtful debt from
previous years. But in 2020, that debtor paid his debt in full. What should
the entrepreneur do in this case?
Answer: The amount of 5,000 manat is attributed to the income of
individual entrepreneur Mahmud Hasanov in 2020 and is subject to
income tax.
According to Article 141.1 of the Tax Code, if an expense, loss or
doubtful debt previously deducted from income is paid, the amount
obtained is considered income at the time of their payment.
 Reference: TC Art. 99

Non-employment income
Non-business income
Income from non-entrepreneurial activity includes the following:
Interest income

Dividends

Income from lease of the property

Royalties

Debt relief (except for cases that fall under the employment income);

Gains received from the sale of assets not used for entrepreneurial

activities
Gifts and inheritance received during the tax year (except for cases

that fall under the employment income)

Winnings, received from betting games, conducted in connection with

sports games

Remuneration received by persons engaged in advocacy

 Income Tax Rates (CRITERIA!)

Link for Criteria determining Oil & Gas and private sector activities:
Decree regarding Criterias
 Reference: Decree on “Criteria for the activities of the oil & gas and the non-state sector

Oil & Gas sector

Criteria for activities in the Oil & Gas sector are as following:
State Oil Company of Azerbaijan Republic (SOCAR);

SOCAR’s subsidiaries within its organizational structure;

Contractors and companies operating under agreements on profit sharing (PSA),

main pipeline agreements (Host Government Agreements), and other similar

contracts, regardless of the type of activity;
Local and foreign subcontractors engaged in activities of any of aforesaid entities,

if any of below conditions are met:

 If the income generated from the provision of services and goods to the

aforementioned entities for the last year of operations is more than 50%
from total revenue;
 In case subcontractor operates for the 1st year – subcontractor may use

exemptions until 1st operation with aforesaid entities, later it should

calculate revenue proportion on a monthly basis cumulatively. At any time
when entity has more than 50% of revenue from aforesaid entities it should
be treated Oil and Gas sector until the end of current year;
 Reference: Decree on “Criteria for the activities of the oil & gas and the non-state sector

Public and private sector

Criteria for state (public) sector:

Public entities organized on behalf of the state;

Budget organizations;

Other bodies and agencies financed from the state budget;

Other state-owned funds;

Legal entities, directly or indirectly owned by 51 or more percent of

shares.

Criteria for non-governmental (private business) sector

Covers legal entities established under Azerbaijani law and
individual taxpayers, excluding public legal entities, state budget
organizations, and entities with over 51% state ownership.
 Example 3

 Company Sigma provides services to company BCP LLC, which is not

included in the structure of SOCAR (ARDNŞ-in strukturuna daxil deyil), but
51% of share is owned by SOCAR. The revenue of Sigma from BCP
comprises 100% of its total revenue.
 In this case, will tax benefits granted to non-oil and gas sector (up to 8,000
manats at 0% rate) be applied to the monthly income of employees
working in "Sigma" LLC?

Answer: Since BCP LLC is not included in the structure of SOCAR, 100%
revenue from BCP LLC is not considered to be an activity in the oil and gas
field for Sigma’s personal income tax calculations.
 Reference: TC Art. 101

Tax rates
Personal Income Tax of income from employment is calculated on
monthly basis, as follows:
State and Oil & Gas sector (now) and all individuals effective from 01 January 2026.

Monthly amount Tax rate

Up to 2,500 AZN 14 %
Over 2,500 AZN 350 AZN+ 25% over 2,500 AZN
Non - State and non - Oil & Gas sector (until 01 January 2026)
Monthly amount Tax rate
Up to 8,000 AZN 0%
Over 8,000 AZN 14% over 8,000 AZN

Note: Income tax of individuals working in two or more places is calculated and paid
to the state budget separately from the amount paid at each workplace.
 Reference: TC Art. 101

Tax rates
Personal Income Tax on business and non-business income
is calculated on annual basis.

Personal Income Tax on business income are calculated on

net income (revenue – deductible costs) at a tax rate of 20%.

Personal Income Tax on non-business income are

calculated at a tax rate of 14%.

The tax at the rate of 10% shall be withheld from the sum,
remaining after deduction of cash, from the winnings from
the betting games, conducted in connection with sports
games, lotteries, as well as from other events and
competitions.
 Reference: TC Art. 101

Tax rates
Income derived from provision of goods referred to in the
Law of the Republic of Azerbaijan "On Cashless Payments“
by individuals who are not registered with the tax authorities
as taxpayers is taxed at a 5 percent (previously, 2 percent)
rate without consideration of deductible expenses:
agricultural products

non-ferrous and ferrous metal scrap

paper, glass and plastic products for utilization and other

purposes
tires used for utilization purposes

raw leather
 Example 4

Misal: Vergi ödəyicilərinə mühasibat və vergi uçotu xidməti

fəaliyyəti ilə məşğul olan fərdi sahibkar Eyvaz Əliyev bu
fəaliyyətində istifadə etdiyi komputerini 1900 manata satır.
O həmin komputeri 2600 manata 1 il əvvəl əldə etmişdir.
Komputerin təqdim edilmə anına qalıq dəyəri 1775
manatdır. Şəxsin vergi öhdəliyini müəyyən edin:

Həlli: 1900 – 1775 = 125 * 20% = 25 manat

 Example 5

Sual. Vergi ödəyicisi olan vəkil İsmayılov Rəşid Ələsgər oğlu dəyəri 20
000 manat olan nəqliyyat vasitəsi alır. Şəxs nəqliyyat vasitəsini bir il
vəkillik fəaliyyəti məqsədləri üçün istifadə etdikdən sonra 17 000 manata
təqdim edir. Satış baş verdiyi tarixdə nəqliyyat vasitəsinin qalıq dəyəri 15
000 manat olmuşdur. Fiziki şəxsin sahibkarlıq fəaliyyətindən əldə etdiyi
gəliri müəyyən edin:

Cavab: 0
 Reference: TC Art. 149-150

Submission of the PIT return

For employment activity

The PIT return is submitted to tax authorities no later than 20 of the month
following each reporting quarter.
The payment deadline of PIT is 20 of the month following each reporting

month.

For all other incomes of individuals

The PIT return is submitted to tax authorities no later than 31 March

following each reporting year.
The payment deadline of PIT is 31 March following each reporting year.
 Reference: Law on Social Insurance Contribution

Social Insurance Contribution

Purpose: To guarantee certain allowances to workers in all

cases of loss of their ability to work.

Loss of ability or similar cases could be treated, as follows:

retirement;

be a person with disabilities;

losing head of family;

temporary disability;

pregnancy and childbirth;

death;

the need for sanatorium and spa treatment.

Ch. 4-23
 Reference: Law on Social Insurance Contribution

Social Insurance Contribution

Social Insurance Contribution of income from employment is
calculated on monthly basis, as follows:
State and Oil & Gas sector (now) and all individuals effective from 01 January 2026.

Monthly amount
Party Tax rate
Rate
Up to
On behalf
2,500
ofAZN
employee 14%%of gross income
3
Over
On behalf
2,500of AZN
employer 350 AZN+
22% of gross
25%income
over 2,500 AZN
Non - State and non - Oil & Gas sector (until 01 January 2026)
Party If up to AZN 200 If more than AZN 200
On behalf of employee 3 % of gross income AZN 6 + 10% of exceeding
portion over AZN 200
On behalf of employer 22% of gross income AZN 44 + 15% of exceeding
portion over AZN 200
 Reference: Law on Unemployment Insurance

Unemployment Insurance

The purpose of this Law is to ensure the strengthening of social protection

of the population through the establishment of risk-based relations and new
financing mechanisms in the labor market of Azerbaijan, compensation of
lost wages of insured persons and preventive measures of unemployment.

Unemployment insurance rates are determined by the following rates:

on insurance premiums paid by the insurer - 0.5% of the employee's

salary;
on insurance premium paid by the insured - 0.5 % of the employee's

salary.
 Reference: Law on Mandatory Medical Insurance

Medical Insurance

Compulsory/Mandatory medical insurance, being an integral part of the

state social insurance, provides insured persons with medical assistance at
the expense of financial sources of compulsory medical insurance and
within the package of services.

For individuals working under employment contract rates are as follows:

on insurance premiums paid by the insurer - 2% of the salary up to AZN

8,000, 0.5% of the salary over AZN 8,000 manat;

on insurance premium paid by the insured - 2% of the salary up to AZN

8,000, 0.5% of the salary over AZN 8,000 manat.

 Example 6
Misal. Fiziki şəxsin neft-qaz sahəsində fəaliyyəti olmayan və qeyri-dövlət sektoruna aid edilən
əsas iş yerində aylıq gəliri 1040 manat, büdcə təşkilatı olan ikinci iş yerində aylıq gəliri 180
manat təşkil edir. Fiziki şəxsin aylıq gəlirindən büdcəyə hesablanan gəlir vergisi və sığorta
haqları nə qədər olacaq?

Həlli:
1. Gəlir vergisinin hesablanması:
180*14%=25,20 manat

sosial sığorta haqqı: ((1040 – 200)* 10% = 84 + 6 (200*3%) = 90 manat

1.
işsizlikdən sığorta haqqı: 1040*0,5% = 5,2 manat

icbari tibbi sığorta haqqı: 1040*2 % = 20,8 manat

2. sosial sığorta haqqı: 180*3% = 5,40 manat

işsizlikdən sığorta haqqı: 180*0,5%= 0,9 manat

icbari tibbi sığorta haqqı: 180*2 % = 3,6 manat

 Reference: TC Art. 102

Exemptions and Reliefs from PIT

Article 102 of the Tax Code of the Republic of Azerbaijan elaborates
on all types of tax exemptions and privileges:
 gifts, material assistance, lump-sum or inheritances received
during the tax year with considerations of certain limits;
alimony payments;

fixed amount of AZN 200 is exempted if the monthly income

from main workplace is up to AZN 2500 AZN and fixed amount

of AZN 2,400 is exempted when the annual income is up to AZN
30000;
compensation received for losses or damages;

income received from the production of agricultural products;

Ch. 4-28
 Reference: TC Art. 102

Exemptions and Reliefs from PIT

Ch. 4-29
 Reference: TC Art. 102.2

Exemptions and Reliefs from PIT

The monthly taxable income from any type of employment shall be
reduced by the amount of 400 AZN for following persons:
National Heroes of the Azerbaijan Republic;

Heroes of the Soviet Union and Social Labor;

Disabled people of war;

Widowed wives (husbands) of war participants who were killed at war

or died later;
Income of persons who were awarded orders and medals for heroic

labor in the home front during the years of 1941-1945;

Persons who received the status of war veterans;

Persons who acquired radiation and radiation sickness or had these

diseases as a result of accidents at Chernobyl AES;

Ch. 4-30
 Reference: TC Art. 102.4

Exemptions and Reliefs from PIT

The monthly taxable income from any type of employment shall be
reduced by the amount of 100 AZN for following persons:
Parents of war participants who were killed at war or died later,

Parents and wives (husbands), including children who were killed as

a result of the intervention of Soviet troops on 20 January 1990;

Military officials involved in the training and test gatherings and

military servicemen who were sent to Afghanistan and other countries

where war operations were conducted;
Any of the parents, wife (husband), person taking care of a child with

limited level of health with whom they live together, who need a
permanent care and who is an invalid from childhood or belongs to the
1st group of disability;
Displaced people and persons of similar status.

Ch. 4-31
Thank you for your attention!