Taxation of capital gains in Azerbaijan

 

Taxation of capital gains under the Tax Code

 

The Tax Code of Azerbaijan does not enlist a capital gains tax. Since Azerbaijan applies a global income concept, any gain of a person is considered an income except the exemptions specifically prescribed by the Tax Code. The gains from the alienation of capital, i.e. assets, shares and property, is subject to ordinary income tax, both for individuals and for the companies.

A gain from the increased value of the property does not amount to a taxable gain, until it is realized. Therefore, any appreciation of property is taxable only after realization.

 

Taxation of capital gains of individual tax residents

 

Taxation of capital gains earned from the realization of capital by the individuals has various regimes depending on the type of the capital. General personal income tax at the rate of14% is the standard rate for taxing capital gains under the personal income tax.

A specific rule applies regarding the sale of immovable property, i.e. simplified tax imposed as the unit price over the size of the property with varying coefficients (property transfer tax). Notaries authorized to approve property transfer agreements are required to withhold this tax, acting as the tax agent for the property owner. Accordingly, income from the sale proceeds are not included in the annual taxable income of the tax resident.

The sale of shares is subject to a price appreciation calculation where the difference between the initial nominal value and the appreciated net asset value of the share is subject to personal income tax at the 14% rate. Exemptions, exceptions and further special provisions apply in this regard. 

 

Taxation of corporate capital gains in Azerbaijan

 

Taxation of corporate capital gains is subject to corporate income tax at the ordinary rate of 20%.Income and losses resulting from the realization of capital are classified as components of ordinary income or loss. Consequently, it is permissible to offset capital losses against the trading income of the company, and vice versa. Exemptions, exceptions and further special provisions apply in this regard. 

As in the case of individual residents, appreciation of property is not subject to any taxation per se. However, where the appreciated property is realized, the difference between the purchase price and sale price is subject to corporate income tax. It must be noted that additional rules of depreciation apply in this regard.