New Tax Incentives for Technopark and Startup Companies 2027

The Law of the Republic of Azerbaijan on Amendments to the Tax Code of the Republic of Azerbaijan, the Migration Code of the Republic of Azerbaijan, and the Laws of the Republic of Azerbaijan “On Social Insurance”, “On Regulation of Inspections in the Field of Entrepreneurship and Protection of the Interests of Entrepreneurs” and “On Public Procurement” was signed by the President of the Republic of Azerbaijan on 22 October 2026. The relevant amendments will enter into force on 1 January 2027.

The amendments primarily cover tax incentives for technology parks ("technopark") residents, exemptions from profit tax and income tax, deductible expenses, additional tax incentives for startup companies, as well as a number of changes relating to value added tax (VAT).

1. Tax Incentives Relating to Technology parks

1.1. Tax Incentives for Technopark Residents

The tax incentives set out below for residents of technology parks, including residents operating outside technology parks, which will take effect on 1 January 2027, shall apply to residents of technology parks that obtain a resident certificate on or after 1 January 2027 and are classified as belonging to the non-state sector, as well as to residents of technology parks in which 51% or more of the shares or participatory interests are not directly or indirectly owned by the state.

1.1.1. Exemptions from Income Tax and Profit Tax

Pursuant to the amendments to Article 102, income derived by individuals and legal entities that are residents of technology parks from activities carried out within technology parks, including activities carried out outside technology parks, shall be exempt from income tax and profit tax, respectively, for a period of 20 years from the date of issuance of the technology park registration certificate, excluding income from employment.

The application of the aforementioned exemption is subject to the following conditions:

• the proportion of export income in the total annual income of large entrepreneurship entities that are residents of technology parks must not be lower than the prescribed threshold;
• where goods (works or services) are exported by large entrepreneurship entities that are residents of technology parks, the income (proceeds) derived from such export transactions must be transferred to the taxpayer’s bank and other payment accounts held in the Republic of Azerbaijan;
• where equipment or hardware is exported, intangible assets constituting objects of copyright, including software, as well as innovative products and know-how, created by the taxpayer that is a resident of a technology park and registered in accordance with the procedure prescribed by regulatory legal acts, must be integrated into such equipment or hardware, or substantial technological modifications must be made to the equipment or hardware on the basis of a supporting document issued by the body (institution) designated by the relevant executive authority.

The above exemption shall not apply to income derived from the mere installation of software belonging to other persons, packaging or simple installation operations performed without substantial technological modifications to the equipment or hardware.

Furthermore, without being treated as royalties for the purposes of Article 13.2.23 of the Tax Code, payments made by taxpayers holding a technology park registration certificate to non-resident persons that do not have a permanent establishment in the Republic of Azerbaijan for cloud computing, infrastructure, platform and software services, as well as application programming interface (API) services, obtained directly for the purposes of carrying out their own activities, shall be exempt from income tax and profit tax for a period of 20 years from 1 January 2027. This exemption shall not apply where the services obtained are resupplied by the taxpayer to other persons.

The following income of technopark residents shall be exempt from income tax and profit tax for a period of 10 years from 1 January 2027:

• 100% of the income derived from the disposal of a participatory interest or shares, where such interest or shares relate to a legal entity that has obtained a technology park registration certificate, qualifies as a micro or small entrepreneurship entity, and does not engage in any other activities;
• income derived by a legal entity that is a resident of a technology park and does not engage in activities outside the activities of the technology park, from the issuance (placement) of participatory interests or shares to third parties acting as participants (shareholders) at a price exceeding their nominal value, excluding the portion of the increase in value proportionate to the increase in value arising from the revaluation of the enterprise’s assets.

1.1.2. Deductible Expenses

Deduction of Investment Amounts

Investment amounts invested by an accredited investor designated in accordance with the Law of the Republic of Azerbaijan “On Investment Funds” for the acquisition of issued shares in resident legal entities that have obtained a technology park registration certificate, or for the acquisition of participatory interests through additional capital contributions, shall be deductible from the taxable aggregate income of an individual entrepreneur or an enterprise for a period of 10 years from 1 January 2027, subject to the following conditions:

1. The amount deductible from the taxpayer’s income must not exceed 50% of the taxpayer’s taxable aggregate income (after deduction of expenses) or profit for the relevant reporting year.
2. The taxpayer making the investment must not be a mutually dependent person, within the meaning of Article 18 of this Code, in relation to the founders (participants) or the heads of the executive bodies of the legal entity receiving the investment.
3. As a result of the investment, the investing taxpayer must not hold, directly or indirectly, a 50% or greater participatory interest (shareholding) in the charter capital of the legal entity or 50% or more of its voting rights. This restriction shall not apply to funds invested in venture capital funds.
4. The acquired participatory interest (shares) must remain continuously in the ownership of the taxpayer for at least three years from the date on which the investment is made.
5. Within one month after the end of the reporting year, the enterprise receiving the investment must provide the investor with documents confirming that the funds received have been expended for their intended purpose, including sale and purchase agreements, acceptance and handover certificates, payment orders, statements issued by payment service providers, and other relevant documents. For the purposes of this Article, the amount deductible by the taxpayer from taxable income shall be limited to the portion of the investment amount actually expended by the recipient of the investment.
6. In respect of investments to be made in innovation and technological innovations in industrial parks, the relevant supporting document shall be issued by the body (institution) designated by the relevant executive authority.

Rules for Deducting Expenses Incurred on Scientific Research, Design and Survey, and Experimental Design and Development Works

Under the new rules, operating expenses incurred by taxpayers on a cashless basis in connection with scientific research, design and survey, and experimental design and development works carried out directly by the taxpayers as part of the development of an innovative product, or commissioned from technology park residents and higher education and scientific research institutions, shall be deductible from the taxpayer’s taxable income for the relevant reporting year for a period of 10 years from 1 January 2027, by applying a coefficient of 2.5. This provision shall not apply to expenses incurred on the acquisition of fixed assets and intangible assets.

Where the commissioning party and the person performing the scientific research, design and survey, and experimental design and development works are considered mutually dependent persons under Article 18 of this Code, the coefficient of 2.5 provided for above shall not apply to transactions carried out between them.

The scope and categories of eligible expenses, as well as the procedure and rules for confirming the consequences of technological and industrial failures, shall be approved by the body (institution) designated by the relevant executive authority.

Depreciation

Depreciation deductions for separately accounted-for machinery, equipment and computing equipment used in scientific research, design and survey, and experimental design and development works may be deducted from income for a period of 10 years from 1 January 2027 by applying a coefficient of 2 to the depreciation rates prescribed for machinery and equipment and for computing equipment that constitutes a high-technology product.

1.1.3. Employment Income

Under the Tax Code currently in force, personal income tax is withheld from the monthly employment income of specialists working in the relevant fields for taxpayers that are residents of technology parks but operate outside technology parks and engage in systems integration and software development and enhancement activities, at the following rates:

• For a period of three years from 1 January 2023, at a rate of 0% on monthly income of up to AZN 8,000 and at a rate of 5% on the portion exceeding AZN 8,000;
• For a period of seven years from 1 January 2026, at a rate of 5% of monthly income.

Under the new Law, personal income tax on the monthly employment income of individuals employed for these purposes by both technology park residents and residents operating outside technology parks shall be levied at a rate of 0% for a period of 20 years from 1 January 2027.

The above tax incentive shall apply to large entrepreneurship entities subject to the following conditions:

• the proportion of export income in the total annual income of large entrepreneurship entities that are residents of technology parks is not lower than the prescribed threshold;
• where goods (works or services) are exported by large entrepreneurship entities that are residents of technology parks, the income (proceeds) derived from such export transactions is transferred to the taxpayer’s bank and other payment accounts held in the Republic of Azerbaijan.

The aforementioned threshold shall be determined by the relevant executive authority.

1.1.4. Dividend Income

With respect to dividend income, dividends paid out of income derived by a technology park resident from its activities in the technology park shall be exempt from income tax and profit tax for a period of 20 years from the date of issuance of the relevant registration certificate. Whereas this exemption previously applied only to persons operating outside technology parks, it will now apply to all technology park residents.

The above tax incentive shall apply to large entrepreneurship entities subject to the following conditions:

• the proportion of export income in the total annual income of large entrepreneurship entities that are residents of technology parks is not lower than the prescribed threshold;
• where goods (works or services) are exported by large entrepreneurship entities that are residents of technology parks, the income (proceeds) derived from such export transactions is transferred to the taxpayer’s bank and other payment accounts held in the Republic of Azerbaijan.

1.1.5. VAT Exemptions

Pursuant to the newly added Article 164.1.65 of the Tax Code, without being treated as royalties for the purposes of Article 13.2.23, cloud computing, infrastructure, platform and software services, as well as application programming interface (API) services, obtained by taxpayers holding a technology park registration certificate from non-resident persons that do not have a permanent establishment in the Republic of Azerbaijan, directly for the purposes of carrying out their own activities, shall be exempt from VAT for a period of 20 years from 1 January 2027,.

The above exemption shall not apply where the services obtained are resupplied by the taxpayer to other persons.

1.1.6. Exemptions from Land Tax and Property Tax

The period of exemption from land tax and property tax for legal entities that are residents of technology parks, including in respect of activities carried out outside technology parks, and individuals carrying out entrepreneurial activities without establishing a legal entity has been extended from 10 years to 20 years.

1.2. Tax Incentives for Persons Providing Services to Technopark Residents

The following income of persons providing services to persons holding a technology park registration certificate shall be exempt from income tax and profit tax for a period of 10 years from 1 January 2027:

• Income derived by individuals and legal entities from the disposal of securities acquired as a result of investments made through a crowdfunding platform in persons holding a technology park registration certificate;
• In the case of individuals, dividends paid to participants (shareholders or holders of participatory interests) of venture capital funds out of profits derived by such funds from investments in micro and small entrepreneurship entities that have obtained a technology park registration certificate; and, in the case of legal entities, profits derived in this manner and dividends paid out of such profits.

2. Tax Incentives for Startup Companies

2.1. Exemptions from Income Tax and Profit Tax

The following income shall be exempt from income tax and profit tax for a period of 10 years from 1 January 2027:

• 100% of the income derived from the disposal of a participatory interest or shares in a legal entity that has obtained a “Startup” certificate, qualifies as a micro or small entrepreneurship entity, and does not engage in any other activities;
• Income derived by individuals and legal entities from the disposal of securities acquired as a result of investments made through a crowdfunding platform in persons holding a “Startup” certificate;
• Dividends paid to individuals and legal entities in respect of the participatory interests (shares) referred to in paragraph 2 above;
• In the case of individuals, dividends paid to participants (shareholders or holders of participatory interests) of venture capital funds out of profits derived by such funds from investments in micro and small entrepreneurship entities that have obtained a “Startup” certificate or an industrial park registration certificate; and, in the case of legal entities, profits derived in this manner and dividends paid out of such profits.

Furthermore, without being treated as royalties for the purposes of Article 13.2.23 of the Tax Code, payments made by taxpayers holding a “Startup” certificate to non-resident persons that do not have a permanent establishment in the Republic of Azerbaijan for cloud computing, infrastructure, platform and software services, as well as application programming interface (API) services, obtained directly for the purposes of carrying out their own activities, shall be exempt from income tax and profit tax for a period of 20 years from 1 January 2027. This exemption shall not apply where the services obtained are resupplied by the taxpayer to other persons.

In addition, the period of exemption from income tax and profit tax on income derived from innovation activities by startups that qualify as micro or small entrepreneurship entities and operate as individual entrepreneurs has been extended from 3 years to 7 years from the date of issuance of the “Startup” certificate.

2.2. Deductible Expenses

Deduction of Investment Amounts

Investment amounts invested by an accredited investor designated in accordance with the Law of the Republic of Azerbaijan “On Investment Funds” for the acquisition of issued shares in resident legal entities that have obtained a “Startup” certificate or an industrial park registration certificate, or for the acquisition of participatory interests through additional capital contributions, shall be deductible from the taxable aggregate income of an individual entrepreneur or an enterprise for a period of 10 years from 1 January 2027, subject to the following conditions:

1. The amount deductible from the taxpayer’s income must not exceed 50% of the taxpayer’s taxable aggregate income (after deduction of expenses) or profit for the relevant reporting year.
2. The taxpayer making the investment must not be a mutually dependent person, within the meaning of Article 18 of this Code, in relation to the founders (participants) or the heads of the executive bodies of the legal entity receiving the investment.
3. As a result of the investment, the investing taxpayer must not hold, directly or indirectly, a participatory interest (shareholding) of 50% or more in the charter capital of the legal entity or 50% or more of its voting rights. This restriction shall not apply to funds invested in venture capital funds.
4. The acquired participatory interest (shares) must remain continuously in the ownership of the taxpayer for at least three years from the date on which the investment is made.
5. Within one month after the end of the reporting year, the enterprise receiving the investment must provide the investor with documents confirming that the funds received have been expended for their intended purpose, including sale and purchase agreements, acceptance and handover certificates, payment orders, statements issued by payment service providers, and other relevant documents. For the purposes of this provision, the amount deductible by the taxpayer from taxable income shall be limited to the portion of the investment amount actually expended by the recipient of the investment.
6. In respect of investments to be made in innovation and technological innovations in industrial parks, the relevant supporting document shall be issued by the body (institution) designated by the relevant executive authority.

Rules for Deducting Expenses Incurred on Scientific Research, Design and Survey, and Experimental Design and Development Works

Under the new rules, operating expenses incurred by taxpayers on a cashless basis in connection with scientific research, design and survey, and experimental design and development works carried out directly by the taxpayers as part of the development of an innovative product, as well as such works commissioned from persons holding a “Startup” certificate, residents of industrial parks, and higher education and scientific research institutions, shall be deductible from the taxpayer’s taxable income for the relevant reporting year for a period of 10 years from 1 January 2027, by applying a coefficient of 2.5. This provision shall not apply to expenses incurred on the acquisition of fixed assets and intangible assets.

Where the commissioning party and the person performing the scientific research, design and survey, and experimental design and development works are considered mutually dependent persons under Article 18 of this Code, the coefficient of 2.5 provided for above shall not apply to transactions carried out between them.

The scope and categories of eligible expenses, as well as the procedure and rules for confirming the consequences of technological and industrial failures, shall be approved by the body (institution) designated by the relevant executive authority.

Depreciation

Depreciation deductions for separately accounted-for machinery, equipment and computing equipment used in scientific research, design and survey, and experimental design and development works may be deducted from income for a period of 10 years from 1 January 2027 by applying a coefficient of 2 to the depreciation rates prescribed for machinery and equipment and for computing equipment that constitutes a high-technology product.

2.3. VAT Exemptions

Pursuant to Article 164.1.65, which has been newly added to the Tax Code, cloud computing, infrastructure, platform and software services, as well as application programming interface (API) services, obtained by taxpayers holding a “Startup” certificate from non-resident persons that do not have a permanent establishment in the Republic of Azerbaijan, directly for the purposes of carrying out their own activities, shall be exempt from VAT for a period of 20 years from 1 January 2027, without being treated as royalties for the purposes of Article 13.2.23 of the Tax Code.

The above exemption shall not apply where the services obtained are resupplied by the taxpayer to other persons.

2.4. Place of Supply of Services for VAT Purposes

Following the amendments to Article 168, the place of supply of the following services shall be deemed to be the place where the recipient of the services is located, registered or established or, where the services are directly connected with the recipient’s permanent establishment, the place where that permanent establishment is located:

• the provision of services by means of computers, the internet and other electronic networks, electronic mail and other similar means, or the granting of the right to use such networks or services;
• the remote administration of such networks, systems and software through electronic networks;
• remote technical support, digital maintenance and the provision of software-level continuity for such networks, systems and software.

This rule shall not apply to installation, operation, maintenance and repair works that require direct physical intervention on site in respect of hardware, equipment and networks.

3. Tax Incentives for Highly Skilled Migrants (Digital Nomads)

Income derived abroad, with effect from 1 January 2027 and for a period of 20 years, by highly skilled migrants referred to in the Migration Code of the Republic of Azerbaijan under employment contracts concluded with non-resident persons located or registered outside the territory of the Republic of Azerbaijan shall be exempt from income tax.

4. Tax Incentives Relating to Employee Share (Equity) Ownership Plan Agreements

Income (benefit) derived from shares (participatory interests) acquired free of charge or on preferential terms under employee share (equity) ownership plan agreements, as well as income derived from the transfer to other persons of assets (participatory interests or shares) acquired under such agreements, shall be exempt from income tax for a period of 10 years starting from 1 January 2027.

The application of the aforementioned exemption shall be subject to the following conditions:

• the enterprise whose participatory interest (shares) is acquired and transferred must be a resident of a technology park and must not engage in activities outside the scope of the activities of the technology park;
• the employee acquiring the participatory interest (shares) must have been employed by the enterprise for at least one year;
• the value of the participatory interest (shares) eligible for tax exemption shall be deemed to be the amount proportionate to the value of the net assets attributable to that participatory interest (shares), excluding any increase resulting from the revaluation of the enterprise’s assets.