Withholding taxes are not listed as type of taxes by the Tax Code of Azerbaijan, it is rather a form of paying a tax due to income. The income of non-resident legal entities and private individuals obtained from a source in Azerbaijan shall be withheld, i.e. deducted at source and paid to the state treasury by the resident taxpayer. Moreover, the Tax Code specifies certain cases where the resident taxpayer is required to deduct the income of private individuals at the source while processing the payment within Azerbaijan.
Withholding taxes in Azerbaijan may be classified as follows:
Withholding taxes of non-residents (foreign companies): to be deducted by resident taxpayers from the income of non-residents deriving from Azerbaijani sources;
Withholding taxes within Azerbaijan: to be deducted by resident taxpayers from the income of non-taxpayers (persons without tax registration) in Azerbaijan.
1. Dividends – 10%. The resident legal entity shall deduct 10% of dividends at the source while distributing among shareholders. Private individual shareholders of joint-stock companies are exempt from dividend tax until 1 February 2023;
2. Payments from permanent establishments to non-resident head offices – 10%. Similar to dividend tax, payments by the permanent establishment of a non-resident in Azerbaijan from net profit to the non-resident (head office) are subject to 10% withholding tax.
3. Interests – 10%. The resident legal entity or permanent establishment in Azerbaijan shall deduct 10% of the interests over loans or financial leasing payments, with the exception of interests paid to resident credit institutions and resident financial leasing entities, as well as, Azerbaijani permanent establishments of non-resident credit institutions and financial leasing entities.
4. Insurance premiums – 4%. Resident legal entities and private entrepreneurs shall deduct 4% of insurance premiums for insurance or re-insurance of risk.
5. International transportation and telecommunication - 6%. Resident legal entities and private entrepreneurs shall deduct 6% of payments made for international transportation and international telecommunication services.
6. Income from Azerbaijani source – 10%. The income of non-resident legal entities and private entrepreneurs from providing services or performing works and other income from sources in Azerbaijan shall be subject to 10% withholding tax. In practice, most of the withholding taxes for services are in Azerbaijan are subject to this clause, even where the services are provided outside of Azerbaijan – since the source of income or profit is Azerbaijan, withholding tax for services are deducted.
7. Rental fees – 14%. Rental fees received due to movable property used in Azerbaijan and immovable property located in Azerbaijan would be subject to 14% withholding tax.
8. Royalty – 14%. Payments received from royalties is subject to 14% withholding tax.
9. Payments to electronic money accounts – 10%. Banks shall deduct 10% of funds transferred to electronic money accounts provided by non-residents.
10. Payments to bank accounts in low-tax jurisdictions – 10%. Payments from residents and permanent establishment of non-residents in Azerbaijan to bank accounts, including legal entities registered in low-tax jurisdictions or branches and representative offices of such legal entities in third countries shall be subject to additional 10% withholding tax. The list of low-tax jurisdictions is annual approved by the President of Azerbaijan.
1. Dividends – 10%. Azerbaijan Tax Code does not prescribe any differing regulation in this regard and the provision explained above are applicable here as well.
2. Interests– 10%. Azerbaijan Tax Code does not prescribe any differing regulation in this regard and the provision explained above is applicable here as well.
3. Salary of Employees:/income of non-taxpayers The Employer shall deduct 14% or 25% of payments made to employees as wages, awards and any other similar income. For details about income tax of employees, please refer to our article here.
4. Rental fee – 14%. The registered taxpayer shall deduct 14% from the rental fee if the recipient of such fee has no tax registration in Azerbaijan. Where the lessee is not registered for tax purposes (is neither legal entity, nor private entrepreneur), 14% tax shall be paid by the lessor (landlord) in case (s)he is individual person. Legal entities pay ordinary 20% corporate profit tax from the rental income.
5. Royalty – 14%. Payments received from royalties is subject to 14% withholding tax.
6. Income tax from the sale of real estate: Here, special calculation applies. Notaries and auction organizers registering the sale of real estate shall deduct income from such sale as per the rates specified by the Tax Code.