Azerbaijan Tax & Business Guide - Deloitte

Basic facts
Population 8.4m Inflation 11.6% (2005)*
Main languages Azeri, Russian GDP per head US$1,420*
Currency Manat (AZM) GDP growth 21.0% (2005)*
Economic communities Commonwealth of Independent States
GDP sources 10.8% agriculture, 48.7% industry, 40.5% services
*Economist Intelligence Unit.
Political environment

Azerbaijan is a republic. The president is head of state, elected to a five-year term by universal suffrage. The sole chamber, Milli Mejlis, has 125 members, directly elected for a five-year term.

Ilham Aliyev was elected president in October 2003. The president appoints the prime minister (with legislative approval), currently Artur Rasizade. Elections for the Milli Mejlis occurred on November 6th 2005, with the presidentÌs party retaining its majority. A presidential election is scheduled for October 2008.
Foreign trade and investment
Exports US$6.0bn (2005)* Imports US$4.7bn (2005)*
*Economist Intelligence Unit.

Major exports: Oil and refined oil products.

Main export markets: Italy has been the largest export market since 1999, when large-scale oil exports began. Other significant export markets for oil are France and Israel.

Although Azerbaijan has greatly reduced its dependence on Russia since the Soviet era, the Commonwealth of Independent States is a major source of imports, owing to gas supplies from Russia, Kazakhstan and Turkmenistan.

Azerbaijan ranks 52nd of 60 countries in the Economist Intelligence UnitÌs business environment rankings.
Business and financing
Business forms Joint venture, branch office, foreign-owned Azerbaijani corporate entity

Depending on the business structure, different tax regulations apply.

Foreign investors may operate in Azerbaijan through participation in joint ventures or foreign-owned local corporate entities, or open a branch or representative office in Azerbaijan.
Labour environment
Unemployment rate 1.2% (2005)* Minimum wage AZM 150,000 (monthly)
*Official rate.

The government sets the administrative minimum wage by decree. The president of Azerbaijan signed a decree on September 16th 2005 to increase the monthly minimum wage by 20%, to AZM 150,000, starting from October 1st 2005.

The law protects employeesÌ right to strike and to form unions; strikes, however, are rare.
Taxation
Corporate tax
Tax on enterprises 22% (effective from January 1st 2006)

Taxation occurs at the national and municipal levels. Residents are taxed on their worldwide income, with a credit for foreign tax. Most Azerbaijan-source income of non-residents is taxed. The rate of corporate tax has been decreased from 24% to 22% from January 1st 2006 in accordance with the adoption of the Law on Changes and Amendments to the Tax Code of Azerbaijan on December 17th 2005. The authorities are empowered to impose a minimum tax, taking into account the circumstances of each specific business sector. A 10% withholding tax applies to repatriated profits of foreign companies.
Individual tax
Progressive rates up to 35%

Resident individuals pay tax on worldwide income; non-residents pay tax on Azerbaijan-source income only. A person is resident if present in the country for 183 days in a calendar year. The progressive rates to 35% apply to employment income. Entrepreneurs are taxed at progressive rates to 35%.
Capital gains
Taxed as income

Capital gains are generally taxed as part of income.
Indirect tax
Standard rate 18%

Value-added tax (VAT) applies to most transactions. Exempt items include exports, subway transport, financial services (banking, leasing, etc), mass media (except for advertising), insurance services, and oil and gas companies working under the Production Sharing Agreement taxation regime.
Tax administration and compliance
Tax year Corporations: calendar year; Individuals: calendar year

Enterprises pay corporate income and assets taxes quarterly in advance. VAT is paid and reported on a monthly basis. All enterprises must submit their annual corporate income-tax returns to the tax authorities before March 31st of the year following the relevant tax year. Payroll taxes are withheld and remitted monthly by employers on behalf of their employees.
Additional tax information
Withholding taxes Dividends 10%, Interest 10%, Royalties 14%.
Tax treaties Azerbaijan has concluded more than 15 tax treaties. There is no tax treaty with the US.
Dividends Dividends are taxed by withholding at 10%.
Revenue protection There is no transfer-pricing or anti-haven (CFC) legislation.
Groups There is no provision for group taxation.
Incentives Taxation under the Production Sharing Agreement regime in the oil and gas sector (removed from January 1st 2006).
Other taxes Mining tax, Property taxes, Excise taxes, Customs duties, Land taxes, State duty, Road taxes.