The Double Taxation Agreement (DTA) between the Republic of Azerbaijan and the Republic of Turkey came into force on January 1, 1998. This agreement is designed to eliminate double taxation of income earned by individuals and businesses across both countries, while promoting cross-border trade and investment. This blog outlines the key terms of the DTA, its practical benefits, and how it applies to taxpayers in Azerbaijan and Turkey.
What Is the Purpose of the Azerbaijan-Turkey Tax Treaty?
The agreement aims to avoid double taxation on the same income and prevent tax evasion. It applies to residents of either country who earn income in the other, and it provides clear rules for taxing different types of income, including employment, dividends, royalties, interest, and capital gains.
Which Taxes Are Covered?
In Azerbaijan, the treaty applies to:
- Personal income tax
- Corporate profit tax
In Turkey, it applies to:
- Income tax
- Corporate tax
- Surcharges collected with these taxes
Withholding Tax Rates Under the Agreement
| Type of Income | Maximum Tax Rate in Source Country |
|---|---|
| Dividends | 12% |
| Interest | 10% |
| Royalties | 10% |
Main Benefits for Residents of Azerbaijan and Turkey
- Prevention of income being taxed twice
- Lower withholding taxes on dividends, interest, and royalties
- Relief through tax credits or exemptions
- Better conditions for business investments between both countries
- Clear rules for determining residency and permanent establishment
Who Can Use the Agreement?
Any individual or legal entity that is a resident of either Azerbaijan or Turkey and earns income in the other country can benefit from the DTA.
Frequently Asked Questions (FAQ)
| Question | Answer |
|---|---|
| What is the main purpose of the agreement? | To prevent double taxation and support economic cooperation between the two countries. |
| Which types of income are covered? | Employment, business profits, dividends, royalties, interest, and capital gains. |
| What is the dividend withholding tax rate? | A maximum of 12% in the source country. |
| What is the interest withholding tax rate? | 10% maximum. |
| Are royalties taxed? | Yes, up to 10% in the source country. |
| Is tax relief available for residents? | Yes, through exemptions or credits depending on the income type. |
| Does the treaty apply to government employees? | Yes, special provisions apply for public officials and pensions. |
| How are disputes resolved? | Through a mutual agreement procedure between the two tax authorities. |
| What if an individual is a resident of both countries? | Residency is determined by the location of permanent home, center of vital interests, or citizenship. |
| Are students and teachers exempt? | Yes, under certain conditions, students and teachers may be exempt from taxes in the host country. |
Conclusion
The Double Taxation Agreement between Azerbaijan and Turkey plays a key role in facilitating trade, protecting taxpayers, and attracting investment between the two countries. Whether you are an individual earning cross-border income or a business expanding operations, the DTA provides clarity, fairness, and financial relief.
Reach out to ACON Consulting for expert legal and tax advisory on cross-border operations between Turkey and Azerbaijan.
