Double Taxation Agreement Between Azerbaijan and Saudi Arabia

The Double Taxation Agreement (DTA) between the Government of the Republic of Azerbaijan and the Kingdom of Saudi Arabia is a legal instrument designed to ensure that individuals and companies do not face double taxation on the same income or assets in both countries. This agreement is part of Azerbaijan’s broader strategy to attract foreign investment and strengthen economic relations with Gulf nations, especially Saudi Arabia, which remains one of the key economic players in the region.

The DTA involves tax transparency, aligns with international standards recommended by the OECD, and facilitates cross-border trade, services, and investments.

Scope and Key Objectives

The agreement applies to residents (both individuals and legal entities) of either Azerbaijan or Saudi Arabia who earn income or own assets in the other country. The DTA specifically covers:

• Income taxes imposed by the central or local governments;
• Corporate profit taxes and personal income taxes;
• Property and land taxes in Azerbaijan;
• Zakat and income taxes in Saudi Arabia, including taxes related to petroleum and natural gas investment income.

The main objective is to eliminate the risk of double taxation by ensuring that income or wealth is taxed in only one of the contracting states or that tax credits are granted where both countries have taxation rights.

Withholding Tax Limits

To facilitate investment and financial flows between the two countries, the agreement limits the withholding tax rates that can be applied on cross-border payments such as dividends, interest, and royalties:

Type of Income	Maximum Withholding Tax Rate
Dividends	5% or 7% depending on the level of shareholding or governmental ownership
Interest	7% for most cross-border interest payments
Royalties	10% for payments related to copyrights, patents, trademarks, or technical services

Permanent Establishment and Business Profits

A business entity from Azerbaijan or Saudi Arabia will be taxed in the other country only if it operates through a permanent establishment (PE) such as an office, branch, construction site, factory, or oil platform that exists in that country for more than 6 months.

Only the profits that are attributable to the PE are subject to tax in the host country. This means that cross-border businesses can avoid additional tax burdens if they do not maintain a fixed business presence in the other country.

Capital Gains

Under the DTA, capital gains arising from the sale of immovable property (e.g., land, real estate) are taxed in the country where the property is located. Gains from the sale of shares or interests in a company may also be taxed if the value of those shares is primarily derived from real estate.

However, capital gains from the sale of ships or aircraft operated in international traffic are only taxable in the country where the operator’s place of effective management is located.

Special Provisions

• Teachers and Researchers: Temporary tax exemptions may apply for educational or scientific work conducted under government agreements.
• Students and Trainees: Income received from abroad to support education is generally not taxed in the host country.
• Pensions and Government Remuneration: Public pensions and salaries are typically taxed only in the paying country unless the recipient is also a resident and citizen of the other country.
• Artists and Athletes: Taxation occurs in the country where the performance takes place, even if the income is paid to a third party or agency.

Exchange of Information

One of the cornerstones of the agreement is the automatic and on-request exchange of tax information between tax authorities. This provision ensures transparency, combats tax evasion, and helps both governments enforce domestic tax laws more effectively.

Dispute Resolution

If a taxpayer believes that they are being taxed unfairly or contrary to the provisions of the treaty, the DTA provides a Mutual Agreement Procedure (MAP). Through MAP, the tax authorities of Azerbaijan and Saudi Arabia can work together to resolve disputes without the need for litigation.

 

Conclusion

The Double Taxation Agreement between Azerbaijan and Saudi Arabia plays a crucial role in encouraging cross-border investment, protecting residents from double taxation, and aligning both countries with global tax transparency standards. At ACON Consulting, we help clients navigate the legal and tax part of international treaties like the Azerbaijan–Saudi Arabia DTA.

Residents, companies, and investors in either country earning income from the other.

Yes, Zakat is covered under Saudi Arabia’s tax obligations in the DTA.

No, it’s taxed in the source country with credit in the residence country.

A branch, office, or project lasting more than 6 months.

Yes, when related to immovable property or substantial shareholdings.

Not if sourced from outside the host country.

Generally not—taxed only in the paying country.

Yes, if rendered over 183 days or through a fixed base.

Yes, DTA provisions override local rules where applicable.

Through mutual agreement between tax authorities.