Withholding tax in Azerbaijan is a mechanism where taxes are deducted directly at the source of payment by a tax agent, without deducting any expenses. This process ensures that taxes are collected immediately when income is paid, simplifying compliance for both payers and the tax authorities.
How Withholding Tax Works in Azerbaijan
Under the Tax Code of Azerbaijan, withholding taxes are deducted not by the income recipient but by the payer (tax agent), who is already registered with the tax authorities. Tax agents can be legal entities or registered individual entrepreneurs. The payer is responsible for calculating, declaring, and transferring the withheld tax to the state budget.
Withholding Tax Rates in Azerbaijan
The rate depends on the type of income. Below is a detailed breakdown of withholding tax rates and rules for different income categories.
1. Dividends
- Dividends paid by a resident company are subject to a 10% withholding tax.
- Once tax is withheld, no additional tax is levied on that income.
- Special exemptions apply to certain oil & gas agreements and cases specified by the President of Azerbaijan.
2. Interest Income
- Interest on loans, deposits, and similar payments – 10% withholding tax.
- Interest on individual deposits in local banks is exempt from tax for a 7-year period (from 2016).
- If the income recipient is a legal entity, withheld tax can be offset against their corporate income tax liability.
3. Rental Income and Royalties
- Rental payments and royalties – 14% withholding tax.
- Rental of municipal land is exempt from withholding tax.
4. Non-Resident Income
Withholding tax applies to various types of non-resident income sourced in Azerbaijan:
| Income Type | Withholding Tax Rate |
|---|---|
| Dividends | 10% |
| Interest | 10% |
| Insurance payouts | 4% |
| International transport and telecom services | 6% |
| Royalties and rental payments | 14% |
Double Taxation Treaties (DTT) Benefits
Azerbaijan has signed numerous double taxation treaties which may reduce or eliminate withholding tax on certain types of income. To benefit, the taxpayer must provide officially confirmed documents in accordance with administrative rules. By clicking the links below, you can explore our blogs that cover certain bilateral international agreements, specifically treaties on the elimination of double taxation:
- Double Taxation Agreement Between Azerbaijan and Turkey
- Double Taxation Agreement Between China and Azerbaijan
- Double Taxation Agreement Between Azerbaijan and Switzerland
- Double Taxation Agreement Between Azerbaijan and the United Kingdom
Why You Need Professional Withholding Tax Services in Azerbaijan
- Correct application of withholding tax rates under Azerbaijani law.
- Preparation and submission of withholding tax returns.
- Utilizing available tax exemptions and treaty benefits.
- Ensuring compliance and avoiding penalties.
