Managing employment in Azerbaijan involves navigating a specific set of tax obligations for both employers and employees. The country's tax system, overseen by the State Tax Service, requires employers to correctly calculate, withhold, and remit various contributions and income taxes based on employee compensation. Understanding these requirements is crucial for compliance and smooth operations when employing staff in Azerbaijan.
Employers in Azerbaijan are responsible for several payroll-related taxes and contributions. These primarily include state social protection contributions, unemployment insurance contributions, and mandatory health insurance contributions. The calculation basis for these contributions is typically the gross salary and other taxable payments made to the employee.
Employer Social Security and Payroll Tax Obligations
Employers are required to contribute to the State Social Protection Fund (SSPF) on behalf of their employees. The rates vary depending on the sector (oil/gas and non-oil/gas) and the employee's income level.
State Social Protection Contributions (SSPF) - Employer Portion (2025)
| Sector | Monthly Income (AZN) | Employer Rate (%) |
|---|---|---|
| Non-Oil/Gas | Up to 8,000 | 22 |
| Non-Oil/Gas | Exceeding 8,000 | 15 |
| Oil/Gas & State | All Income | 22 |
- Calculation: The rate is applied to the gross monthly salary. For non-oil/gas sector employees earning over 8,000 AZN, the 22% rate applies to the first 8,000 AZN, and the 15% rate applies to the amount exceeding 8,000 AZN.
Employers also contribute to the Unemployment Insurance Fund.
Unemployment Insurance Contributions - Employer Portion (2025)
| Sector | Employer Rate (%) |
|---|---|
| All Sectors | 0.5 |
- Calculation: Applied to the gross monthly salary.
Mandatory health insurance contributions are also required.
Mandatory Health Insurance Contributions - Employer Portion (2025)
| Monthly Income (AZN) | Employer Rate (%) |
|---|---|
| Up to 8,000 | 2 |
| Exceeding 8,000 | 1 |
- Calculation: The rate is applied to the gross monthly salary. For income exceeding 8,000 AZN, the 2% rate applies to the first 8,000 AZN, and the 1% rate applies to the amount exceeding 8,000 AZN.
Income Tax Withholding Requirements
Employers are responsible for withholding personal income tax (PIT) from employee salaries and other taxable benefits. The PIT rates are progressive for non-oil/gas sector employees and flat for oil/gas sector and state-funded entity employees.
Personal Income Tax (PIT) Rates (2025)
| Sector | Monthly Income (AZN) | Tax Rate (%) |
|---|---|---|
| Non-Oil/Gas | Up to 8,000 | 0 |
| Non-Oil/Gas | Exceeding 8,000 | 14% on the amount exceeding 8,000 AZN |
| Oil/Gas & State | Up to 2,500 | 14 |
| Oil/Gas & State | Exceeding 2,500 | 350 AZN + 25% on the amount exceeding 2,500 AZN |
- Calculation: PIT is calculated based on the gross monthly income, after considering any applicable deductions or allowances. The employer withholds this amount and remits it to the tax authorities.
Employee Tax Deductions and Allowances
Employees are also subject to contributions and income tax withholding. Employers must deduct these amounts from the employee's gross salary.
State Social Protection Contributions (SSPF) - Employee Portion (2025)
| Sector | Monthly Income (AZN) | Employee Rate (%) |
|---|---|---|
| Non-Oil/Gas | Up to 8,000 | 3 |
| Non-Oil/Gas | Exceeding 8,000 | 10 |
| Oil/Gas & State | All Income | 3 |
- Calculation: Applied to the gross monthly salary. For non-oil/gas sector employees earning over 8,000 AZN, the 3% rate applies to the first 8,000 AZN, and the 10% rate applies to the amount exceeding 8,000 AZN.
Unemployment Insurance Contributions - Employee Portion (2025)
| Sector | Employee Rate (%) |
|---|---|
| All Sectors | 0.5 |
- Calculation: Applied to the gross monthly salary.
Mandatory Health Insurance Contributions - Employee Portion (2025)
| Monthly Income (AZN) | Employee Rate (%) |
|---|---|
| Up to 8,000 | 2 |
| Exceeding 8,000 | 1 |
- Calculation: The rate is applied to the gross monthly salary. For income exceeding 8,000 AZN, the 2% rate applies to the first 8,000 AZN, and the 1% rate applies to the amount exceeding 8,000 AZN.
Employees may be eligible for certain deductions that reduce their taxable income for PIT purposes. A common deduction is the monthly non-taxable minimum income threshold.
Monthly Non-Taxable Minimum Income (2025)
| Type | Amount (AZN) |
|---|---|
| Standard Monthly Non-Taxable Minimum | 200 |
| For certain categories (e.g., refugees) | 400 |
- Application: This amount is deducted from the gross monthly income before calculating PIT, provided the employee is eligible. The employer applies this deduction during payroll processing.
Tax Compliance and Reporting Deadlines
Employers are required to file monthly tax reports and make timely payments of withheld PIT and employer/employee contributions.
- Monthly Reporting: Employers must submit a unified monthly declaration covering PIT, SSPF, unemployment insurance, and health insurance contributions.
- Payment Deadline: Payments for all monthly taxes and contributions are typically due by the 15th day of the month following the reporting month.
- Annual Reporting: Employers also have annual reporting obligations, summarizing the total compensation paid and taxes withheld for each employee.
Accurate record-keeping and timely filing and payment are essential to avoid penalties.
Special Tax Considerations for Foreign Workers and Companies
Foreign individuals working in Azerbaijan are generally subject to the same income tax rules as Azerbaijani citizens if they are considered tax residents. Tax residency is typically determined by physical presence in the country for more than 182 days within a 12-month period.
- Tax Residency: Non-residents are generally taxed only on their Azerbaijan-source income, often at a flat rate (e.g., 14% on employment income). However, specific rules may apply based on double tax treaties between Azerbaijan and the individual's home country.
- Employer Registration: Foreign companies employing individuals in Azerbaijan, even without a permanent establishment, may be required to register as a tax agent for payroll purposes to fulfill withholding and reporting obligations.
- Permanent Establishment (PE): If a foreign company's activities in Azerbaijan create a PE, it becomes subject to corporate income tax in Azerbaijan, in addition to its payroll obligations as an employer. The definition of PE is based on the Tax Code and relevant double tax treaties.
- Social Security: Foreign employees working for a local entity or a registered foreign employer are generally subject to Azerbaijani social security contributions unless an international social security agreement provides an exemption.
Navigating these nuances requires careful consideration of the foreign worker's residency status and the foreign company's presence and activities in Azerbaijan.
