SIGNIFICANT DEVELOPMENTS
A new Tax Code is effective in the Azerbaijan Republic form January 1,2001.
TERRITORIALITY AND RESIDENCE
A resident is defined as a person actually staying in the territory of the Azerbaijan Republic for more than 182 cumulative days(regardless of the duration of stay within a day) during any consecutive 12-month period ended in a calendar year.
The stay of officials with a diplomatic or consular status, employees of international organizations, or foreign nationals engaged in state service of foreign states, as well as their families, will not be regarded as a period of stay in the territory of the Azerbaijan Republic, unless these persons are engaged in entrepreneurial activities in Azerbaijan.
A physical person who stays both in the territory of the Azerbaijan Republic and in a foreign country for less than 182 days will be considered a resident of the Azerbaijan Republic according to the criteria outlined below, in order of consideration.
1.Place of permanent residence.
2.Center of vital interests.
3.Regular place of residence.
4.Citizenship of the Azerbaijan Republic.
Residents (including expatriate employees) are subject to tax for the respective calendar year on their worldwide income.
Nonresidents are subject to tax only on income received from sources within the Azerbaijan Republic.
GROSS INCOME
Income from employment/The taxable base includes the following items of employment compensation.
1.Base salary and any overtime payments.
2.Hardship and cost-of -living allowances.
3.Allowances for children’s education.
4.Payment of family members’ travel expenses on business trips.
5.Payment of Azeri tax on behalf of the employee.
6. Certain benefits provided by the employer (gifts, reimbursement of expenses, writing off of the employee’s debt).
The taxable base does not include the following items.
1.Amounts paid by the employer for state or government social insurance or pensions
2.Provision of living accommodation (e.g., payment for an apartment by the company).
3.Reimbursed business trip expenses (e.g., travel, accommodation, meals).
For reporting purposes, foreign-currency income must be converted to manats using the National Bank of Azerbaijan’s official rate on the date it is received.
TAX CREDITS
Income tax paid by Azerbaijan tax residents in accordance with the legislation of a foreign state (e.g., taxes withheld by employer in home country) will generally reduce the Azeri taxes due on such income.
To provide further protection from double taxation, the personal income tax law is subordinated to double taxation treaties that are properly in force. However, the Azerbaijan Republic does not recognize any of the double taxation treaties of the former U.S.S. R., except for the treaty with Germany. Currently, Azerbaijan has signed and ratified treaties with Georgia, Kazakhstan, Moldova, Norway, Pakistan, Poland, Russia, Turkey, the United Kingdom, and Uzbekistan.
TAX ADMINISTRATION
Tax returns/ Resident physical persons having income that was not taxed at the source, as well as those deriving income outside of the Azerbaijan Republic, should file an income tax return by April 15 of the year following the reporting year.
Nonresidents who were not taxed at source should file returns by April 1.
Payment of tax/ Income other than employment income I taxed according to the annual tax rates. Residents must pay current tax payments by the 15th day of the month following the end of the calendar quarter. Payments are determined either as 25% of tax for the past fiscal year or by multiplying the amount of actual income through the quarter by a ratio representing
a specific weight of tax in gross income for the past year.
Final tax payment is due by the date of filing the return, that is, April 15.
Income from employment should be subject to withholding tax at source of payment using the monthly tax rates.
TAX RATES
The Tax Code provides for a monthly tax table (for employment income) and an annual tax table (all other income) The maximum marginal rate under these tax rate schedules is 35%.
Taxable Amount of taxable Rate
Monthly income income during a year tax
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