Short answer: An individual who does business without forming a legal entity must register with the tax authority as an individual entrepreneur before starting the activity (Tax Code, Article 33.4); since 2026 the penalty for failing to do so is AZN 200 (Article 58.2). Online registration on e-taxes.gov.az is instant: the certificate showing your taxpayer number (VÖEN) arrives in your online account in real time. An entrepreneur who is not VAT-registered and whose turnover over any 12 consecutive months stays within AZN 200,000 can opt for the simplified tax (2% of turnover for most activities); otherwise income tax is 20% of income less expenses, and from 2026 social insurance is 2% of income, between AZN 60 and AZN 400 a month.
Who must register, and how
Anyone who regularly sells goods, provides services or performs work without forming a legal entity is an individual entrepreneur (fərdi sahibkar). The application must be filed before the business starts (Article 33.4); if it is not, the tax authority registers the person on its own initiative, and from 2026 the penalty for late registration has risen from AZN 40 to AZN 200 (Article 58.2). In addition, a company paying an unregistered individual must withhold tax at 14% (25% on monthly income above AZN 2,500), so corporate clients often insist on a VÖEN.
Individual entrepreneurs are registered by the State Tax Service, and the registration certificate shows the VÖEN (taxpayer number). There are three ways to apply:
- Online – the application is signed on new.e-taxes.gov.az with ASAN İmza or SİMA; registration is immediate and the certificate arrives in your online account.
- ASAN service centres – regardless of where you live.
- Tax office service centres – a paper application is processed within 1 day.
A paper application needs a copy of your ID (for foreigners, a residence permit card), a notarised power of attorney for a representative and notice of any special tax regime. The tax regime is chosen in the application. Business premises, cash registers and POS terminals must also be registered, and licensed activities need a licence. Changes to registration details must be reported within 15 days.
Tax regimes: simplified tax or income tax
| Criterion | Simplified tax | Income tax (general regime) |
|---|---|---|
| Who can use it | Non-VAT payers with turnover up to AZN 200,000 over 12 consecutive months who are not excluded (Article 218) | Any individual entrepreneur |
| Tax base | Gross receipts and non-sales income, no expenses deducted | Annual income less documented expenses |
| Rate | Most activities – 2%; catering with turnover above AZN 200,000 – 8% (6% on cashless POS payments in 2026–2028) | 20% |
| Returns | Quarterly, by the 20th of the month after the quarter, with payment by the same date | Quarterly advance payments within 15 days after the quarter; annual return by 31 March of the following year |
| Best suited to | Low-cost businesses selling to the public | High-cost businesses or those eligible for exemptions |
An entrepreneur on the simplified tax pays neither income tax nor VAT on that activity. However, rental and royalty income, wholesale trade, production of excisable goods, licensed activities and sales of gold and jewellery are excluded. Services must be provided mainly to the public: if services to taxpayers documented by electronic invoices exceed 30% of quarterly turnover, the right is lost from the 1st of the following month. This is the main trap for freelancers serving companies. The regime cannot be changed mid-year: the choice is confirmed each year by 20 April through a return or a written notice.
The income tax regime has exemptions (Article 102): 75% of the income of a micro-entrepreneur with at least 3 employees, and of individuals in fields such as software, design, translation, legal, accounting and education with annual income up to AZN 45,000, is exempt.
Turnover threshold and VAT registration
An entrepreneur whose taxable transactions exceed AZN 200,000 in any 12 consecutive months must apply for VAT registration within 10 days from the 1st of the following month (Article 155.1); where a single contract exceeds AZN 200,000, the application must be filed before the transaction. VAT is charged at 18%, and once VAT-registered you can no longer use the simplified tax.
The key change for 2026: cashless POS payments for retail sales and for services to non-registered persons (the public) count at a 0.5 coefficient when measuring turnover for both the simplified tax and the VAT threshold (Article 155.1-1). For example, if AZN 140,000 of a AZN 260,000 turnover was paid by POS, only AZN 190,000 counts and the simplified tax remains available. Press reports that the VAT threshold had been raised to AZN 400,000 did not make it into the law: the threshold remains AZN 200,000; only the way cashless turnover is counted has changed.
For the VAT registration steps and obligations in detail, see VAT registration in Azerbaijan: threshold, deadlines and obligations.
Social insurance, health insurance and cash registers
Following an amendment to the Law on Social Insurance, from 1 January 2026 an individual entrepreneur's own compulsory state social insurance contribution is 2% of income (before expenses), but no less than 15% and no more than 100% of the minimum monthly wage. With the minimum wage at AZN 400, that means AZN 60–400 a month: AZN 100 on income of AZN 5,000 and AZN 400 on AZN 25,000. The old rule (25% or 50% of the minimum wage) no longer applies. In addition, compulsory health insurance of 4% of the minimum wage (AZN 16) is due monthly. Both are paid by bank transfer by the 15th of the following month, with a single return filed by the 20th of the month after each quarter. If you hire staff, each employment contract must be registered electronically before work starts.
Cash registers: retail, catering, hotels, medical services, barbershops and beauty salons must take payments through an online e-kassa (with some exceptions). Failing to use one or refusing card payments attracts penalties; check the requirement for your activity in the tax authority's "unified standards".
Individual entrepreneur or LLC
| Criterion | Individual entrepreneur | LLC |
|---|---|---|
| Liability for debts | Personal assets | Company assets |
| Tax under the general regime | 20% income tax on income | 20% profit tax on profit; dividends taxed separately |
| Social insurance | 2% of own income (AZN 60–400) | On salaries of the director and staff |
| Partners, investors | Not possible | Shares can be split and sold |
| Closing down | Deregistration from the tax register | Liquidation procedure |
For a one-person business with low risk and low costs, being an individual entrepreneur is simpler. Where there are partners, investors, large contracts or significant risk, an LLC is usually the better fit – see setting up a legal entity. An individual entrepreneurship does not convert into an LLC automatically.
Closing an individual entrepreneurship
To stop trading, file an application for deregistration from the tax register together with your registration certificate (Article 34). Before that, all returns must be filed, tax and insurance debts paid and the cash register deregistered; the tax authority may carry out a final audit. A separate application exists to suspend activity temporarily. Simply stopping work is not enough: obligations may keep arising while you remain registered.
- Check your type of activity and whether it needs a licence or a cash register.
- Choose a tax regime based on turnover, costs and your client mix (public or companies).
- Obtain ASAN İmza or SİMA and sign the registration application on e-taxes.gov.az.
- Register your premises, cash register and POS terminal.
- Open a bank account and pay social and health insurance monthly.
- Put quarterly and annual filing dates in the calendar and track 12-month turnover.
Frequently asked questions
Is registering as an individual entrepreneur free?
No state duty is charged for tax registration; online registration requires a qualified e-signature (ASAN İmza or SİMA).
I provide IT services to companies. Can I use the simplified tax?
Only if services to taxpayers documented by electronic invoices do not exceed 30% of quarterly turnover. Otherwise the income tax regime applies; if annual income is up to AZN 45,000, 75% of it may be exempt.
Do I pay social insurance in a month with no income?
The law sets a minimum monthly contribution (AZN 60); where there is no activity, a statement is filed with the tax authority. For a long break it is advisable to formally suspend the activity or deregister.
What happens if my turnover exceeds AZN 200,000?
You must apply for VAT registration within 10 days from the 1st of the month after the threshold is exceeded, and you lose the right to the simplified tax. Cashless POS payments for retail and services to the public count at half their value.
Can a foreigner be an individual entrepreneur?
Yes, a holder of a temporary or permanent residence permit can be registered; immigration status is governed by separate rules – see work and residence permits.
How we can help
Affidacons helps individual entrepreneurs and new businesses choose the legal form (sole trader or LLC), compare tax regimes, draft client and service contracts, hire staff and wind down their activity; on tax registration matters we work alongside accountants. Learn more about our corporate and commercial advisory service or contact us.
This article is general information and does not constitute legal advice. It is based on Articles 33.4, 34, 58.2, 102, 155.1, 155.1-1 and 218 of the Tax Code of the Republic of Azerbaijan (including the amendments of 9 December 2025), the 2026 amendment to the Law on Social Insurance and the State Tax Service's 2026 guidance booklets (November 2026); legislation may change. Obtain advice on your specific circumstances before acting.
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