Taxes for Foreign Companies in Azerbaijan: Profit Tax, VAT and Withholding Tax

Short answer: A foreign company operating in Azerbaijan through an LLC or a branch pays 20% profit tax. VAT registration at 18% becomes mandatory once taxable turnover exceeds AZN 200,000 in any 12 consecutive months. Getting profit out costs an extra 5%: on dividends paid by an LLC, and on net profit a branch remits to its head office. Interest paid to a non-resident is subject to 10% withholding tax, royalties to 14%.

Which taxes apply to a foreign company — and which do not

Your tax position depends on how you are present in Azerbaijan. There are three typical situations:

• Local LLC with foreign shareholders — an Azerbaijani tax resident, taxed on worldwide profit. It withholds tax when paying dividends to its shareholders.
• Branch (permanent establishment, PE) — pays 20% profit tax on income attributable to its Azerbaijani activity, net of deductible expenses. Profit remitted to the head office is taxed again at source.
• Foreign company with no PE — tax on its Azerbaijani-source income (interest, royalties, service fees) is withheld by the local payer, on the gross amount with no expense deductions.

This guide covers the general regime for commercial companies. Production sharing agreements, industrial parks and investment promotion certificates follow special rules, and payroll taxes are a separate topic.

Headline rates at a glance

Payments to non-residents: withholding tax

When an Azerbaijani company pays a foreign company — including its own parent — the payer must withhold the tax and remit it to the budget. If it fails to do so, the liability stays with the payer.

Note: Azerbaijan's double tax treaties may reduce these rates. To apply a treaty rate, the payer needs a certificate confirming the recipient's tax residence. Check the specific treaty — rates differ by country and type of income.

VAT: when registration becomes mandatory

• Threshold: registration is mandatory once taxable transactions exceed AZN 200,000 in any 12 consecutive months — not per calendar year.
• Retail and consumer services: from 2026, the threshold in these sectors is AZN 400,000, taking cashless POS-terminal payments into account.
• Rate: the standard rate is 18%.

Services bought from foreign suppliers can trigger a VAT liability in Azerbaijan. Management, IT and consulting fees charged by a parent company deserve a separate review.

LLC or branch: the tax comparison

The headline rates are the same, but the outcome can differ once you factor in deductible expenses, payments to the parent and treaty relief. For the choice of vehicle, see Company Registration in Azerbaijan for Foreign Companies: LLC, Branch or Representative Office?

Six mistakes foreign companies make

1. Not withholding on payments to the parent. Service fees, interest and royalties sent abroad are subject to withholding; unpaid tax and penalties are claimed from the local company.
2. Applying treaty rates without paperwork. A reduced rate without a residence certificate becomes an audit finding.
3. Tracking the VAT threshold by calendar year. It is any rolling 12-month period.
4. Selling through a "representative office". Commercial activity creates a permanent establishment and a 20% profit tax exposure.
5. Ignoring transfer pricing. If related-party prices are off-market, the tax authority can adjust taxable profit.
6. Missing filings in a quiet year. Filing obligations start at registration, whether or not there is turnover.

Frequently asked questions

What is the corporate tax rate in Azerbaijan?
The standard profit tax rate is 20%, for both local companies and permanent establishments of foreign companies.

How much tax is withheld on dividends to a foreign shareholder?
5%, since 1 January 2024. A double tax treaty may provide a different rate.

Is profit remitted by a branch taxed?
Yes. On top of profit tax, 5% is withheld on net profit remitted to the head office — reduced from 10% as of 1 January 2025.

When must we register for VAT?
When taxable transactions exceed AZN 200,000 in any 12 consecutive months (AZN 400,000 for retail and consumer services, subject to the POS-terminal condition).

Can a foreign-owned company use the simplified tax regime?
The simplified regime is for small businesses with turnover up to AZN 200,000 in 12 months. Whether a particular company qualifies depends on its activity and other conditions and needs to be checked case by case.

How we can help

Affidacons helps foreign companies set up their tax structure in Azerbaijan, plan payments to the parent company, apply double tax treaties and stay compliant day to day. See our financial, accounting, audit and tax services, or contact us to discuss your situation.

This article is for general information and is not legal or tax advice. It is based on official State Tax Service announcements and PwC Worldwide Tax Summaries (reviewed 9 January 2026), as of September 2026; legislation and rates may change. Obtain advice on your specific situation before making decisions.