AZERBAIJAN
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Azerbaijan Payroll and Employer of Record: Employment Contracts
Business Visa
In order to obtain a business visa, applicants must provide a letter of invitation from a legal entity registered in Azerbaijan that has been accepted and verified by the Consular Department of the Ministry of Foreign Affairs. The business visa is valid for one month or multiple entries totaling 180 days.
Work Permit
To work in Azerbaijan, expatriates need a work permit. The required documentation includes a copy of the employee’s passport valid for at least six months after arrival, a document certifying the employee’s right to stay in Azerbaijan, and a reference confirming the necessity for a specialized worker. The work permit is valid for 1 year. The duration of the work permit can be extended for 1 year each time.
The main condition for foreigners and stateless persons to engage in paid labor activity in the Republic of Azerbaijan is the availability of vacant job positions not claimed by a citizen of the Republic of Azerbaijan with professional education or specialization in accordance with the requirements of the enterprise. From 2024 on wards, every year the Migration Service must be informed about the quota of employees who need a work permit for the coming year by employers.
PAID TIME OFF
Annual Vacation
Employees above the age of 18 are entitled to a minimum annual leave of 21 days or 30 days depending on their position within the organization. The employee is entitled to their leave 6 months after their start date of employment.
Annual leave can be divided into various leave periods, but one of them must be two weeks in length.
This entitlement increases according to the number of years of employment within a company, as follows:
- 5–10 years of service: an additional 2 days per year.
- 10-15 Years of Service: an additional 4 days per year.
- 15 or more years of service: an additional 6 days per year.
Sick
Employees who are unable to work due to illness will be compensated in full by their employer for the first 14 days; beyond that, the State Social Protection Fund will make the payments. To claim sick pay benefits, the employee has to submit a medical certificate.
Sick leave does not have a set maximum number of days. However, depending on the type of illness, the common limit is 365 days.
Maternity
Women are entitled to a total of 126 days of maternity leave, 70 days prior to the child’s due date and 56 days after birth. If the birth is difficult or if two or more children are born, the maternity leave is extended for 70 calendar days.
Maternity pay is computed at 100% of the average of the mother’s previous 12 months’ income payments and is paid by the State Social Protection Fund.
One of the parents or another member of the family caring for the child is entitled to partial paid social leave with a legally prescribed amount of allowance to provide care until the child reaches the age of three.
Paternity
Many employers choose to pay employees on paternity leave; however, fathers are entitled to 14 days of unpaid paternity leave following the birth of their child.
Family
There are many stipulations regarding parental rights such as:
- Women with two children under 14 are eligible for two extra days of paid leave, while those with three or more children are entitled to five extra days.
- A woman or single father with children under the age of 16 is entitled to 14 days of unpaid leave per year.
- Female employees who adopt children under two months of age are eligible for 56 calendar days of social leave.
National Holidays
There are 24 public holidays in Azerbaijan.
Other Paid Time Off
Employees pursuing doctoral studies may be granted paid creative leave to complete their thesis work and also to write textbooks or course materials for authors. The following paid educational leaves are granted to employees who continue their education:
- to attend lectures, perform laboratory work, take examinations and tests during the relevant training period;
- to take state examinations;
- to prepare and defend the thesis project
Employees who donate blood are also granted an additional day’s leave at an average wage; this day is typically added to the annual leave entitlement.
STATUTORY EMPLOYEE BENEFITS
Unemployment
Effective 1 January 2018, the Unemployment law has been enacted. Each employer and employee must contribute 0.5% of the gross monthly salary.
Workers Compensation
The employer bears the total cost. Rates will vary depending on the industry and risk classification. Employees must be assessed for work injuries or occupational diseases.
Social Security
Effective 1 January 2019, the mandatory social security contribution rates are set as below :
- For employment income other than oil, gas and government sectors :
| Amount of income | Employee contribution | Employer contribution |
| Up to AZN 200 | 3% | 2% |
| Above AZN 200 | AZN 6 + 10% of the amount over AZN 200 | AZN 44 + 15% of the amount over AZN 200 |
- For employment income in the oil, gas and government sectors –
Employee: 3%
Employer: 22%
Expats are also subject to social security contributions at these rates ( except those with diplomatic status and expats working under PSAs ).
Retirement
Covered under the Social Security Scheme.
Health
The introduction of mandatory medical insurance came into effect 1 January 2021.
The contributions are as follows :
| Amount of income | Employee contribution | Employer contribution |
| Up to AZN 8000 | 2% | 2% |
| Above AZN 8000 | AZN 160 + 0.5% of the amount over AZN 8000 | AZN 160 + 0.5% of the amount over AZN 8000 |
Expats operating under PSAs are exempted from Mandatory Medical Insurance Contributions.
PRIVATE EMPLOYEE BENEFITS
Workers Compensation
Private insurance companies offer workers’ compensation insurance policies designed to complement the state-provided social insurance schemes.
Retirement
Besides the state pension system, there are private pension funds that employees can contribute to for additional retirement savings.
Health
Besides the state health insurance system, there are private health insurance policies that employees can contribute to for additional benefits.
Insurance
Private insurance companies offer life insurance policies in Azerbaijan.
PERSONAL INCOME TAX
Tax Year
The tax year is a calendar year.
Tax Tables
Effective 1 January 2029, the following income tax rates apply :
- For employment income other than oil, gas and government sectors –
| Monthly income | Tax Rate |
| Up to AZN 8000 | 0% |
| Above AZN 8000 | 14% |
- For employment income in the oil, gas and government sectors –
| Monthly income | Tax Rate |
| Up to AZN 2500 | 14% |
| Above AZN 2500 | AZN 350 + 25% of the amount above AZN 2500 |
Taxation Method
Azerbaijan uses a combination of flat and progressive tax rates for personal income.
This will depend on residency status and income levels.
Double Taxation
Azerbaijan has multiple double tax treaties (DTTs).
Residence Requirements
Persons who reside in Azerbaijan for more than 182 days in a calendar year are considered residents.
A physical person who stays in Azerbaijan or in a foreign country for less than 182 days is deemed an Azerbaijani resident based on the following requirements:
- Place of permanent residence.
- Center of key interests.
- Regular location of residence.
- Citizenship in Azerbaijan.
Officials with diplomatic or consular status, employees of international organizations, or foreign nationals engaged in state service for foreign states, as well as their family members, will not be considered tax residents unless they are engaged in entrepreneurial activities in Azerbaijan.
For expat employees in Azerbaijan under PSAs, there are three specific tax residency rules to follow:
- If an expatriate employee remains in Azerbaijan for more than 30 consecutive days in a calendar year for regular business purposes, they are classified as a tax resident, and their income becomes taxable on the 31st day.
- If an expatriate is in Azerbaijan for fewer than 30 consecutive days but more than 90 cumulative days within a calendar year, they are considered a tax resident, and their income becomes taxable after the 90th day.
- Expatriates on rotation or whose main workplace is in Azerbaijan become tax residents if they spend more than 90 cumulative days in the country within a calendar year, with taxes applicable from their first day in Azerbaijan.
Payroll Calendars
Bi-monthly or monthly.
Rebates & Tax Credits
Allowances:
Resident individuals are entitled to a basic personal allowance that reduces their taxable income, which employers automatically apply through payroll. Additionally, employees can claim additional allowances for dependents. The tax authorities define the specific amounts and eligibility criteria for these allowances.
Social Security Contributions:
Mandatory contributions made by employees to the SSPF are deductible from taxable income.
Expenses:
Employees can receive tax credits or deductions for certain educational expenses, including tuition fees for job-related professional development courses and higher education. Additionally, some medical expenses not covered by social insurance may be deductible.
Health Insurance
The introduction of mandatory medical insurance came into effect 1 January 2021.
The contributions are as follows :
| Amount of income | Employee contribution | Employer contribution |
| Up to AZN 8000 | 2% | 2% |
| Above AZN 8000 | AZN 160 + 0.5% of the amount over AZN 8000 | AZN 160 + 0.5% of the amount over AZN 8000 |
Expats operating under PSAs are exempted from Mandatory Medical Insurance Contributions.
Unemployment
Effective 1 January 2018, the Unemployment law has been enacted. Each employer and employee must contribute 0.5% of the gross monthly salary.
Social Security
Effective 1 January 2019, the mandatory social security contribution rates are set as below :
- For employment income other than oil, gas and government sectors –
| Amount of income | Employee contribution | Employer contribution |
| Up to AZN 200 | 3% | 2% |
| Above AZN 200 | AZN 6 + 10% of the amount over AZN 200 | AZN 44 + 15% of the amount over AZN 200 |
- For employment income in the oil, gas and government sectors –
Employee: 3%
Employer: 22%
Expats are also subject to social security contributions at these rates ( except those with diplomatic status and expats working under PSAs ).
PAYROLL ELEMENTS
Income
Income derived from employment, business, investment, or other activities performed in Azerbaijan is generally considered taxable unless specifically exempted.
Bonuses
The 13th salary is not mandatory in Azerbaijan.
Allowances
There are no specific requirements for allowances in Azerbaijan.
Benefits in Kind
N/A
Investment Income
- Capital gains – No separate taxation. Forms part of ordinary taxable income.
- Dividends – 5%
- Interest Income – 10%
- Royalty income – 14%
Retirement Funding
Covered through the social security scheme.
Health Insurance
The introduction of mandatory medical insurance came into effect 1 January 2021.
The contributions are as follows :
| Amount of income | Employee contribution | Employer contribution |
| Up to AZN 8000 | 2% | 2% |
| Above AZN 8000 | AZN 160 + 0.5% of the amount over AZN 8000 | AZN 160 + 0.5% of the amount over AZN 8000 |
Expats operating under PSAs are exempted from Mandatory Medical Insurance Contributions.
Risk Insurance
N/A
Taxable Income
Local employees are taxed in accordance with the Tax Code.
Foreigners are taxed only on the earnings received directly from their employment within Azerbaijan.
Allowable Deductions
Various deductions and exemptions are available, including but not limited to:
- Social Security contributions
- Certain medical and educational expenses
PAYROLL TAXES AND EMPLOYER CONTRIBUTIONS
Payroll Taxes
Employers are responsible for accurately calculating, withholding, paying, and reporting personal income tax, social security, unemployment, and statutory medical insurance on a monthly basis.
Unemployment
Effective 1 January 2018, the Unemployment law has been enacted. Each employer and employee must contribute 0.5% of the gross monthly salary.
Social Security
Effective 1 January 2019, the mandatory social security contribution rates are set as below :
- For employment income other than oil, gas and government sectors –
| Amount of income | Employee contribution | Employer contribution |
| Up to AZN 200 | 3% | 2% |
| Above AZN 200 | AZN 6 + 10% of the amount over AZN 200 | AZN 44 + 15% of the amount over AZN 200 |
- For employment income in the oil, gas and government sectors –
Employee: 3%
Employer: 22%
Expats are also subject to social security contributions at these rates ( except those with diplomatic status and expats working under PSAs ).
Workers Compensation
The employer bears the total cost. Rates will vary depending on the industry and risk classification. Employees must be assessed for work injuries or occupational diseases.
ADMINISTRATION
Income
Employers are held responsible for transferring the personal income tax on the same day of salary payment to the employees.
Payroll Taxes
Employers are responsible for accurately calculating, withholding, paying, and reporting personal income tax, social security, unemployment, and statutory medical insurance on a monthly basis.
Unemployment
Benefits depend on the number of years contributed as well as the average monthly salary.
Payments are structured as follows:
- With three to five years of contributions, the insured receives 50% of their average monthly earnings from the last 12 months for up to nine months (up to six months if it is their first time receiving unemployment benefits).
- With six to ten years of contributions, the insured receives 55% of their average monthly earnings.
- With more than ten years of contributions, the insured receives 60% of their average monthly earnings.
Social Security
Divided into the following categories:
- Old-age benefits: The old-age pension is adjusted annually to reflect increases in the national average monthly salary. The monthly pension amount is determined by dividing the total value of contributions by the average life expectancy at retirement, which is currently 144 months.
- Permanent disability benefits: The permanent disability pension is calculated by taking the total value of contributions and dividing it by the expected number of months the pension will be paid. This amount is then multiplied by the insurance duration coefficient, which is found by dividing the number of months worked by 192.
- Survivor benefits: Calculated using the same method as above. This is then equally divided among eligible survivors.
Workers Compensation
Divided into 4 benefits :
- Temporary disability: Paid until the employee recovers fully.
- Permanent disability: Employee receives a lump sum amount as compensation.
- Medical: Include benefits such as medicine, rehabilitation, hospitalization etc.
- Survivor: A lump sum amount is paid to eligible survivors.
Statutory Benefits
Statutory benefits include social security, probationary periods, public holidays, annual leave, maternity leave, notice periods, severance pay, etc.
Employee Benefits
Employee benefits include probationary periods, public holidays, annual leave, maternity leave, notice periods, severance pay, overtime pay etc.
LEGISLATION
- Labor Code (as amended on 05-03-2024)
- Tax Code (as amended on 05-03-2024)
STATUTORY BODIES
- Ministry of Labor and Social Protection of the Population
- Ministry of Health
- Ministry of Finance
USEFUL LINKS
https://sosial.gov.az/
https://maliyye.gov.az/en
