Tax Guide for US Expats Living and Working in Azerbaijan
Who Is Liable For Income Taxes in Azerbaijan
Residents are taxed on worldwide income. Non-residents are taxed on Azeri-source income only.
For tax purposes, individuals are considered resident if they are present in the country for 183 days or more in a calendar year.
Income subject to tax
Employment income. Taxable income from employment consists of all compensation, whether received in cash or in kind, subject to certain minor exceptions.
Income received in foreign currency is translated into Azerimanats (AZN) at the official exchange rate of the Central Bank of Azerbaijan on the date the income is received.
Education allowances provided by employers to their employees’ children 18 years of age and younger are taxable for income tax and social security purposes.
Self-employment income. Tax is levied on an individual’s annual self-employment income, which consists of gross income less expenses incurred in earning the income.
Investment income. Interest on securities and deposits is exempt from personal income tax until 1 January 2013. Royalties, copyrights and rental income are taxable.
Capital gains. Capital gains derived from the sale of most movable tangible property that is held for business purposes or from the sale of real property that has been the taxpayer’s primary residence for at least three years are exempt from tax in Azerbaijan.
Deductions
Income exclusions. The following specific tax exemptions apply for resident and nonresident individuals:
- The cost of renting accommodations in Azerbaijan if paid or reimbursed by the employer
- Food expenses paid or reimbursed by the employer
- Expenses paid or reimbursed by the employer for business trips
Personal allowances. Individuals with three or more dependents, including students under the age of 23, may reduce their monthly taxable income by AZN 20.
Business deductions. Deductible business expenses include expenditure for materials, amortization deductions, lease payments, wages, state social security payments, payments for therapeutic nourishment, milk and similar products provided to employees (deductible within the established limits), payments of interest and expenses for repairs to capital production assets.
Relief for losses. Losses may be carried forward for up to five years. No limitations are imposed on the deductible amount of losses that can be claimed for each year.
B. Other taxes
Estate and gift tax. Azerbaijan does not levy estate or gift tax. The value of gifts and/or material assistance for education and medical treatment up to a limit of AZN 1,000 is exempt from income tax. The value of an inheritance up to a limit of AZN 20,000 is exempt from income tax. Gifts, material assistance and inheritances received from family members are exempt from income tax without limit.
Property tax. Azerbaijan levies an annual property tax at a rate of 0.1% on the appraised value of buildings exceeding AZN 5,000.
C. Social security
Employers must make social security contributions at a rate of 22% of employees’ gross salary to the Social Protection Fund. In addition, 3% is withheld from the employee’s salary and is payable to the Social Protection Fund.
To learn more about the history, culture, economy and other information about Azerbaijan
We have been preparing US income tax returns for US Citizens and permanent residents living in Azerbaijan for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in Azerbaijan and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the Azerbaijan tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your Azerbaijan Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed while working in Azerbaijan, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Azerbaijan.
We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire or request a request a consultation by phone, skype or email