AZERBAIJAN Law and Practice Contributed by: Ismail Askerov and Amil Jafarguliyev, MGB Law Offices
9.4 Tax on Sale or Other Dispositions of FDI Azerbaijan does not impose a separate capital gains tax. Instead, income from the sale or alienation of assets, shares and property (by companies or indi - viduals) is taxed as ordinary income. For share transactions, if shares are sold above their nominal value, the difference between the offering price and nominal value is treated as taxable profit and subject to 20% profit tax. If shares are sold below net asset value, the difference between net asset val - ue and nominal value is treated as taxable profit. For individuals, income is taxed at 14%. Double taxation treaties may allow the taxation of gains at lower rates. No additional rules apply specifically to the sale of FDI, and no separate “blocker” or tax-preferred cor - porate vehicle regime/concept exists beyond stand - Azerbaijan does not impose anti-avoidance rules targeted specifically at FDI. However, the Tax Code contains general anti-evasion regimes applicable to both domestic and cross-border transactions, includ - ing transfer pricing, CFC rules, thin capitalisation limits and beneficiary ownership requirements. Transfer Pricing Transactions must comply with the arm’s length prin - ciple. Transfer pricing rules apply to transactions between: • a tax resident and a non-resident that are associ - ated; • a non-resident’s PE in Azerbaijan and its foreign head office, branch or representative office; and • a tax resident or non-resident PE and companies in low-tax jurisdictions. ard corporate and tax rules. 9.5 Anti-Evasion Regimes If prices deviate from market value due to the rela - tionship between parties, tax authorities may apply market prices for tax purposes. Thin Capitalisation Interest on loans from related or foreign parties is deductible only up to 125% of the average interbank rate. Where total foreign debt exceeds twice the net
These rates may be reduced or fully eliminated under double taxation treaties, which commonly impose minimum ownership thresholds for reduced dividend rates. For example, the Azerbaijan-United Kingdom double tax agreement (DTA) limits dividend taxation to 10% if the beneficial owner holds at least 30% of the voting rights of the payer. Azerbaijan has also acceded to the Multilateral BEPS Convention (law dated 31 May 2024). Under the Law, treaty benefits apply only if the investor meets mini - mum shareholding requirements and a 365-day hold - ing period. Anti-abuse rules restrict treaty relief where dividend payments are deductible or where ownership structures have been arranged artificially. 9.3 Tax Mitigation Strategies A number of tax planning methods exist in practice, although their use is limited by anti-avoidance rules in the Tax Code. These include the following. • Transfer pricing: transactions between related par - ties may involve artificial prices. For example, an Azerbaijani company may sell goods below market value to a subsidiary in a low-tax jurisdiction, shift - ing profits abroad. • Abuse of tax incentives: certain entities, such as start-ups classified as micro or small businesses, are exempt from tax on income from innovation activities for three years. Entities operating in the Alat Free Economic Zone are exempt from with - holding tax and VAT on profits related to their Free Zone activities. Holders of investment promotion certificates receive a 50% profit tax exemption for seven years. • Controlled foreign companies (CFCs): Azerbai - jani-resident companies may use subsidiaries in offshore jurisdictions to reallocate profits through artificial transactions. • Treaty shopping: companies may insert intermedi - ary entities in treaty jurisdictions without real eco - nomic activity to access reduced treaty rates. The Tax Code includes counter-measures such as the “risky taxpayer” concept, limits on the use of interme - diary entities, market value substitution for transfer pricing purposes and cancellation of benefits where dividends are treated as deductible expenses.
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