AZERBAIJAN Law and Practice Contributed by: Ismail Askerov and Amil Jafarguliyev, MGB Law Offices
assets, interest on the excess portion is non-deduct - ible. Beneficiary Concept Taxation applies to the actual beneficial owner of income rather than intermediaries lacking economic substance. CFC Rules Profits of foreign companies are attributable to an Azerbaijani resident shareholder where: • the resident owns more than 50%; and • the CFC’s effective tax rate is less than 75% of the Azerbaijani corporate tax rate; or • passive income exceeds 30% of total income. Certain income is excluded from CFC taxation, includ - ing dividends from the CFC and profits related to its PE. 10. Employment and Labour 10.1 Employment and Labour Framework Employment relations in Azerbaijan are principally governed by the Labour Code of the Republic of Azer - baijan (in force since 1 February 1999), which estab - lishes minimum labour standards and the rights and obligations of employers and employees. The Labour Code applies to all workplaces registered in Azerbaijan, whether established by local or foreign legal entities. However, expatriates who are employed by a foreign legal entity under a foreign employment contract and perform their duties at that entity’s branch or representative office in Azerbaijan are not subject to the Labour Code. Expatriate employees generally require both a work permit and a temporary residence permit. Work per - mits are issued by the State Migration Service. Certain categories of expatriates are exempt from this require - ment, including managers and deputy managers of foreign-invested legal entities and of branches or representative offices of foreign legal entities. Foreign investors employing staff in Azerbaijan must comply with all applicable provisions of the Labour Code.
Employees have a statutory right to form and join trade unions, and to participate in collective bargaining. These arrangements are most common in the public sector, state-controlled industries and the oil and gas sector, while they are less prevalent in the private sec - tor. A general collective agreement for 2023–25 was signed in 2023 between the Cabinet of Ministers, the Trade Unions Confederation and the National Confed - eration of Entrepreneurs’ Organizations. 10.2 Employee Compensation Employee compensation in Azerbaijan is predomi - nantly cash-based. Salaries must be paid in Azer - baijani manat (AZN) and may not be lower than the statutory minimum wage of AZN400 (approximately USD2,325). With the employee’s consent, up to 20% of salary may be paid in kind in the form of consumer goods. Equity-based compensation is not common in the jurisdiction. Employees are entitled to paid annual leave of at least 21 calendar days, with certain specialists and mana - gerial staff being eligible for 30 days. Unused annual leave must be compensated financially if not taken within the relevant work year. Retirement and pension benefits are provided through the mandatory state pension system, which is funded through compulsory social insurance contributions: 22% of salary is paid by the employer and 3% by the employee. When employment is terminated due to a change in enterprise ownership, the employer must pay sever - ance of at least three months’ average salary. 10.3 Employment Protection A change of ownership of an enterprise does not terminate employment contracts. All existing labour agreements remain valid and must be honoured by the new owner. Only the contracts of certain senior personnel, such as the director, deputy directors, chief accountant and other managers performing direct administrative functions may be modified or termi - nated by the new owner. The new owner may not unlawfully exercise entre - preneurial rights by dismissing employees on a mass
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