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Hiring in Azerbaijan
Azerbaijan, officially known as the Republic of Azerbaijan, is located at the border of Eastern Europe and Western Asia. Tourism and Agriculture are the predominant sectors of the economy. Moreover, Azerbaijan is rich in oil and natural gas. Global PEO or Employer of Record (EOR) play a pivotal role in providing companies with services related to hiring employees, and ensuring compliance with Azerbaijan’s legal and tax regulations. The employment regulations including probation period, holidays and termination are stipulated in the labor code. The labor code postulates that employees are entitled to a probation period of up to three months. As the Employer of Record (EOR), Global PEO’s facilitate companies by ensuring compliance with the aforementioned labor code. Residents are taxed on their worldwide income and nonresidents are taxed on their Azerbaijan-source income only. Global PEO’s further facilitate companies by ensuring compliance with the aforementioned tax laws.
statutory labor requirements
Probation Period
- Generally, a probation period of up to three months is allowed
Annual Leave
- Generally, employees are allowed 21 days of vacation leave.
- Some specialist and managerial positions provide 30 days of leave.
- Two weeks of leave should be taken together.
Public Holidays
- New Year's Day (2nd January)
- International Women's Day (9th March)
- Nowruz
- Victory Day (11th May)
- Eid al-Fitr
- Republic Day (28th May)
- National Salvation Day (15th June)
- Day of the Armed Forces of Azerbaijan (26th June)
- Eid al-Adha
- State Flag Day (9th November)
- International Solidarity Day of Azerbaijanis (31st December)
Maternity Leave
- Pregnant women are entitled to a total of 126 days of paid maternity leave, which consists of 70 days before and 56 days after the expected date of delivery.
Paternity Leave
- Fathers are entitled to 14 days of unpaid paternity leave after the birth of a baby.
Sick Leave
- For the first 14 days of illness, it is the responsibility of the employer to pay sick leave compensation.
- After 14 days, sick leave is paid by the State Social Protection Fund.
Work Hours
- A normal working day cannot exceed eight hours, and the normal working week is five days, with two days off.
Overtime
- Overtime is paid at the rate of 200% of the normal salary.
Notice Period
- If an employee’s job has been made redundant, the employer must give two months’ notice to the employee.
- During this 2-month period, the employee is able to take one day of paid time off per week for the purpose of finding new employment.
- Notice period in other circumstances is as follows: -
- Less than 1 year of employment– 2 weeks’ notice
- 1-5 years of employment- 4 weeks’ notice
- 5-10 years of employment- 6 weeks’ notice
- 10+ years of employment- 9 weeks’ notice.
Severance
- Severance pay varies depending on the length the employee has been employed:
- Less than 1 year – 1 month’s salary
- 1-5 years- 1.4 times the monthly salary
- 5-10 years- 1.7 times the monthly salary
- 10+ years – 2 times the monthly salary
13th / 14th Month Pay
- No
- There is no statutory requirement to pay the 13th or 14th month.
- Instead employees can, at their discretion grant performance based bonuses.
- There is an emphasis in the labour code that those bonuses are to incentivise the performance of employees
income tax
- A resident’s taxable income in Azerbaijan is comprised of worldwide income (i.e. income generated in and outside Azerbaijan).
- A non-resident’s taxable income in Azerbaijan is comprised only of the income generated from sources in Azerbaijan.
- The taxable base of residents is determined as the difference between gross income for a calendar year and expenses (or deductions).
- Where income from dependent employment has been taxed at source, no further income tax or deductions are calculated.
- The taxable base for non-resident physical persons engaged in activity in Azerbaijan through a permanent establishment (PE) is the difference between gross income generated in a specific period from Azerbaijan sources with regard to the PE and the amount of expenses (or deductions) with respect to the generation of income during that period.
- From 1 January 2019, monthly income of employees who are engaged in employment for non-oil-gas and non-government sectors shall be exempted for a seven-year period, as follows:
|
Taxable monthly income |
Tax rate |
|
Up to AZN 8,000 |
0% |
|
Above AZN 8,000 |
14% of the amount exceeding AZN 8,000 |
- The standard rates that are applicable to the employees of the oil and gas and government sectors, and which will be applied after the seven-year grace period, are as follows:
|
Taxable monthly income |
Tax rate |
|
Up to AZN 2,500 |
14% |
|
Above AZN 2,500 |
AZN 350 + 25% of the amount exceeding AZN 2,500
|
immigration
- Foreigners who want to visit Azerbaijan and who are from countries with which Azerbaijan has a visa regime should obtain entry visas from the respective embassy or consulate of Azerbaijan.
- In general, entry visas are granted to foreign individuals for entry into the country.
- Under recent changes to the migration legislation, several types of entry visas are available.
- These visas are based on the purpose of the visit and include, but are not limited to, the following:
- Visa for business trip purposes
- Visa for labor activity conduction purposes
- Touristic visa
- Visa for official visit
- Visas are divided into single and multiple entries with the validity period of stay ranging from one month for single-entry visas to 180 days for multiple-entry visas.
- To obtain a visa from the diplomatic representations, embassies and consulates of Azerbaijan abroad or from the Consular Department of the Ministry of Foreign Affairs of Azerbaijan, applicants must present the following items:
- Letter of invitation provided by a legal entity registered in Azerbaijan that is approved and certified by the Consular Department of the Ministry of Foreign Affairs in Azerbaijan before its submission to the respective Azerbaijan embassy
- A completed application
- Passport-size photographs
- A passport
- Applicable fee
- Expatriates must obtain a work permit to work in Azerbaijan.
- Work permits are obtained through the “one window” principle or the migration online system
- Permits for staying in Azerbaijan temporarily or permanently are obtained through the “one window” principle or through the migration online system, which is designed to ease the application process.
- Under the “one window” principle, all documents necessary for the registration of expatriates in Azerbaijan or for the obtaining of work permits for them are submitted to one state body (State Migration Service), which, in turn, coordinates the work with other state authorities and issues identification cards and work permits for expatriates.
- The “one window” principle is likewise used to register expatriates who have already been granted permits for staying in Azerbaijan temporarily or permanently and to obtain special identifications for them.
- Citizens of countries that have a non-visa regime with Azerbaijan, such as the Russian Federation, do not need a visa to enter Azerbaijan.
|
Type of Visa/Permit |
Documentation |
Validity |
Eligibility |
|
Business Visa |
|
|
|
|
Tourist Visa |
|
|
|
|
Work Permit |
|
1 years |
Expatriates must obtain a work permit to work in Azerbaijan. |
value added tax
- The standard rate of VAT is 18%.
|
VAT |
|
|
Standard Rate |
18% |
withholding tax
Dividends
- Dividends paid to nonresidents are subject to a 10% withholding tax, unless the rate is reduced under a tax treaty
- The same rate applies to residents
Interest
- Interest paid to nonresidents is subject to a 10% withholding tax, unless the rate is reduced under a tax treaty
- The same rate applies to residents, subject to certain rules and exemptions
Royalties
- Royalties paid to nonresidents are subject to a 14% withholding tax, unless the rate is reduced under a tax treaty
- The same rate applies to resident individuals
- However, there is no withholding tax on royalties paid to resident companies
Fees for technical services
- Although Azerbaijan tax law does not specifically address technical services fees, such fees generally are subject to a 10% withholding tax for nonresidents
- There is no withholding tax for technical service fees paid to residents
|
Type of Payment |
Residents |
Nonresidents |
||
|
Company |
Individual |
Company |
Individual |
|
|
Dividends |
10% |
10% |
10% |
10% |
|
Interest |
10% |
10% |
10% |
10% |
|
Royalties |
N/A |
14% |
14% |
14% |
|
Fees for technical services |
N/A |
N/A |
10% |
10% |
termination
- In general, termination of an employment contract in Azerbaijan is strict and must be carried out with the utmost care.
- Labor laws for termination are in favor of the employee and any misstep can have major consequences for the employer.
- For employees who are terminated based on redundancy, 3 month’s severance pay is required.
- When terminating an employment agreement due to downsizing, 2 months’ notice is required.
- Notice period in other circumstances is as follows:
-
- Less than 1 year of employment– 2 weeks’ notice
- 1-5 years of employment- 4 weeks’ notice
- 5-10 years of employment- 6 weeks’ notice
- 10+ years of employment- 9 weeks’ notice.
- Severance pay varies depending on the length the employee has been employed:
-
- Less than 1 year – 1 month’s salary
- 1-5 years- 1.4 times the monthly salary
- 5-10 years- 1.7 times the monthly salary
- 10+ years – 2 times the monthly salary
statutory benefits
- These are mandatory benefits as postulated by law
- These include probationary period, annual leave, public holidays, sick leave, maternity leave, paternity leave, overtime pay, notice period, and severance pay
- Statutory benefits also include social security benefits
|
Statutory Benefits |
|
Probationary Period |
|
Annual Leave |
|
Public Holidays |
|
Maternity Leave |
|
Paternity Leave |
|
Sick Leave |
|
Overtime Pay |
|
Notice Period |
|
Severance Pay |
|
Social Security Benefits |
payments and invoicing
- The following persons are liable for the filing of the annual PIT return to the tax authorities no later than 31 March of the following year:
- Residents having taxable income that was not taxed at source or deriving income outside of Azerbaijan, including royalties.
- Non-residents having taxable Azeri-source income not taxed in Azerbaijan.
- Independent entrepreneurs ceasing their business activities should submit the tax declaration within 30 days of cessation.
- A taxpayer who is not liable for submission of the tax declaration may also submit it for recalculation and refund of overpaid taxes.
- A taxpayer may apply for an extension of the filing deadline for three months, provided that due taxes were paid.
- Employers should transfer the withheld taxes on the same day of payment of income to employees.
- Independent entrepreneurs are required to make advance current payments no later than the 15th day of the month following each quarter.
- The final payment of tax should be made by 31 March of the following year.
ease of doing business
- The ease of doing business index is an index created by Simeon Djankov, an economist at the Central and Eastern Europe sector of the World Bank Group.
- Higher rankings (a low numerical value) indicate better, usually simpler, regulations for businesses and stronger protections of property rights.
- According to the World Bank Azerbaijan ranked 34th in the World in 2019 in terms of ease of doing business.
employee accruals
| Christmas Bonus% | 0% |
| Christmas Bonus Over Vacations % | 0% |
| Severance per Year % | Employees are entitled to severance pay equal to 1.4 times their average monthly salary (11.66% of annual salary) |
| Vacations % | Generally, employees are allowed 21 days of vacation leave (5.76% of annual salary) |
| Notice % | Employees are entitled to 30 days of notice period for one year of service or more (8.24%) |
| Christmas Bonus Over Notifications% | 0% |
| Vacations Plus% | 0% |
| Total percentage of Salary (yearly) | The total employment accruals as a percentage of salary per anum are equal to 25.75% |
employer accruals
Additional information (Country Accruals)
| State social protection | 22.00% |
| Sick leave | 3.84% |
| maternity leave | 126 days |
| Vacations | 10.96% |
Employer Accruals Additional information
| Employment Accruals | ||
| Annual Leave | Generally, employees are allowed 21 days of vacation leave. | This equals 5.75% (21/365 days) of annual income |
| Maternity Leave | Pregnant women are entitled to a total of 126 days of paid maternity leave | This equals 34.5% (126/365 days) of annual income |
| Paternity Leave | Fathers are entitled to 14 days of unpaid paternity leave after the birth of a baby. | Unpaid |
| Sick Leave | For the first 14 days of illness, it is the responsibility of the employer to pay sick leave compensation. | This equals 3.83% (14/365 days) of annual income |
| Overtime | Overtime is paid at the rate of 200% of the normal salary. | Normal hourly rate is around 18.43 AZN. Overtime is paid at an additional 18.43 AZN. |
| Severance | Severance pay varies depending on the length the employee has been employed: • Less than 1 year – 1 month’s salary • 1-5 years- 1.4 times the monthly salary • 5-10 years- 1.7 times the monthly salary • 10+ years – 2 times the monthly salary |
This equals 8.33% (1/12 months) of annual income |
| Social Security | Employers must make the following social security contributions: 2% if annual income is up to AZN 200; AZN 44 + 15% for the amount above AZN 200 if annual income is more than AZN 200 | This equals 2% of 200; plus AZN 44 + 15% of 35,200. |
