Effective 1 January 2022, CFC rules have been revised to provide that foreign companies will be recognized as a CFC of an Azerbaijan resident company if:
- The Azerbaijan resident company, together with associated companies, directly or indirectly holds a participation of more than 50% in the foreign company's capital, voting rights, or rights to profits;
- The effective corporate income tax paid by the foreign company is less than half of the corporate income tax that would be payable in Azerbaijan on the same income; and
- At least 30% of the foreign company's income is comprised of:
- interest from financial assets;
- royalties from intellectual property;
- capital gains on disposal of shares or other participations;
- income from financial leases;
- income from insurance, banking, and other financial transactions; and/or
- income derived without performing economic functions.
Such income of the foreign company is to be proportionally included in the taxable income of the said Azerbaijan resident company. Further, CFCs must be reported by an Azerbaijan resident company in its corporate tax return for the relevant year.