A non-resident entity operating through PE in Azerbaijan is subject to tax on the gross income generated from Azerbaijan sources, less any related deductions attributable to the PE. Such income is subject to tax at the same rate of 20% as applicable to resident companies. Income earned by non-residents not having a PE in Azerbaijan is subject to withholding tax in the country.

Special Corporate Tax Regime

Companies operating in the oil and gas sector are governed by special agreements concluded between the Azerbaijan government and foreign oil companies namely production sharing agreements (PSAs) and host government agreements (HGAs). The PSA and HGA regimes are applicable to all enterprises involved in these agreements, including foreign oil companies functioning as contractors and foreign service companies providing services to the contractor or the operating company. Projects outside PSAs and HGAs are taxed in accordance with the rules in the tax code.

Signed and ratified PSAs and HGAs are in force and are published on the official website of the Ministry of Taxes (www.taxes.gov.az ). It contains a tax article outlining the tax regime for that particular agreement.

PSA contractors in petroleum operations are subject to profit tax at 25% to 32%. Instead of ordinary corporate tax at net amounts, sub-contractors to enterprises involved in a petroleum profit sharing agreement (PSA) may pay tax at final withholding tax rates ranging from 5% to 10% on gross proceeds from works and services performed in Azerbaijan.