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5.5. Source Rules with Respect to Income Derived by Non-Residents

Any income earned by a non-resident from Azerbaijan sources is subject to tax in Azerbaijan. Income is considered as derived from Azerbaijan if it is:

  • Derived from producing goods, performing work, or rendering services in Azerbaijan;
  • Derived from any business activity forming a permanent establishment in Azerbaijan;
  • Derived as dividend or interest from resident legal entities; or
  • Derived from the disposal of a shareholder’s interest in a resident company, etc.

Income subject to withholding tax includes dividends, interests, royalties, service fees, etc.

From 1 January 2017, payments of any nature made to persons established in a preferential tax jurisdiction are deemed to be Azerbaijan-sourced and are subject to withholding tax. Further, effective from 1 January 2019, payments made to branches and representative offices of companies registered in preferential tax jurisdictions and any bank transfers to companies in preferential tax jurisdictions are also deemed to be Azerbaijan-sourced and are subject to withholding tax (see Sec. 13.5. for a list of jurisdictions so classified).