Payroll & Employment Guide Azerbaijan

Azerbaijani labour law mandates that employment agreements must be in writing. If an employment contract is not put in writing, a written notification must be provided within three days to comply with legal requirements.

Notice periods: Ranging from two weeks to two months

Termination of employment: Termination can occur through normal processes, immediate dismissal for cause, or mutual agreement, depending on the scenario.

Severance pay: Employees are entitled to severance pay in specific situations, such as redundancy or company closure, equivalent to at least one month’s average salary. Severance pay does not apply in cases of voluntary resignation or dismissal for cause.

Employers in Azerbaijan must provide mandatory employment benefits as outlined in the country’s labour code. To attract and retain top talent, many also offer additional perks. Understanding both mandatory and optional benefits is key to building a competitive employment offering.

• Mandatory benefits: State healthcare, social security, pension contributions, paid leave entitlements (annual, sick, and maternity leave).
• Common perks: Voluntary private health insurance, meal allowances, transport reimbursements, flexible work arrangements, and training budgets.
• Leave policies: Paid annual leave, sick leave, parental leave.
• Severance pay: Applicable in specific cases, such as redundancy or company closure, where the employee is entitled to at least one month’s average salary. It does not apply in cases of voluntary resignation or dismissal for cause.

Azerbaijan has a structured tax system in which employers are responsible for withholding personal income tax and social security contributions directly from employees' salaries.

An individual is considered a tax resident in Azerbaijan if they spend more than 182 days in the country within a calendar year. If this is not conclusive, residency is determined based on permanent home, centre of vital interests, and habitual presence.

Personal income tax: Azerbaijan applies different tax treatments depending on the sector and applicable incentives.

Non-oil and non-government sector (temporary incentive regime):

• Income up to AZN 8,000 per month - 0%
• Income over AZN 8,000 per month - 14%

Standard regime (e.g. oil and gas sector or outside incentive scope):

• Income up to AZN 2,500 per month - 4%
• Income over AZN 2,500 per month - AZN 350 + 25% of the excess

Withholding and contributions:

• Dividends: 5% tax, typically withheld at source and final. May be fully exempt for small resident companies (non-VAT registered, turnover below AZN 200,000).
• Interest income: 10% withholding tax, generally final. Certain types of interest may be exempt.
• Capital gains: Taxed at standard income tax rates. 50% exemption applies for shares or business interests held for at least 3 years.

Tax allowances and non-taxable benefits: Azerbaijan does not apply a single general personal tax allowance. Instead, relief is provided through targeted exemptions and incentives. Some of the key exemptions include:

• Employment income exemptions (e.g. up to AZN 800 per month for certain protected groups, such as martyrs’ family members).
• Incentives for employees in the non-oil and non-government sectors (e.g. income up to AZN 8,000 per month may be exempt under specific regimes).
• Targeted exemptions for certain types of income, including dividends, capital gains, agricultural income, traditional crafts, gifts and inheritances, and technology park income, subject to statutory conditions.

Deductions and tax reliefs: Azerbaijani tax law provides a variety of specific exemptions and reliefs for individuals, although these are highly conditional and depend on the type of income and personal circumstances. Some of the key reliefs include:

• Salary exemption of up to AZN 800 per month for qualifying family members of individuals with martyr status.
• Dividend tax exemption for income received from qualifying technology park companies (available for up to 10 years).
• Partial exemption on capital gains (e.g. 50% exemption on the sale of shares or business interests held for at least three years).
• Exemptions for certain gifts and inheritances within defined thresholds, as well as a full exemption for transfers between close family members.
• Exemptions for specific types of income, such as agricultural activities, certain compensation payments, and alimony received.
• Foreign tax credit, allowing taxes paid abroad to be offset against Azerbaijani tax on the same income (subject to limitations).

In Azerbaijan, employers must pay salaries in accordance with individual or collective employment agreements, and wages must not fall below the statutory minimum set by the government. Salaries are generally paid on a monthly basis, unless a different arrangement is agreed upon.

Salary payment deadline: By the end of the relevant pay period (usually by the end of the month). This includes reporting employee earnings, deductions, and contributions to the relevant authorities.

Payroll taxes: Must be paid by the 10th of the month following the salary payment month, ensuring timely compliance with tax obligations.

Annual tax declarations: Not provided to employees, as these reports are managed internally by the company.

Taxes and contributions payment deadline: By the 20th of the following month.

Payroll declarations deadline: By the 20th of the following month

Payroll currency: AZN, EUR, or USD.

Azerbaijan’s labour law is defined by the national Labour Code. This covers all the essential aspects of employment, including employment types, minimum wage, probation periods, payroll, and other employer obligations. Staying compliant with the country’s regulations requires understanding these local frameworks.

Total employment cost:

• Employer’s social security contributions: 22%
• Employer’s health insurance costs: Included in social security contributions
• Employees’ social security contributions: 3%
• Employees’ health insurance costs: Included in social security contributions

Termination: The final salary payment must be made on their last working day. This ensures that employees receive their due compensation promptly upon termination, and employees must be paid for any unused leave, ensuring they receive all compensation owed to them.

Minimum wage: AZN 400 per month

Probation period: Up to three months

Using EOR services in Azerbaijan enables you to hire employees legally in the country without the need to establish a local legal entity. The EOR assumes full legal responsibility as the official employer, which includes:

• Legal employment and contracts
• Payroll processing
• Tax withholding
• Benefits administration
• Onboarding/offboarding employees

Utilising PEO services in Azerbaijan offers HR and administrative assistance while you retain the status of the legal employer. PEO services are perfect for companies that already have a legal presence in Azerbaijan but require support in managing their workforce operations, including:

• HR support and workforce administration
• Payroll and benefits management
• Compliance and local labour law guidance
• Employment contracts assistance

Native Teams offers a payroll calculator tailored to Azerbaijan’s labour regulations. With our tool, you can quickly and accurately estimate net and gross salaries, employer and employee contributions, as well as other required deductions in Azerbaijan.

Here is a list of public holidays in Azerbaijan: