Azerbaijan Payroll & HR Insight from a Global Payroll Outsourcing Leader

This guide is a must read before you either outsource your Azerbaijan payroll or build a local HR and Payroll function. As a Global Payroll Provider, Mercans can guarantee your full compliance with all the applicable regulations.

1.0    Doing Business in Azerbaijan

1.1       Investing in Azerbaijan

Azerbaijan is a rich country with abundant mineral and climatic resources and a favourable geographical location on the most convenient route from North-Eastern Europe to Central Asia and the Middle East.

It has a rapidly improving business environment, offering Foreign Direct Investment friendly legislation and a favourable tax system with a competitive production base. Azerbaijan has a strong industrial tradition, a skilled and low-cost labour force and growing R&D capacity, which contributes to the country’s attractiveness as much as its attractive domestic market.  The latter is generated by the huge oil and gas sector, the wealthy State, the growing demand of local firms for Western expertise and the increasing purchasing power.

1.2       Registrations and Establishing an Entity

A company is not required to have a legal entity established in Azerbaijan in order to process a payroll.

With regards to the statutory payroll registrations, the company’s Tax & Social Security Registrations are completed during the incorporation process.

Once the Social Security Registration is completed, the sub obligation is to be set in line with the activity of the company.  The next step would be for the employees to be registered with the Social Security.

For establishment of legal entities, branches and representations of foreign legal entities, an application should be sent to the applicable state registration body.  Application must be signed by the founder (one of the founders) or by the authorized person (persons) in an established order.

After applying with all the required documents, a company is registered within two business days.

1.3       Banking

In Azerbaijan, it is mandatory that the payments to employees must be through the employer’s bank account, meaning that payments cannot be made to the employees or third parties on the customer’s behalf.  Payment options in Azerbaijan include bank transfers and cash to both employee’s and local authorities.

Same bank transfers and transfers with other banks within Azerbaijan will usually be within 1 day. International bank transfers will usually take place within 3 – 5 days.

All payroll payments (to employees or the authorities) can be processed via in-country bank accounts only.

Taxpayers engaged in entrepreneurial activity are obliged to notify the Tax Authorities about opening offshore bank accounts.

1.4       Working Week

A standard working week is 40 hours over 5 or 6 days.

Overtime and work during days-off (which are Saturdays, Sundays, public holidays and a mourning day) are compensated in the manner provided for in law.

1.5       Basic Facts about Azerbaijan

General Information:

Full Name: Azerbaijan

Population: 9.862 million (World Bank, 2017)

Capital: Baku

Area: 86,600 km²

Major Language: Azerbaijani

Major Religion: Muslims

Currency: Azerbaijani Manat (AZN)

Main Industries: Petroleum and Natural Gas, Petroleum Products, Oilfield Equipment; Steel,

Iron Ore, Cement; Chemicals; Petrochemicals; Textiles; Machinery; Cotton; Foodstuffs

Internet Domain: .az

International Dialling Code: +994

Minimum wage and the currency of salaries An employee’s salary cannot be lower than the minimum monthly wage, which in 2019 stood at AZN 180 (approximately USD 106).

2.0    Tax & Social Security

The tax year in Azerbaijan is from 1st January to 31st December.

All payments in Azerbaijan (salaries & 3rd party payments) have to be made by the employer, however the payroll provider can take care of the monthly tax & social security submissions.

The tax submission is made electronically once the payroll provider receives the company’s password which much be supplied by the customer.

Social Security submissions are also made electronically.

2.1       Income Tax

Tax on income is calculated by the employer and deducted from the employees pay each month. This must be reported within 20 days after the end of a reporting month.  An individual must file additional income that is generated in an annual tax return, no later than 31 January after the financial year ends.

Residents of Azerbaijan are subject to income tax on Taxable income, which is defined as gross income received from all sources (both Azerbaijani and non-Azerbaijani) during the tax year, regardless of where the income was earned or paid, less allowable deductions.

Non-residents are subject to Azerbaijani income Tax only on income received from Azerbaijani sources.

Representatives of diplomatic missions, international organisations, representatives of foreign companies in Azerbaijan, their employees and family members are not classed as residents for tax purposes.

Monthly Taxes are paid by 20th of the following month.

There is a late payment penalty of 0.1% for each day of delay.  However, blocking on bank account is applicable if the payments have not been made for a long period of time.

 

Tax Rates

Landmark changes were made to the rates of income tax in respect of employment income of individuals working for taxpayers operating in the non-oil-and-gas industry and in the non-public sector. At the time of preparing this material, the relevant sector criteria were yet to be adopted by the Cabinet of Ministers of the Republic of Azerbaijan.  The new income rates shall apply for a seven-year period starting from 1 January 2019 are as follows:

Table A:

Azerbaijan Payroll & HR Insights

PIT rates have remained unchanged in respect of employment income of the individuals working for taxpayers operating in the oil and gas industry and in the state sector.

Table B:

Azerbaijan Payroll & HR Insights

Calculation example under Table B above:

Azerbaijan Payroll & HR Insights

2.2       Social Security

Both Azerbaijani Nationals and Foreign Individuals, excluding certain categories of foreign employees working in the oil & gas sector, pay compulsory state social insurance contributions (“SIC”). Employers are liable for paying social insurance contributions at rates that depend on whether they are operating or not operating in the oil and gas industry or in the state or non-state sector.

For taxpayers who are operating in the oil and gas industry and those who pertain to the state sector SIC still apply at a rate of 22% and 0.5% (for unemployment insurance) of the Employee’s gross payroll, while 3% and 0.5% (for unemployment insurance) are deducted from the Employee’s gross salary as the Employee’s portion of the social insurance and unemployment insurance contribution.

For taxpayers who are not operating in the oil and gas industry and do not pertain to the state sector SIC on their employees’ income and gross payroll is calculated as follows:

Azerbaijan Payroll & HR Insights

The Employer is responsible for making the monthly payment of social insurance contributions on the day that the Employees’ salary is paid but no later than the 15th day of the month following the month when the income was accrued.

Employers are also responsible for submitting quarterly reports to the social fund authorities in respect of the social insurance contributions calculated and paid for local Employees as well as foreign Employees who are on the local payroll by the 20th of the month following the reporting quarter.

Social insurance covers:

  • Labour pensions
  • Temporary disability payments
  • A maternity allowance
  • A lump sum payment for childbirth
  • In special circumstances, benefits for families taking care of a child or children
  • A funeral allowance
  • An allowance for medical treatment at resorts (full or partial payment)
  • Sick leave allowances

2.3       Reporting

All taxpayers shall conclude a contract with the Tax Authorities for obtaining reporting software which allows them to submit tax, social insurance and unemployment insurance reports to the Tax Authorities in electronic format. Alongside these reports, the Employer should also submit relevant statistics and employment reports  to the appropriate government authorities on a regular basis.

Monthly

 

The tax filing is made electronically once the payroll provider receives the company’s password from the customer.

All taxes withheld at the source should be transferred to the State Budget of the Republic of Azerbaijan no later than the 20th day of the month following the month when the tax was withheld.

Quarterly

 

Quarterly personal income tax reports (for small businesses) must be filed within 20 days after the end of each calendar Quarter.

Quarterly social security reports must be filed within 20 days after the end of each calendar Quarter.

Yearly

 

End of Year Forms:

Personal Income Tax (Yearly Cumulative).

The form can be submitted by the payroll provider.

Mode of Delivery:            Electronic Submission

Statistics report (1 and 4 emek) (Yearly Cumulative)

The form can be submitted by the payroll provider.

Mode of Delivery:            Electronic Submission

Social Security report and Unemployment Insurance report (Quarterly).

The forms can be submitted by the payroll provider.

Mode of Delivery:            Electronic Submission

2.4       New Employees

New employees’ employment agreements must be registered in electronic information system no later than the first day of employment.

New Employees (those who do not have social insurance number) are required to be registered with social security, 5 days after starting work.

New Employees are also required to hold compulsory insurance to cover for professional disability, industrial accidents and professional diseases disability.

The necessary documents to register a new employee are:

  • Labour Book
  • Health certificate for jobs involving heavy and dangerous labour harmful to employee health
  • ID Card
  • Social Security ID card
  • Work And Residency Permit for Expats
  • Refugee ID card for people having refugee or displaced-persons status
  • Diploma

For Expats a work and residency permit are required.

2.5 Leavers

All obligations to a resigning employee shall be paid no later  than his/her last working day. The resignation of employment agreement should be registered in electronic information system on his/her last working day.

3.0    Employment Law

The Ministry of Labour and Social Protection of Population is the central executive body providing the protection of labour and social rights of workers regardless of organizational-legal form of ownership, and all enterprises, institutions and organizations.

It develops the state policy on labor, social security, pensions, demography and migration and implements it in accordance with procedures defined by law.

The Ministry of Labour and Social Protection of Population of Republic of Azerbaijan:

AZ-1009, Baku , Salatin Asgarova str., 85

Phone: (994-12) 5965033, Fax (994-12) 5965034

Web site:  www.mlspp.gov.az

3.1       Holiday Accrual / Calculations

Employees are entitled to 19 official public days off, 18 of which are public holidays and one is a day of mourning.  If a public day off coincides with a weekend then extra days off are added.

If an employee works on a public holiday, they must be paid double.

The minimum paid annual leave is 21 calendar days. 30 calendar days of paid annual leave are given for specialist personnel. Employees working in hazardous or arduous occupations are eligible for additional days of annual leave.  Depending on their employment history seniority, employees shall be eligible for additional annual leave too.

3.2       Maternity Leave

The Azerbaijan Labour Code states that pregnant women are entitled to a total of 126 days of paid maternity leave.  This consists of 70 days before the due date and 56 days after the due date.

However, in special circumstances, i.e. a difficult birth or more than one child a woman may be entitled to 70 paid days both before and after the due date.  This amounts to a total of 140 days.

Maternity leave is different for agricultural workers.  They are entitled to a minimum of 140 days of maternity leave for a normal delivery, 156 days for difficult delivery and 180 days for more than 1 child.  In all of these instances, 70 days of the leave allowance should be used prior to the expected date of delivery and the remaining period should be used afterwards.

Maternity leave is paid for by the State Social Protection Fund and is equal to 100 % of gross average monthly earnings over the previous 12 months.

Women who have adopted children under two months of age or who are raising them without adoption shall be entitled to the 56 calendar days of social leave specified for after birth.

3.3       Paternity Leave

New Fathers are normally entitled to 14 days of unpaid Paternity Leave after the birth of a baby.

3.4       Sickness

The employer provides compensation for the first 14 days of sick leave. The State Social Protection Fund provides compensation for the remaining days of sick leave.  The sick leave allowance is paid based on a medical certificate that is given to the employee by the hospital.

4.0    Employee Benefits

4.1       Expenses

Expenses policy and the mode of payment vary from company to company.

General expenses like car mileage, company cars, etc. will only be included in the payroll if they are considered as a part of the employee’s income. If not these are costs borne by the employer.

5.0    Visas & Work Permits

Foreign Nationals wishing to work in Azerbaijan are required to register at their place of residence and obtain a work permit.

Work permits are issued by the State Migration Service (SMS).  Heads of representative offices and branches of foreign legal entities (and their deputies) are not required to obtain a work permit in Azerbaijan.  Individual work permits are issued for a term of up to one year and may be extended.

The following people do not require work permits:

People coming to Azerbaijan on a business trip for a period of up to 90 days (does not have to be 90 days at one time, but does have to be 90 days within a year) to work in certain areas determined by the relevant authority.

Expatriates must obtain a work permit to work in Azerbaijan.  Work permits are obtained through the “one window” principle.  Under the “one window” principle, all documents necessary for the registration of expatriates in Azerbaijan or for obtaining a work permit 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 employer is responsible for applying for a work permit when employing a foreigner. The work permit’s duration corresponds with that of the temporary residence permit and the documents required are submitted together.

A foreigner is eligible for a work permit if:

  • They are more than 18 years old
  • There is no suitable Azerbaijani candidate to fill the position

The employer must apply to the State Migration Service, justifying each point.

  • State Migration Service
    At: Block 3123, Binagadi Highway, Binagadi District 202, Baku AZ1114
    Tel: 919 (Migration Information Centre)
    Fax: (012) 562 37 02
    email

Applications to renew a work permit must be made one month prior to the expiry date of the current permit.

Documents required

The following documents are required in support of an application for a work permit:

  • Companies must provide a completed application form which includes the name of the legal entity (company) and their address
  • Individuals must provide an identity document, work history for the last five years, address of the workplace and position
  • Notarised copy of document confirming professional qualification
  • Reference confirming the need to employ a specialist in a particular field
  • Copy of document confirming the right to stay in Azerbaijan
  • Health certificate proving that the applicant is not infected with HIV, Hepatitis B and C
  • Notarised copy of the applicant’s passport, which must be valid for a minimum of six months after arriving in Azerbaijan
  • Legal entities must provide a notarised copy of state registration; individuals must provide proof that they are a registered a taxpayer and provide a notarised copy of their ID
  • A notarised copy of a marriage certificate might also be needed

The work permit is generally issued within 30 days. If the application is rejected, they receive written notification within five days after the application has been submitted.

Regulations Governing Work Permits and Extensions

  • A work permit cannot be transferred to another person or employer
  • A work permit’s duration corresponds with that of a temporary residence permit
  • A work permit is issued for one year, after which it can be renewed four times, each time for one year
  • If a work permit is renewed, a new card is issued
  • Once a foreigner has worked in Azerbaijan for five years, they have to leave the country and only after one year can they return for working purposes
  • If the work permit is lost, the employer must notify the Ministry of Labour and Social Protection within 15 days
  • There is a fee for a work permit extension. For further information about the fees charged for extending a work permit: Click here

The employer must inform the Ministry of Labour and Social Protection that an employment contract has been terminated within five days of its termination date. The duration of a work permit corresponds with that of the employment contract

ABOUT MERCANS

We are your trusted HR function outsourcing partner, simplifying employment tasks worldwide. We deliver bespoke human capital management services and global payroll solutions to empower businesses across all continents. A borderless people engagement enabler, driven by technology and innovation and committed to make your teams happy, we ensure your consistent and sustainable growth.

Mercans operate globally, ensuring timely and measurable results, and bottom-line savings. Supported by 500+ payroll and HR specialists with in-depth local knowledge, our pioneering human resources consulting services and trailblazing SaaS payroll software, HR Blizz™ & Mesaar™, are already satisfying 5,000+ international clients, regardless of the size of their organization and their industry. Visit mercans.com

SIMPLIFYING EMPLOYMENT TASKS WORLDWIDE

Local Presence. Regional Strategy. Global Success.

We are a borderless people engagement enabler, committed to make your teams happy. Driven by technology and innovation, we pride ourselves in being global people experts with striking local presence. We deliver bespoke human capital management services and innovative global payroll solutions to empower international businesses.

We are your reliable HR function outsourcing partner, delivering innovative HCM solutions, along with cutting-edge human capital management advice, to ensure consistent business growth, regardless of the size and industry of your company. We develop SaaS software and outsource HCM solutions tailored to 5,000+ clients across all continents.

Mercans operate globally, ensuring timely measurable results and bottom-line savings. We employ 500+ payroll and human resources specialists with in-depth local knowledge. Thanks to success-oriented teams striving for excellence and taking care of your organization’s tasks within budget, we have gained the trust of major multinational companies.

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