Tax on property income in Azerbaijan

Nonresident individuals are generally subject to Azerbaijani personal income tax on Azerbaijan-source income, including income derived from real estate situated in Azerbaijan.

Foreign individuals can generally acquire buildings and apartments in Azerbaijan. However, foreign citizens cannot generally own land directly. Under Azerbaijan's Land Code, foreigners and stateless persons can generally obtain rights to land through lease, rather than ownership.

Accordingly, a foreign investor can generally own an apartment or other qualifying building while the underlying land remains subject to Azerbaijan's foreign-ownership restrictions.

Rental Income Tax

Rental income earned by a nonresident individual from real estate situated in Azerbaijan is considered Azerbaijan-source income and is therefore taxable in Azerbaijan.

From 2026, a reduced 10% tax rate applies to rental income where residential premises owned by an individual are rented to another individual for residential purposes, excluding hotels and hotel-type accommodation.

The general 14% rate continues to apply where the property is rented in the course of entrepreneurial activity or is rented to a legal entity.

Consequently, for an ordinary foreign individual investor renting a residential apartment directly to an individual tenant for residential use, 10% of gross rental income is the appropriate headline rental income-tax rate.

For a nonresident individual earning qualifying residential rental income from Azerbaijani real estate, annual gross rental income of $18,000, $72,000 and $144,000 therefore results in estimated annual income tax of $1,800, $7,200 and $14,400, respectively.

The effective income-tax burden is consequently 10% of gross rental income at all three levels, leaving approximately $16,200, $64,800 and $129,600 after income tax, respectively.

No standardized operating-expense deduction has been applied because the withholding tax is calculated on the gross rental payment, rather than on net rental profit after operating expenses.

Where the residential property is rented to a company or the rental activity falls within entrepreneurial activity, the general 14% rate should instead be used. At the same three income levels, this would result in annual taxes of $2,520, $10,080 and $20,160, respectively.

An applicable Double Taxation Agreement may modify the ultimate tax treatment of a particular nonresident investor.

Personal Income Tax

Azerbaijan applies different personal income-tax rules depending on the nature of the income.

For real-estate investors, the specific withholding rules applicable to rental income are more relevant than the progressive employment-income tax brackets.

For 2026, qualifying employment income in the non-oil, non-gas private sector is subject to the following progressive schedule:

These employment brackets should not be applied to ordinary passive rental income, which is taxed under the specific rental withholding rules described above.

Capital Gains Tax

Azerbaijan does not operate a conventional separate capital-gains tax system under which an individual simply pays tax on the difference between the property's purchase and selling prices.

Instead, the disposal of real estate by an individual is generally subject to a simplified tax calculated according to the property's area and location.

For the sale of residential property, the general calculation uses a base amount of AZN 15 per square metre, multiplied by the applicable geographical coefficient.

The applicable coefficient varies according to the property's location. Consequently, property located in central or higher-value areas can generate a higher tax than otherwise identical property located elsewhere.

Certain exemptions can apply. In particular, the sale of qualifying residential premises in which the individual has been registered as residing for at least five years can be exempt, subject to the statutory requirements.

Therefore, for an ordinary foreign investor selling an Azerbaijani investment apartment, the sale tax should generally be calculated according to the property's floor area and applicable location coefficient, rather than simply applying a percentage to the actual capital gain.

Corporate Tax

The standard Azerbaijani Corporate Income Tax rate is 20%.

Azerbaijani resident companies are generally subject to corporate income tax on their taxable profits, including qualifying rental income and gains arising from real-estate activities.

Taxable corporate profit is generally determined as gross taxable income less qualifying deductible business expenses, subject to Azerbaijan's tax rules.

Capital gains are not subject to a separate corporate capital-gains tax. Instead, proceeds and taxable gains arising from the disposal of capital assets are generally included in ordinary taxable corporate income and subject to the applicable 20% corporate income-tax rate.

A foreign company operating through a permanent establishment in Azerbaijan is generally subject to Azerbaijani corporate income tax on profits attributable to that permanent establishment.

Foreign companies earning Azerbaijan-source income without a permanent establishment can instead be subject to withholding tax under the applicable nonresident rules, subject to relief under an applicable Double Taxation Agreement.

Property Buying Costs and Taxes in Azerbaijan

Property Holding Tax

Azerbaijan imposes an annual Property Tax on buildings owned by both resident and nonresident individuals.

For individuals, the tax is based primarily on the floor area of the building, rather than on the property's current market value.

For residential property, the first 30 square metres are generally excluded from the taxable area.

For properties located in Baku, an additional location coefficient ranging from 0.7 to 1.5 applies.

For example, a 100 m² residential apartment in Baku has approximately 70 m² of taxable area after the 30 m² allowance. At the base Baku rate of AZN 0.40 per m², annual property tax before the location coefficient would be only AZN 28. With a 1.5 coefficient, it would be approximately AZN 42 per year.