What global businesses need to know about payroll in Azerbaijan
Azerbaijan is one of the most fossil fuel-dependent states in the world, with oil and gas making up around two-thirds of its entire GDP. This former Soviet state has prospered substantially thanks to its oil production from the 1990s onwards, but it remains a country where many enterprises are state-owned; indeed, more people are working in the public sector in Azerbaijan than in the private sector.
That doesn’t mean to say, however, that there aren’t opportunities for foreign enterprises to expand into this country of around ten million people. Machinery, cotton and food are among its major exports, with more than half of everything it exports going to Italy. With a service industry comprising just 42% of GDP, there is scope for service-focused businesses to explore new markets, especially with a highly educated and skilled workforce available.
It should be worth noting that corruption remains an issue in Azerbaijan, and there are many cultural and country-specific considerations to bear in mind when doing business there. This guide covers what you need to know in payroll and employment terms.
Getting Started
Azerbaijan has made it simple to register a company online, with the starting point for new businesses being The Ministry of Communications and Information Technologies. Here organizations can apply for the e-signature necessary to move forward, which is generally provided by the ministry in just one business day.
Documents such as a formal letter of intent, director identities, business address and company statutes should be drafted (in Azerbaijani, so make sure you access local legal expertise). These should then be notarized and submitted to the Centre for Company Registration, and successful applications should receive their registration card a week later. With this, VAT and tax registration can be completed at the Ministry of Taxes.
An in-country bank account in Azerbaijan is essential and should be opened within three months of registration. The minimum share capital for a limited-liability company is a nominal AZL 10 (approx. £4.60; $5.90; €5.40), while for joint-stock companies, it can be as much as AZN 4000 (approx. £1840; $2350; €2150). All share capital should be deposited in the account as soon as it’s opened.
Employment Considerations
Employee contracts are necessary in Azerbaijan and must state the general information for the job (including pay and duration of services) in writing to be official. Without a written contract, an employee is generally not eligible for severance pay. A fixed-term contract cannot be used if an employer requires more than five years of service from the employee.
Azerbaijan runs a standard working week of 40 hours, across five shifts of eight hours each, although some employers run six shorter shifts a week instead. Employees should not work more than four hours of overtime (or more than two hours in hazardous working environments) on more than two consecutive days. Overtime should be paid at double the regular salary, and cannot be paid as time off in lieu.
Notice periods start at six weeks for those with less than two years of service, rising to two months after two years, three months after four years, four months after 15 years, and five months after 25 years. Probation periods are a maximum of three months, with a notice period of three days applicable during this time.
Compensation, Bonuses & Severance
As of the start of 2024, the national minimum wage in Azerbaijan is AZN 345 per month (approx. £160; $200; €185); this is almost triple the rate from 2017, so be prepared for further increases in the future. Payroll can take place monthly or bi-monthly. There is no requirement to pay 13th-month or mandatory bonuses in Azerbaijan.
Severance pay starts at one month’s salary for employees within their first 12 months of service, rising to 1.4 months after a year, 1.7 months after five years, and two months after ten years. Employees made redundant should receive a minimum of three months’ salary.
Tax and Social Security
Income tax in Azerbaijan is relatively simple to understand. The first AZN 8000 earned per month is exempt, after which a rate of 14% applies. This threshold is reduced to AZN 2500 per month for employees working in the oil and gas industries.
The standard corporate tax rate is 20%, while VAT runs at 18% (although a number of exemptions apply, including exports and financial services, among other areas).
Social security contributions, however, are more complex:
- Unemployment: 0.5% employer, 0.5% employee
- Social security (on first AZN 200): 2% employer, 3% employee
- Social security (on earnings above AZN 200): 15% + AZN 44 employer, 10% + AZN 6 employee
- Medical insurance (on first AZN 8000): 1% employer, 1% employee
- Medical insurance (on earnings above AZN 8000): 0.5% + AZN 160 employer; 0.5% + AZN 160 employee
Slightly different rates apply in the oil and gas industry, most notably that the employer’s social security contribution goes up to a 22% flat rate.
Holidays and Leave
The minimum paid leave entitlement for employees in Azerbaijan is 21 days, with employees receiving two further days per year after every five years of service. At least two weeks of the leave entitlement must be taken in one continuous block. The maximum of 27 days applies to employees with at least 15 years of service. Azerbaijan marks as many as 24 days of public holidays each year.
Maternity leave entitlement is 18 weeks: unusually, ten weeks of this is before the due date, and eight weeks after. All maternity pay is at full salary by social security. Paternity leave is two weeks post-birth but is unpaid.
There are also a number of types of parental leave available. Paid annual leave increases by two days for women with two children under 16 and five days for women with three children under 16. Furthermore, any woman or single father with any children under 16 can take up to 14 further days of unpaid leave each year. Sick pay is covered at full salary by employers for the first 14 days per year, and by social security thereafter.
Azerbaijan also has many other types of unpaid leave employees can apply for. These include, but are not necessarily limited to: caring for an unwell child, military service, qualifications and exams, family matters, or those who work in hazardous conditions.
Azerbaijan Payroll: A Summary
Some of the payroll and employment requirements in Azerbaijan that we’ve covered in this guide are especially complex, such as social security. Additionally, the requirement for business documents to be in Azerbaijani adds a further layer of complication. Make sure you don’t approach your expansion into Azerbaijan alone, and work with both legal representatives in the country, and a global payroll partner.
This article is for informational purposes only and is not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.