Azerbaijan’s rental housing market is set for a major shift in 2026. According to the draft State Budget Law for 2026, individuals renting out residential property (excluding hotels and hotel-type accommodations) will now pay a 10% tax at the source on rental income.
Until now, rental income was technically taxed at 14%, but in practice very few landlords registered official rental contracts, preferring informal arrangements to avoid taxation. The government hopes that lowering the rate will finally bring this large shadow market under legal oversight.
A lower tax to boost compliance
According to Vugar Oruj, head of the Azerbaijani Society of Appraisers, the previous 14% rate was simply too high to encourage compliance.
“When the tax was added to the rent, the difference became significant – for example, on a 600-manat apartment, the landlord would owe 84 manats in tax, which discouraged both sides from registering the deal,” he explained.
“Reducing the rate by 4 percentage points may finally push owners and tenants to sign official contracts.”
Experts estimate that up to 80% of landlords currently avoid taxation, resulting in informal leases that leave both sides legally unprotected. In disputes, without a notarized contract, neither party has a strong legal basis in court.
The goal: notarial registration and transparency
Tax expert Mahmud Abbasguliyev says the reform’s main goal is to restore the practice of notarized rental contracts and promote cashless payments:
“Once the contract is notarized, landlords and tenants will be able to register with the State Tax Service and pay taxes automatically based on their activity code,” he explained.
However, he also noted that tax monitoring capacity remains limited, and at the early stage, local municipalities, housing authorities, and even law enforcement agencies may assist in enforcement.
Who will comply?
According to property analyst Ramil Gasimzade, the measure is “a step in the right direction,” but real compliance will depend on the segment of the market.
“Roughly 70% of landlords renting high-value properties already sign contracts,” he said. “But those renting apartments for around 600–700 manats usually avoid formalities.”
Gasimzade added that the cost of notarization – around 120 to 180 manats per year – discourages many owners and tenants.
“For police officers or civil servants who need proof of residence, contracts are signed. But most private tenants prefer a simple written agreement or a realtor’s note, without legal registration – which is how tax evasion happens,” he explained.
A cautious but necessary reform
Analysts agree that the 10% tax may not immediately eliminate the shadow rental market but is an important first step toward transparency.
Lowering taxes makes legal compliance more attractive, while formal contracts will protect both landlords and tenants and help the state regulate one of the country’s fastest-growing urban markets.
Whether this reform will bring the desired results depends on how effectively the new system is enforced – and whether citizens finally see that official registration protects their interests rather than punishes their income.
