A seven-year tax holiday for Azerbaijan’s private sector employees is coming to an end.
Beginning in 2026, income taxes will once again apply to salaries outside the state and oil-gas sectors, increasing overall deductions from workers’ paychecks.
The exemption, introduced in 2019, was designed to stimulate job creation and attract investment in the non-oil economy.
But as the grace period expires, the Ministry of Finance expects nearly 30% more revenue from salary taxes compared to 2025.
How the New Rates Work
Under the current system, employees not affiliated with labor unions or political parties see about 12.5% withheld from their paychecks. Next year, that figure will rise to around 19.5% once the exemption ends.
The breakdown looks like this:
Social protection contributions will drop from 10% to 3%,
Income tax will rise to 14%,
Unemployment and other insurance payments will stay the same.
Who Pays and How Much
At present, employees in the non-oil sector pay 3% on the first 200 manats of their salary and 10% on any amount above that as a state social insurance contribution.
For income tax, the rate starts at 14%. The first 200 manats of monthly income are tax-free if the salary is below 2,500 manats. For example:
A 1,000-manat salary means paying 112 manats in income tax.
A 3,000-manat salary, where no exemptions apply, means paying 475 manats.
What It Means for Workers
The end of the tax break will be felt most by private sector employees earning middle incomes, as they see higher deductions and smaller take-home pay.
Employers, too, may need to adjust payroll systems and contract terms before the changes take effect on January 1, 2026.
