The Milli Majlis (National Assembly) of Azerbaijan has adopted a comprehensive package of legislative amendments in the third reading, introducing significant tax and customs incentives for the information technology and artificial intelligence sectors. The changes affect the Tax Code, Migration Code, and laws concerning social insurance, customs tariffs, licenses, and public procurement.
According to the Operative Information Center-OMM, the new legislation establishes a clear legal framework for key digital concepts, including "digital technology," "artificial intelligence technology," "innovation product," "cybersecurity," and "cloud computing services." These services are now officially recognized as direct services rather than royalties or rentals.
The legislation provides official status to individuals operating independently in the fields of digital technology, AI, and cybersecurity, provided they are residents of industrial or technology parks. Furthermore, the law clarifies that remote work performed by individuals in Azerbaijan under contracts with foreign non-resident companies will not constitute a permanent establishment of the foreign entity in the country. Freelancers and digital nomads will be eligible for extensive tax benefits upon registration.
Key provisions of the new law include:
- Tax Exemptions: Income generated by individuals and legal entities (excluding technopark residents) from digital technology, AI, innovation product development, and cybersecurity services is exempt from tax, provided that funds from exported services are transferred to accounts in Azerbaijani banks.
- Incentives for Talent: Highly qualified migrants, specialists with no tax liabilities in Azerbaijan over the past 24 months, and Azerbaijani citizens returning to the country to work in these sectors will benefit from a 0% income tax rate on their monthly wages.
- Dividend Relief: Dividends paid by legal entities engaged in these activities are fully exempt from taxes for a period of 20 years.
- Investment Support: Accredited investors, individuals, or legal entities investing in venture capital funds, startups, or companies with technopark certificates can deduct 100% of their non-cash investment from their taxable income, subject to specific conditions.
- Intellectual Property: 95% of income and profits derived from the transfer or sale of intellectual property, software, and know-how created in Azerbaijan through research and development are exempt from taxation.
The legislation also introduces safeguards for taxpayers, limiting the duration of field tax audits to a maximum of 90 working days, including extensions and additional checks. Additionally, for startups and companies with technopark certificates in their first three years of operation, bank accounts will not be frozen during tax disputes if the total debt does not exceed 50,000 AZN, provided the case is under appeal.
These reforms are part of Azerbaijan's broader strategy to diversify its economy away from oil dependency and position the country as a regional hub for technology and innovation. By creating a favorable fiscal environment, the government aims to attract foreign investment, retain local talent, and accelerate the digital transformation of the national economy.
