The Milli Majlis (National Assembly) of Azerbaijan has approved, in the first reading, a comprehensive package of amendments to the Tax Code, Migration Code, and laws concerning social insurance, customs tariffs, licenses, and public procurement. These legislative changes are designed to foster the development of the technology sector by establishing a clear legal framework for digital innovation.
According to the Operative Information Center-OMM, the new legislation introduces formal legal definitions for key concepts such as "digital technology," "artificial intelligence technology," "innovation product," "cybersecurity," and "cloud computing services." By codifying these terms, the government aims to provide regulatory clarity for businesses and investors operating within the digital economy.
A significant aspect of the reform is the formal recognition of independent professionals working in digital technology, AI, and cybersecurity who operate without hired staff and 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 the creation of a permanent establishment for those foreign entities, thereby encouraging the growth of the local freelance and digital nomad community.
The legislative package also introduces substantial tax incentives. Legal and physical entities providing services in digital technology, AI, and innovation (excluding technology park residents) will be exempt from taxes on income derived from these activities, provided that export proceeds are transferred to accounts in Azerbaijani banks. Additionally, highly qualified migrants, specialists with no tax liabilities in Azerbaijan over the past 24 months, and returning Azerbaijani citizens working in these sectors will benefit from a 0% income tax rate on their monthly salaries.
To stimulate investment, the law offers significant relief for venture capital and startup ecosystems. Accredited investors, as well as physical or legal entities investing in venture capital funds or companies holding "Startup" or technopark certificates, may deduct 100% of their non-cash investments from their taxable income for the reporting year, subject to specific conditions. Furthermore, dividends paid by legal entities engaged in these activities are fully exempt from taxes for a period of 20 years.
These reforms are part of Azerbaijan's broader strategic initiative to diversify its economy away from traditional sectors and position the country as a regional hub for technology and innovation. By aligning its tax and regulatory environment with international standards, Azerbaijan seeks to attract foreign investment, retain local talent, and accelerate the digital transformation of its national economy.
