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Is compensation for unused annual leave subject to income tax?
If an employee working at their primary place of employment receives compensation for unused annual leave in July 2026, will income tax be calculated on this amount?
According to the State Tax Service under the Ministry of Economy, when compensation is paid for unused annual leave, compensation amounts for each completed employment year, as well as compensation for unused leave for the current employment year, are assessed separately. These amounts are subject to personal income tax and mandatory state social insurance contributions separately, without being added to the salary for the month in which the payment is made.
It is also stated that, for the purpose of calculating income tax, a 200 AZN tax allowance provided under Article 102.1.6 of the Tax Code is deducted from the compensation amount calculated separately for each employment year.
If an employee working at their primary place of employment receives compensation for unused annual leave in July 2026, will income tax be calculated on this amount?
According to the State Tax Service under the Ministry of Economy, when compensation is paid for unused annual leave, compensation amounts for each completed employment year, as well as compensation for unused leave for the current employment year, are assessed separately. These amounts are subject to personal income tax and mandatory state social insurance contributions separately, without being added to the salary for the month in which the payment is made.
It is also stated that, for the purpose of calculating income tax, a 200 AZN tax allowance provided under Article 102.1.6 of the Tax Code is deducted from the compensation amount calculated separately for each employment year.