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trHow has the approach to social contributions for entrepreneurial activities changed?
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How has the approach to social contributions for entrepreneurial activities changed?
Until January 1, 2026, when calculating compulsory state social insurance contributions for individual entrepreneurs engaged in business activities, the sector and location in which the individual operated were taken into account. Expert Anar Bayramov comments on the subject.
Accordingly, compulsory state social insurance contributions, calculated at 50% of the minimum monthly wage for the construction sector and 25% for other sectors, were applied at the following rates:
- Baku city – 100%;
- Sumgayit and Ganja cities – 90%;
- Other cities – 80%;
- Administrative centres of district administrative-territorial units and settlements – 60%;
- Rural areas – 50%.
Example 1: In 2025, if an individual entrepreneur engaged in retail trade in Baku paid 100 manats per month in compulsory state social insurance contributions (400 manats (minimum monthly wage) × 25% × 100%), the corresponding amount for an individual entrepreneur carrying out the same activity in Shaki was 80 manats (400 manats × 25% × 80%).
Another important distinguishing feature was that compulsory state social insurance contributions were calculated at a fixed amount, regardless of the individual entrepreneur's turnover.
Example 2: In 2025, one individual entrepreneur operating in the service sector in Baku had a monthly turnover of 500 manats, while another individual entrepreneur operating an educational centre had a monthly turnover of 50,000 manats. Despite the significant difference in their turnover, the compulsory monthly state social insurance contributions payable by both entrepreneurs amounted to 100 manats (400 manats × 25% × 100%).
As of January 1, 2026, regional differentiation has been abolished, and compulsory state social insurance contributions are now calculated based on turnover.
Accordingly, under Article 14.5.1 of the Law on Social Insurance, compulsory state social insurance contributions for entrepreneurial activities are calculated:
- at 2% of income (without deducting expenses);
- however, the amount must not be less than 15% or exceed 100% of the minimum monthly wage.
Two key points must be considered when applying this provision.
The first is that compulsory state social insurance contributions are calculated based on income before expenses are deducted.
Example 3: An individual entrepreneur earned 10,000 manats in May 2026 and incurred expenses of 8,000 manats. In this case, compulsory state social insurance contributions will amount to 200 manats (10,000 manats × 2%).
As can be seen, expenses are not taken into account in the calculation.
The second point concerns the minimum and maximum limits established for compulsory state social insurance contributions. Accordingly, the monthly contribution payable by an individual entrepreneur cannot be less than 60 manats (400 manats (minimum monthly wage) × 15%) or exceed 400 manats (400 manats × 100%).
Example 4: An individual entrepreneur's income for March 2026 (before deducting expenses) amounted to 2,000 manats. Although the compulsory state social insurance contribution calculated based on income would be 40 manats (2,000 manats × 2%), the minimum threshold applies, meaning that the amount to be declared will be 60 manats.
Example 5: An individual entrepreneur's income for June 2026 (before deducting expenses) amounted to 60,000 manats. Although the compulsory state social insurance contribution calculated based on income would be 1,200 manats (60,000 manats × 2%), the maximum threshold applies, meaning that the entrepreneur must declare social insurance contributions of 400 manats.
Until January 1, 2026, when calculating compulsory state social insurance contributions for individual entrepreneurs engaged in business activities, the sector and location in which the individual operated were taken into account. Expert Anar Bayramov comments on the subject.
Accordingly, compulsory state social insurance contributions, calculated at 50% of the minimum monthly wage for the construction sector and 25% for other sectors, were applied at the following rates:
- Baku city – 100%;
- Sumgayit and Ganja cities – 90%;
- Other cities – 80%;
- Administrative centres of district administrative-territorial units and settlements – 60%;
- Rural areas – 50%.
Example 1: In 2025, if an individual entrepreneur engaged in retail trade in Baku paid 100 manats per month in compulsory state social insurance contributions (400 manats (minimum monthly wage) × 25% × 100%), the corresponding amount for an individual entrepreneur carrying out the same activity in Shaki was 80 manats (400 manats × 25% × 80%).
Another important distinguishing feature was that compulsory state social insurance contributions were calculated at a fixed amount, regardless of the individual entrepreneur's turnover.
Example 2: In 2025, one individual entrepreneur operating in the service sector in Baku had a monthly turnover of 500 manats, while another individual entrepreneur operating an educational centre had a monthly turnover of 50,000 manats. Despite the significant difference in their turnover, the compulsory monthly state social insurance contributions payable by both entrepreneurs amounted to 100 manats (400 manats × 25% × 100%).
As of January 1, 2026, regional differentiation has been abolished, and compulsory state social insurance contributions are now calculated based on turnover.
Accordingly, under Article 14.5.1 of the Law on Social Insurance, compulsory state social insurance contributions for entrepreneurial activities are calculated:
- at 2% of income (without deducting expenses);
- however, the amount must not be less than 15% or exceed 100% of the minimum monthly wage.
Two key points must be considered when applying this provision.
The first is that compulsory state social insurance contributions are calculated based on income before expenses are deducted.
Example 3: An individual entrepreneur earned 10,000 manats in May 2026 and incurred expenses of 8,000 manats. In this case, compulsory state social insurance contributions will amount to 200 manats (10,000 manats × 2%).
As can be seen, expenses are not taken into account in the calculation.
The second point concerns the minimum and maximum limits established for compulsory state social insurance contributions. Accordingly, the monthly contribution payable by an individual entrepreneur cannot be less than 60 manats (400 manats (minimum monthly wage) × 15%) or exceed 400 manats (400 manats × 100%).
Example 4: An individual entrepreneur's income for March 2026 (before deducting expenses) amounted to 2,000 manats. Although the compulsory state social insurance contribution calculated based on income would be 40 manats (2,000 manats × 2%), the minimum threshold applies, meaning that the amount to be declared will be 60 manats.
Example 5: An individual entrepreneur's income for June 2026 (before deducting expenses) amounted to 60,000 manats. Although the compulsory state social insurance contribution calculated based on income would be 1,200 manats (60,000 manats × 2%), the maximum threshold applies, meaning that the entrepreneur must declare social insurance contributions of 400 manats.