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Income tax exemptions when calculating wages
Income tax exemptions when calculating wages
Income refers to earnings obtained by residents within the Republic of Azerbaijan and outside of it, while for non-residents, it pertains to income earned within the Republic of Azerbaijan. Income is categorized into three groups: The topic is explained by the company's financial and accounting specialist, Sabina Mirzaeva.
1.Income from employment;
2.Income from activities not related to employment;
3.All other income except for income exempt from taxes and gains from the revaluation of fixed assets.
Income from employment refers to salary, any payments, or benefits received for this work. Salary is the amount paid by the employer in cash or in kind for performing work functions during the relevant period according to an employment contract, including any additional payments, bonuses, and other compensation.
According to the Tax Code, the rates of income tax withheld from individuals' salaries are as follows:
For individuals working in the oil and gas sector and the public sector, if their employment income is up to 2,500 manats, the income tax rate is 14% of the taxable monthly amount; if it exceeds 2,500 manats, the tax is 350 manats plus 25% of the amount exceeding 2,500 manats.
For individuals not working in the oil and gas sector and working in the non-government sector, the tax rate is 0% for monthly taxable income up to 8,000 manats for a period of 7 years starting from January 1, 2019. For income exceeding 8,000 manats, the tax rate is 14% on the amount exceeding 8,000 manats.
Exemptions and deductions for income tax for individuals are regulated by Article 102 of the Tax Code. Let's look at the exemptions applicable when calculating salaries:
If an individual's monthly income from any employment (at the primary place of work) is up to 2,500 manats, the amount exempt from tax is 200 manats; if the annual income is up to 30,000 manats, the exempt portion is 2,400 manats.
Example 1: An individual's monthly income from employment in the oil and gas sector is 850 manats. How is their income tax calculated?
Tax exemption: 200 manats;
Taxable amount: 850 - 200 = 650 manats.
Gifts and financial assistance for education received by individuals during the calendar year up to 2,500 manats are exempt from income tax. Exemption is granted if documents confirming the purpose of the payments are provided.
Example 2: An employee at a state enterprise has an annual income of 11,520 manats (monthly income of 960 manats). The enterprise has provided financial assistance of 3,000 manats for education. Supporting documents have been provided. The calculation will be as follows:
Tax exemption: 2,400 manats (exemption for annual income up to 30,000 manats) + 2,500 manats (exemption for education assistance);
Taxable amount: (11,520 + 3,000) - (2,400 + 2,500) = 9,620 manats.
Apart from allowances for temporary disability, state pensions, state benefits, and non-repayable state transfers, income tax is exempted if accompanied by supporting documents (state transfers, decisions of executive authorities regarding one-time payments from the state budget, payment documents).
Example 3: A state enterprise has calculated a salary of 500 manats for an employee for November 2023. In that month, the employee also received an allowance of 230 manats for temporary disability and a state pension of 150 manats.
Tax exemption: 150 manats (state pension);
Taxable amount: (500 + 230) - 200 manats (for monthly income up to 2,500 manats) = 530 manats.
Additionally, income payments due to employee reductions, the dissolution of individual entrepreneurs, termination of employment due to death, and benefits paid to the heirs of the deceased are not subject to income tax.
A one-time payment made upon voluntary retirement from public service due to reaching retirement age is exempt from income tax.
According to the Tax Code, 800 manats of the monthly taxable income of the parents, children, and widows (or widowers) of individuals with martyr status are exempt from income tax.
Example 4: The monthly taxable salary of a martyr’s child working in the non-government sector is 10,000 manats.
Tax exemption: 800 manats;
Taxable amount: 2,000 manats (amount of monthly salary exceeding 8,000 manats) - 800 manats (exemption for martyr’s children) = 1,200 manats.
Income refers to earnings obtained by residents within the Republic of Azerbaijan and outside of it, while for non-residents, it pertains to income earned within the Republic of Azerbaijan. Income is categorized into three groups: The topic is explained by the company's financial and accounting specialist, Sabina Mirzaeva.
1.Income from employment;
2.Income from activities not related to employment;
3.All other income except for income exempt from taxes and gains from the revaluation of fixed assets.
Income from employment refers to salary, any payments, or benefits received for this work. Salary is the amount paid by the employer in cash or in kind for performing work functions during the relevant period according to an employment contract, including any additional payments, bonuses, and other compensation.
According to the Tax Code, the rates of income tax withheld from individuals' salaries are as follows:
For individuals working in the oil and gas sector and the public sector, if their employment income is up to 2,500 manats, the income tax rate is 14% of the taxable monthly amount; if it exceeds 2,500 manats, the tax is 350 manats plus 25% of the amount exceeding 2,500 manats.
For individuals not working in the oil and gas sector and working in the non-government sector, the tax rate is 0% for monthly taxable income up to 8,000 manats for a period of 7 years starting from January 1, 2019. For income exceeding 8,000 manats, the tax rate is 14% on the amount exceeding 8,000 manats.
Exemptions and deductions for income tax for individuals are regulated by Article 102 of the Tax Code. Let's look at the exemptions applicable when calculating salaries:
If an individual's monthly income from any employment (at the primary place of work) is up to 2,500 manats, the amount exempt from tax is 200 manats; if the annual income is up to 30,000 manats, the exempt portion is 2,400 manats.
Example 1: An individual's monthly income from employment in the oil and gas sector is 850 manats. How is their income tax calculated?
Tax exemption: 200 manats;
Taxable amount: 850 - 200 = 650 manats.
Gifts and financial assistance for education received by individuals during the calendar year up to 2,500 manats are exempt from income tax. Exemption is granted if documents confirming the purpose of the payments are provided.
Example 2: An employee at a state enterprise has an annual income of 11,520 manats (monthly income of 960 manats). The enterprise has provided financial assistance of 3,000 manats for education. Supporting documents have been provided. The calculation will be as follows:
Tax exemption: 2,400 manats (exemption for annual income up to 30,000 manats) + 2,500 manats (exemption for education assistance);
Taxable amount: (11,520 + 3,000) - (2,400 + 2,500) = 9,620 manats.
Apart from allowances for temporary disability, state pensions, state benefits, and non-repayable state transfers, income tax is exempted if accompanied by supporting documents (state transfers, decisions of executive authorities regarding one-time payments from the state budget, payment documents).
Example 3: A state enterprise has calculated a salary of 500 manats for an employee for November 2023. In that month, the employee also received an allowance of 230 manats for temporary disability and a state pension of 150 manats.
Tax exemption: 150 manats (state pension);
Taxable amount: (500 + 230) - 200 manats (for monthly income up to 2,500 manats) = 530 manats.
Additionally, income payments due to employee reductions, the dissolution of individual entrepreneurs, termination of employment due to death, and benefits paid to the heirs of the deceased are not subject to income tax.
A one-time payment made upon voluntary retirement from public service due to reaching retirement age is exempt from income tax.
According to the Tax Code, 800 manats of the monthly taxable income of the parents, children, and widows (or widowers) of individuals with martyr status are exempt from income tax.
Example 4: The monthly taxable salary of a martyr’s child working in the non-government sector is 10,000 manats.
Tax exemption: 800 manats;
Taxable amount: 2,000 manats (amount of monthly salary exceeding 8,000 manats) - 800 manats (exemption for martyr’s children) = 1,200 manats.