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How much tax do car repair mechanics pay?
How much tax do car repair mechanics pay?
The topic is commented on by expert Zahir Adigozalov. According to legislation, when individuals earn income by providing services, tax obligations arise. Individuals engaged in car repair, replacement of spare parts, and other similar services are also subject to taxation in accordance with the rules defined by the Tax Code. This article explains which tax regimes car mechanics may fall under, as well as their reporting and payment obligations.
If a car mechanic operates under a civil law contract (for example, by providing services to a physical or legal person), their tax and social obligations are regulated as follows:
According to Article 101.1 of the Tax Code, taking into account the provisions of Article 101.1-1, personal income tax is withheld from individuals' monthly income from paid employment as follows:
A) Up to 2,500 AZN – 14%;
B) Over 2,500 AZN – 350 AZN + 25% of the amount exceeding 2,500 AZN.
At the same time, under Article 14.5.2 of the Law “On Social Insurance,” mandatory social insurance contributions must be paid at the source of payment. According to Article 15-10.1.4 of the Law “On Mandatory Health Insurance,” mandatory health insurance contributions must also be paid.
Example 1: In January 2022, “AA” LLC had a vehicle repaired by an individual not registered with the tax authorities. The agreed amount, including deductions (tax, insurance), was 3,000 AZN. Payment was made in March 2022, and the debt was fully settled. Let’s calculate the deductions and the net amount paid to the individual.
Tax withheld at source:
(2,500 x 14%) + (500 x 25%) = 350 + 125 = 475 AZN
Mandatory state social insurance contribution:
3,000 x 25% = 750 AZN
Mandatory health insurance contribution:
3,000 x 2% = 60 AZN
Amount paid to the individual:
3,000 – 475 – 750 – 60 = 1,715 AZN
Car mechanics acting as individuals may operate under one of the following tax regimes:
a) Simplified tax regime
If a car mechanic provides services related to specific components (engine, drivetrain, electrical systems, etc.) and their turnover is less than 200,000 AZN, they may qualify as a simplified tax payer.
b) Income tax regime
If the simplified tax regime is not chosen, then the car mechanic must pay income tax.
Example 2: Suppose a car mechanic earned 300,000 AZN in 2024, with documented expenses amounting to 200,000 AZN. In this case, as an income taxpayer, they would have a taxable profit of 100,000 AZN and a VAT liability of 54,000 AZN:
300,000 – 200,000 = 100,000 AZN
100,000 x 20% = 20,000 AZN (income tax)
300,000 x 18% = 54,000 AZN (VAT)
If the car mechanic is engaged in entrepreneurial activity, they must pay mandatory state social insurance contributions. These payments are essential for the formation of pension capital and entitlement to social security.
According to Article 14.5 of the Law “On Social Insurance,” individuals receiving income from non-wage activities must pay the following social insurance contributions (until January 1, 2026), based on 25% of the minimum monthly wage (400 AZN) in non-construction sectors:
In Baku – 100% = 100 AZN
In Sumgayit and Ganja – 90% = 90 AZN
In other cities – 80% = 80 AZN
In district centers and settlements – 60% = 60 AZN
In rural areas – 50% = 50 AZN
Car mechanics operating in Baku will pay the full amount (100 AZN). Those in Sumgayit and Ganja will pay 90 AZN, in other cities 80 AZN, in districts 60 AZN, and in rural areas 50 AZN in social insurance.
According to Article 15-10.1.3 of the Law “On Mandatory Health Insurance,” regardless of the location of their activity, individual entrepreneurs must pay health insurance premiums equal to 4% of the minimum monthly wage:
400 x 4% = 16 AZN
(This amount remains fixed.)
Reporting obligations:
A) Under the simplified tax regime: quarterly and annual declarations are submitted.
B) Under the income tax regime: an annual income tax return is submitted.
Example 3: Suppose a car mechanic working in Baku earned 50,000 AZN in 2025. If operating under the simplified tax regime:
Tax (2%): 50,000 x 2% = 1,000 AZN
Social insurance (annual): 100 x 12 = 1,200 AZN
Health insurance (annual): 16 x 12 = 192 AZN
Total obligation: 2,392 AZN
If the car mechanic is an income tax payer, they must calculate and pay 20% of their annual income as tax.
It should be noted that according to Article 220.10 of the Tax Code, car repair services are not included among the activities eligible for the fixed receipt (patent) regime. Therefore, operating under this regime is legally restricted for car mechanics.
The topic is commented on by expert Zahir Adigozalov. According to legislation, when individuals earn income by providing services, tax obligations arise. Individuals engaged in car repair, replacement of spare parts, and other similar services are also subject to taxation in accordance with the rules defined by the Tax Code. This article explains which tax regimes car mechanics may fall under, as well as their reporting and payment obligations.
If a car mechanic operates under a civil law contract (for example, by providing services to a physical or legal person), their tax and social obligations are regulated as follows:
According to Article 101.1 of the Tax Code, taking into account the provisions of Article 101.1-1, personal income tax is withheld from individuals' monthly income from paid employment as follows:
A) Up to 2,500 AZN – 14%;
B) Over 2,500 AZN – 350 AZN + 25% of the amount exceeding 2,500 AZN.
At the same time, under Article 14.5.2 of the Law “On Social Insurance,” mandatory social insurance contributions must be paid at the source of payment. According to Article 15-10.1.4 of the Law “On Mandatory Health Insurance,” mandatory health insurance contributions must also be paid.
Example 1: In January 2022, “AA” LLC had a vehicle repaired by an individual not registered with the tax authorities. The agreed amount, including deductions (tax, insurance), was 3,000 AZN. Payment was made in March 2022, and the debt was fully settled. Let’s calculate the deductions and the net amount paid to the individual.
Tax withheld at source:
(2,500 x 14%) + (500 x 25%) = 350 + 125 = 475 AZN
Mandatory state social insurance contribution:
3,000 x 25% = 750 AZN
Mandatory health insurance contribution:
3,000 x 2% = 60 AZN
Amount paid to the individual:
3,000 – 475 – 750 – 60 = 1,715 AZN
Car mechanics acting as individuals may operate under one of the following tax regimes:
a) Simplified tax regime
If a car mechanic provides services related to specific components (engine, drivetrain, electrical systems, etc.) and their turnover is less than 200,000 AZN, they may qualify as a simplified tax payer.
b) Income tax regime
If the simplified tax regime is not chosen, then the car mechanic must pay income tax.
Example 2: Suppose a car mechanic earned 300,000 AZN in 2024, with documented expenses amounting to 200,000 AZN. In this case, as an income taxpayer, they would have a taxable profit of 100,000 AZN and a VAT liability of 54,000 AZN:
300,000 – 200,000 = 100,000 AZN
100,000 x 20% = 20,000 AZN (income tax)
300,000 x 18% = 54,000 AZN (VAT)
If the car mechanic is engaged in entrepreneurial activity, they must pay mandatory state social insurance contributions. These payments are essential for the formation of pension capital and entitlement to social security.
According to Article 14.5 of the Law “On Social Insurance,” individuals receiving income from non-wage activities must pay the following social insurance contributions (until January 1, 2026), based on 25% of the minimum monthly wage (400 AZN) in non-construction sectors:
In Baku – 100% = 100 AZN
In Sumgayit and Ganja – 90% = 90 AZN
In other cities – 80% = 80 AZN
In district centers and settlements – 60% = 60 AZN
In rural areas – 50% = 50 AZN
Car mechanics operating in Baku will pay the full amount (100 AZN). Those in Sumgayit and Ganja will pay 90 AZN, in other cities 80 AZN, in districts 60 AZN, and in rural areas 50 AZN in social insurance.
According to Article 15-10.1.3 of the Law “On Mandatory Health Insurance,” regardless of the location of their activity, individual entrepreneurs must pay health insurance premiums equal to 4% of the minimum monthly wage:
400 x 4% = 16 AZN
(This amount remains fixed.)
Reporting obligations:
A) Under the simplified tax regime: quarterly and annual declarations are submitted.
B) Under the income tax regime: an annual income tax return is submitted.
Example 3: Suppose a car mechanic working in Baku earned 50,000 AZN in 2025. If operating under the simplified tax regime:
Tax (2%): 50,000 x 2% = 1,000 AZN
Social insurance (annual): 100 x 12 = 1,200 AZN
Health insurance (annual): 16 x 12 = 192 AZN
Total obligation: 2,392 AZN
If the car mechanic is an income tax payer, they must calculate and pay 20% of their annual income as tax.
It should be noted that according to Article 220.10 of the Tax Code, car repair services are not included among the activities eligible for the fixed receipt (patent) regime. Therefore, operating under this regime is legally restricted for car mechanics.