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Tax obligations of an individual lawyer and a law office: RULES, AMOUNTS
Tax obligations of an individual lawyer and a law office: RULES, AMOUNTS
According to Article 99.3.11 of the Tax Code, payments received by individuals engaged in advocacy for the services they provide are classified as income from non-entrepreneurial activities. Article 101.2 of the Code stipulates that an annual income from non-entrepreneurial activity is subject to taxation at a rate of 14%. These rules are explained by expert Vusal Bayramli.
As can be seen from the provisions of the Tax Code, income from advocacy is considered non-entrepreneurial activity, and therefore lawyers are payers of income tax. Individual practitioners, under Article 101 of the Tax Code, pay tax at the rate of 14% on annual income from non-entrepreneurial activity.
Under Azerbaijani legislation, the activities of lawyers are regulated by the Law “On Lawyers and Advocacy” and the Tax Code. Their tax and social obligations vary depending on the form of activity – whether practicing individually or as part of a law office.
1. Main income of an individual practitioner
A lawyer does not register as an individual entrepreneur (natural person), since advocacy is not considered entrepreneurial activity. The main source of their income is fees (honorarium) for legal assistance provided.
According to the Tax Code, a lawyer must pay income tax on their earnings:
14% on monthly income up to 2,500 manats;
25% on the portion exceeding 2,500 manats.
Example 1: If the monthly income of an individual lawyer is 3,000 manats, their tax liability is calculated as follows:
2,500 × 14% = 350 manats;
3,000 – 2,500 = 500 manats;
500 × 25% = 125 manats;
Total tax liability: 350 + 125 = 475 manats.
According to Article 15-2.2.2 of the Law “On Health Insurance,” except in cases where entrepreneurial activity or other taxable operations are temporarily suspended, natural persons registered as taxpayers (individual entrepreneurs, private notaries, members of the Bar Association, mediators) act as insured persons themselves. Article 15-10.1.3 of the same Law establishes that the monthly insurance contribution for such insured persons is set at 4% of the minimum monthly wage.
Lawyers are also required to pay mandatory state social insurance contributions. Under Article 14.5.5 of the Law “On Social Insurance,” members of the Bar Association must pay social insurance contributions equal to 10% of their income (after deducting expenses) until January 1, 2026.
Example 2: Suppose an individual lawyer earned 5,000 manats in July from clients. Their monthly expenses (office rent, stationery, transportation, etc.) amounted to 1,500 manats. The calculation of social payments would be as follows:
Net income: 5,000 – 1,500 = 3,500 manats;
Mandatory state social insurance (10%): 3,500 × 10% = 350 manats;
Mandatory health insurance: 400 × 4% = 16 manats.
2. Obligations of a law office
A law office does not have legal entity status, but it maintains general accounting. Each lawyer pays tax separately on their share of income. The office receives fees into its cash account and distributes them. Requirements for transparent accounting are very strict in this case.
Example 3: Suppose a law office receives 20,000 manats in a month. Assume there are 4 lawyers working there. With equal distribution, each lawyer’s income will be 5,000 manats:
20,000 ÷ 4 = 5,000 manats.
In this case, each lawyer pays the above income tax and social contributions individually:
5,000 – 2,500 = 2,500 manats;
2,500 × 14% = 350 manats;
2,500 × 25% = 625 manats;
Total tax liability: 350 + 625 = 975 manats;
Mandatory state social insurance: 5,000 × 10% = 500 manats;
Mandatory health insurance: 400 × 4% = 16 manats.
Technical staff and other employees of a law office are employed under employment contracts. From their salaries, 14% income tax, 3% unemployment insurance, and 25% mandatory state social insurance contributions (from the wage fund) are withheld and paid.
According to Article 99.3.11 of the Tax Code, payments received by individuals engaged in advocacy for the services they provide are classified as income from non-entrepreneurial activities. Article 101.2 of the Code stipulates that an annual income from non-entrepreneurial activity is subject to taxation at a rate of 14%. These rules are explained by expert Vusal Bayramli.
As can be seen from the provisions of the Tax Code, income from advocacy is considered non-entrepreneurial activity, and therefore lawyers are payers of income tax. Individual practitioners, under Article 101 of the Tax Code, pay tax at the rate of 14% on annual income from non-entrepreneurial activity.
Under Azerbaijani legislation, the activities of lawyers are regulated by the Law “On Lawyers and Advocacy” and the Tax Code. Their tax and social obligations vary depending on the form of activity – whether practicing individually or as part of a law office.
1. Main income of an individual practitioner
A lawyer does not register as an individual entrepreneur (natural person), since advocacy is not considered entrepreneurial activity. The main source of their income is fees (honorarium) for legal assistance provided.
According to the Tax Code, a lawyer must pay income tax on their earnings:
14% on monthly income up to 2,500 manats;
25% on the portion exceeding 2,500 manats.
Example 1: If the monthly income of an individual lawyer is 3,000 manats, their tax liability is calculated as follows:
2,500 × 14% = 350 manats;
3,000 – 2,500 = 500 manats;
500 × 25% = 125 manats;
Total tax liability: 350 + 125 = 475 manats.
According to Article 15-2.2.2 of the Law “On Health Insurance,” except in cases where entrepreneurial activity or other taxable operations are temporarily suspended, natural persons registered as taxpayers (individual entrepreneurs, private notaries, members of the Bar Association, mediators) act as insured persons themselves. Article 15-10.1.3 of the same Law establishes that the monthly insurance contribution for such insured persons is set at 4% of the minimum monthly wage.
Lawyers are also required to pay mandatory state social insurance contributions. Under Article 14.5.5 of the Law “On Social Insurance,” members of the Bar Association must pay social insurance contributions equal to 10% of their income (after deducting expenses) until January 1, 2026.
Example 2: Suppose an individual lawyer earned 5,000 manats in July from clients. Their monthly expenses (office rent, stationery, transportation, etc.) amounted to 1,500 manats. The calculation of social payments would be as follows:
Net income: 5,000 – 1,500 = 3,500 manats;
Mandatory state social insurance (10%): 3,500 × 10% = 350 manats;
Mandatory health insurance: 400 × 4% = 16 manats.
2. Obligations of a law office
A law office does not have legal entity status, but it maintains general accounting. Each lawyer pays tax separately on their share of income. The office receives fees into its cash account and distributes them. Requirements for transparent accounting are very strict in this case.
Example 3: Suppose a law office receives 20,000 manats in a month. Assume there are 4 lawyers working there. With equal distribution, each lawyer’s income will be 5,000 manats:
20,000 ÷ 4 = 5,000 manats.
In this case, each lawyer pays the above income tax and social contributions individually:
5,000 – 2,500 = 2,500 manats;
2,500 × 14% = 350 manats;
2,500 × 25% = 625 manats;
Total tax liability: 350 + 625 = 975 manats;
Mandatory state social insurance: 5,000 × 10% = 500 manats;
Mandatory health insurance: 400 × 4% = 16 manats.
Technical staff and other employees of a law office are employed under employment contracts. From their salaries, 14% income tax, 3% unemployment insurance, and 25% mandatory state social insurance contributions (from the wage fund) are withheld and paid.