According to the law, Article 102.1.22-2 was added to the Tax Code of the Republic of Azerbaijan. This Article states that dividends, discounts (difference resulting from the placement of bonds below face value) and interest income paid to individuals on publicly offered and traded in a regulated market shares and bonds are exempted from income tax for a period of 5 (five) years from February 1, 2023.
It should be noted that a similar exemption exists in Article 102.1.22 of the Tax Code, and this amendment can be considered a more specialized continuation of that exemption. Thus, according to Article 102.1.22 of the Tax Code, dividends, discounts and interest income paid on investment securities, regardless of where they are offered and traded, are exempt from income tax from February 1, 2016 to February 1, 2023.
Pursuant to the law, some amendments were made regarding withholding tax application on interest income, which have retrospective force and are considered to be effective from January 1, 2022. As such, the taxation of interest income of resident legal entities and permanent establishments of non-resident legal entities at the source of payment is abolished.
Thus, considering the amendments, interest income from Azerbaijani sources, as well as interest on financial leasing loans are subject to 10% withholding tax only in the following cases:
When paid by a resident or by a permanent establishment of a non-resident, or on behalf of such representation,
- to resident individuals;
- to non-resident individuals;
- to non-resident legal entities that do not have a permanent establishment in the Republic of Azerbaijan.
In addition, based on the amendments, the withholding tax on the discount and interest income paid on the bond will be calculated in proportion to the number of days the bondholder owns the bond.