In recent days, many citizens have been receiving notifications on behalf of the State Tax Service regarding the reduction of the tax paid on rental income from houses.
Medianews.az, referring to musavat.com, reports that the notification states:
"The tax rate on income obtained from renting residential premises owned by individuals to other individuals has been reduced from 14% to 10%."
Citizens who received such notifications say they do not rent out houses and are worried that they might face some fines in the future.
We inquired to the State Tax Service under the Ministry of Economy about the purpose of sending these notifications and how the scope of recipients is determined. According to the information given to Musavat.com by the Public Relations Department of the Service, the notifications are of an educational nature: "As is known, with Law No. 297-VIIQD of the Republic of Azerbaijan dated December 9, 2025, a number of amendments were made to the Tax Code, as well as to the Law on Social Insurance.
In order to convey important innovations covering a broad range of taxpayers briefly, clearly, and directly (within the framework of total information dissemination), SMS notifications on 10 topics are sent to the mobile phone numbers registered in the accounting database of active taxpayers.
One of these notifications has the following content:
"The tax rate on income obtained from renting residential premises owned by individuals to other individuals has been reduced from 14% to 10%."
It should be noted that the State Tax Service regularly and extensively informs taxpayers about the applied changes and sends short notifications and SMS messages for this purpose."
The Service emphasizes that the notifications are sent to individuals with an active Taxpayer Identification Number (TIN). That is, the contingent is determined strictly based on the database of the Tax Service; no data from the State Service for Property Issues registry or other databases is used.
It should be noted that from January 1 of this year, the amount of tax that persons renting out their houses have to pay on rental income has been reduced from 14% to 10%. The official explanation states that the main purpose of this step is to reduce the shadow economy, increase transparency in the housing market, and expand the state’s tax revenues.
Two changes have been made in this area. Starting from January 1, 2025, persons renting out their houses have the opportunity to make their tax payments without personally registering at the tax authority. According to the amendment to the Tax Code, they can appoint a tax agent without personally registering with the tax authority and delegate the execution of tax obligations to that agent. The tax agent calculates the tax, collects it from the tenant, and transfers it to the budget. Also, maintaining the records of the paid income and withheld taxes is the responsibility of the tax agent.
Persons who do not use the services of a tax agent must themselves register as taxpayers at the tax authority, enter into an official agreement with the tenant, and pay 10 manat as tax to the state for every 100 manat of rental income received.
Along with the tax reduction, fines for tax evasion have been sharply increased. Thus, from 2026 onward, a fine of 200 manat will be imposed for failure to submit the registration application with the tax authority on time. Previously, this amount was set at only 40 manat. After that, a person renting out their house who evades tax registration will face more serious financial liability.
In addition, in cases where income is underreported in the tax report or the report is not submitted at all, a fine amounting to 50% of the evaded tax is provided.
Moreover, there are penalties for those staying in rental housing without a contract. For example, failure to register the place of residence or location can result in administrative liability for tenants. According to the Code of Administrative Offenses, if a citizen does not register at their place of residence, they will receive a warning or be fined 30 manat.
Since the beginning of this year, monitoring has been carried out by representatives of tax and police authorities, municipalities, and local executive authorities. Based on disclosed information, during this process, data bases related to property, social networks, and information about the use of communal services in apartments are reviewed to determine which apartments are rented out. At the same time, it is verified whether a notarized agreement has been concluded for renting these apartments. In fact, the monitoring aims to identify apartments rented out without official contracts and to penalize their owners – this has been set as an important task.
The sending of notifications by tax authorities, together with monitoring, can also be regarded as informing citizens and warning those who do not conclude rental agreements. It appears that the analysis of monitoring results has been completed and the government is now moving towards real measures. In this regard, legal actions against persons who rent out their houses without an official contract following educational notifications are expected to begin.
It should also be noted that taxing income from rented houses is a practice applied worldwide. Its application in Azerbaijan is not opposed. However, both citizens and experts believe the 10% tax rate is high. Taxes on rental income from real estate in regions and other countries are 2-2.5 times lower than the rate set in Azerbaijan. For example, physical persons in Moscow city pay only 4% tax on rental income. For legal entities, the tax rate is 6%. In neighboring Georgia, the rental tax rate is 5%. In Austria, if monthly rental income is less than 1500 euros, a 5.76% tax is applied.
Additionally, in recent years, Georgia has taken important steps to legalize the rental market and encourage citizens to pay taxes on rental income. Electronic contract systems have been created, and special tax regimes for short-term rental activities have been introduced. Azerbaijan would benefit positively from this experience.
The requirements of legislation concerning rental housing can so far only cover houses with legal documentation. For a contract to be legally concluded, the documentation of the rented house must be in order. Around Baku, hundreds of thousands of houses lack documentation; many of them are rented out. Many people build 5-6 separate rooms in one yard to rent to workers or students. None of these houses have property titles. This makes it impossible to sign rental agreements for them, and the same applies to agreements with tax agents. Thus, compliance with legal requirements is unrealistic for owners of undocumented houses. There are tens of thousands of such houses. If the government does not take real steps soon to register undocumented houses, the potential income tax revenue from these houses will turn into lost revenue for the state.