According to Article 172.5 of the Labor Code of the Republic of Azerbaijan, if the payment of wages is delayed due to the employer’s fault and this does not lead to an individual labor dispute, the employer must pay the employee an additional compensation of at least one percent of the wage for each day of delay.

  Is this additional payment made to the employee considered part of their income and subject to tax, or is it regarded as compensation and exempt from taxation?

   Based on the decision of the Constitutional Court Plenum dated April 11, 2023, regarding the interpretation of Article 172.5 of the Labor Code of the Republic of Azerbaijan, it can be determined that the payment made for the delay in wages is of a compensatory nature.

  The decision specifically uses the term “compensation” in the context of wage delay payments, confirming that the payment made due to wage delays is considered a compensatory payment.

  Furthermore, Article 102.1.10 of the Tax Code of the Republic of Azerbaijan exempts compensation payments related to the reimbursement of damages from taxes.

  Therefore, according to the legislation, the payment made for delayed wages is considered compensatory and is exempt from taxation.