How to start a business in Azerbaijan

The Republic of Azerbaijan, which is a regional center in Central Eurasia, is a rapidly developing market and is becoming a golden place for global investment.

Over the past few years, a positive trend has been observed in the process of organizing business in Azerbaijan. According to the report of the Central Bank of Azerbaijan, as of November 2022, the strategic foreign exchange reserves of Azerbaijan amounted to about 56 billion US dollars.

Azerbaijan, with Baku as its capital, is one of the ideal investment destinations for any business, from start-ups to SMEs and multinational corporations. The government has introduced a number of flexibilities to ensure the best possible business formation experience in response to commercial business development.

Economic review of Azerbaijan

Rich in oil and gas, Azerbaijan is one of the new producers of hydrocarbons and occupies one of the first places among the countries with the largest gas reserves in the world. The energy policy of Azerbaijan has turned the country into a regional energy center. However, over the years, the Azerbaijani government has also sought to use the non-oil sector to increase the country's revenues.

Thanks to the efficient and transparent management of oil and gas revenues, the State Oil Fund has quickly become one of the most transparent funds in the world and has provided long-term financial returns to current and future generations. Azerbaijan's greater participation in international markets further increases the country's economic strength.

One of the world's largest gas fields – Shah Deniz was discovered by Azerbaijani geologists in the middle of the 20th century.

In 1996, a consortium established by SOCAR and international oil companies discovered large reserves in the Shah Deniz gas field, and the result exceeded expectations. The field is estimated to contain 1.2 trillion cubic meters of gas reserves and is considered one of the few largest gas fields in the world.

In subsequent years, the discovery of the Umid and Absheron fields confirmed the possession of large gas reserves by Azerbaijan. He opened a new page in the history of hydrocarbon production in Azerbaijan.

In 2020, the Karabakh field will went down in history as the first oil field discovered in the years of independence (with reserves of 60 million tons of oil). From 2023, Total will start production at the Absheron gas field, whose gas resources are estimated at more than 300 billion cubic meters.

Work on the development of the D230 block and the Shafag-Asiman gas field is being carried out jointly with BP, the operator of the Shah Deniz and Azeri-Chirag-Guneshli projects.

Azerbaijan became the initiator, shareholder and host country of the strategically important Southern Gas Corridor project. Turkey and Georgia were the first to join the initiative, followed by Italy, Greece, Bulgaria and Albania. Currently, new and potential partners include Bosnia and Herzegovina, Croatia, Serbia and Montenegro.

Azerbaijan is already exporting its gas to neighboring countries and to Europe via the Trans-Anatolian (TANAP) and Trans-Adriatic (TAP) pipelines, which carry gas to Greece, Albania, Italy and Bulgaria.

Business Opportunities in Azerbaijan

Azerbaijan welcomes both beginners and experienced business players. There are many promising business opportunities, including:

• Import and export
• Production
• Tourism
• Hotel business
• Food and drink
• Agriculture
• Information technology
• Retail, etc.

In addition to the enterprises mentioned above, there are many more business opportunities in Azerbaijan.

How to start a business in Azerbaijan?

Opening a business in Azerbaijan involves many steps that an investor needs to take. Some of the required steps:

Understand your business needs

The first and most important responsibility of every business — understand his business. Business owners must have a clear understanding of the target market and the business activities that must be carried out effectively.

Choose a strategic location

Business investors can choose a location in Azerbaijan due to many opportunities. To focus on specific industries, a number of free zones, industrial parks and sites have been created. Be sure to choose the ideal location for your business by weighing the advantages and disadvantages of different locations.

Choose a company name

This is one of the most important and at the same time essential tasks. When choosing a trade name in Azerbaijan, investors should be aware that the chosen trade name should not be the same as the names of competitors.

Get the necessary documents and start commercial registration

It is important to note that documentation plays a crucial role in organizing a business in Azerbaijan. To complete the process of registering a business (Limited Liability Company in Azerbaijan, LLC), the investor must provide a set of previously declared documents, which includes:

• Application Form – form provided by the State Tax Service. It also needs to be notarized.
• Constituent documents – Charter of the company, Decision of its shareholders on the establishment of an LLC and the appointment of a legal representative.
• Information about shareholders and founders – identity cards and passports of the founders. The articles of association, memorandum and certificate from the commercial register are required if the owners or shareholders are foreign legal entities.
• Notarial authorization of the legal representative in cases where the shareholder is not the legal representative (director) of the company.
• Receipt of payment of the state fee for registration and authorized capital. The fee for the official registration of a new LLC is 11 manat (AZN) and must be paid in advance prior to registration. The state fee for registration of representative offices and branches of foreign legal entities is 220 manats (AZN). If provided for by the articles of association, the capital must be paid up within three months of the incorporation of the company.

All these documents must be submitted to the Department of Registration of Legal Entities of the State Tax Service.

During official registration, the following steps must be taken in practice before starting actual economic activity:

• Obtaining a Mobile Signature (ASAN Imza) for a legal representative;
• Obtain company seal;
• Opening a bank account after submitting a copy of the tax certificate to the selected bank through the electronic tax and capital deposit system. In Azerbaijan, opening a bank account is a necessity for registering a business. Clients and business owners/investors can more easily conduct commercial transactions when they have a corporate bank account. In addition, it helps entrepreneurs keep their personal and business finances separate. After the registration of the company, it is necessary to open a bank account within 3 months and deposit 100% of the capital of the company;
• Registration of the employment contract of the legal representative in the state register of notices of employment contracts.

Hire a workforce

Selecting the right candidate for the right job is very important for any business. Keep in mind that after the company registration tasks are completed, a sufficient number of people will be required to manage them. The employer must employ employees by providing a work visa.

Proceed to the registration process after registration

Once the business is established, maintaining the previous state becomes a big problem. Implementing post-registration services that are essential to the efficient operation of every organization is one of the easiest ways to ensure its security. Some of the services include the following:

• Tax Services
• Accounting and bookkeeping
• Intellectual Property Services
• Legal services and more

Implementing these core principles will help you track your business growth and take action accordingly.

Types of business entities in Azerbaijan

A business investor in Azerbaijan can choose any of the business entities:

• Micro business entity (1-10 employees)
• Small business entity (11-50 employees)
• Medium business entity (51-250 employees)
• Large business entity (251 or more employees)

Types of companies in Azerbaijan

Limited Liability Company (LLC)

The preferred commercial entity used for commercial purposes worldwide is the Limited Liability Company (LLC). An LLC in Azerbaijan can be established by at least one member and does not require a minimum authorized capital.

Limited Liability Company or Joint Stock Company

This type of company is suitable for large operations. A joint stock company (JSC) in Azerbaijan can be established in two forms: open and closed. An open JSC may be registered by one or more individuals or even companies. This organization is available and is also recommended for large enterprises, and in addition it is subject to transferable bonds.

Sole proprietorship

This is the simplest legal entity for a one-person business. Establishing a sole trader is simple and easy, as it does not involve, for example, the formal registration of a private limited company. Even though this business form is available to all investors, it is mainly used by professionals such as craftsmen and accountants who may manage their own activities as a small business or practice.

Partnership

Partnership in Azerbaijan requires a minimum of two members and is suitable for small businesses. Business people may be interested in opening a general or limited partnership in Azerbaijan. In a limited liability partnership formed by two entrepreneurs, one of them has limited liability and must deal with the future investments of the firms. The second partner is responsible for most of the responsibilities of the partnership, including debts and obligations.

There are 3 main types of legal entities that can be used to set up a foreign company in Azerbaijan:

• subsidiary (a company owned by another company, commonly referred to as a parent company or holding company)
• branch (location of business other than the main office where business is conducted)
• representation or liaison office (an office set up in a foreign market as a first step in establishing relationships with potential buyers or sellers)

Each of these legal entities has its own registration requirements.

List of free zones in Azerbaijan

Alat Free Economic Zone

An integral part of the overall strategy of the President of the Republic of Azerbaijan and the government to create a knowledge-intensive and globally competitive economy in Azerbaijan is the creation and successful development of the Alat Free Economic Zone. This will allow Azerbaijan to become a highly competitive participant in international economic relations with a diversified and export-oriented economy that creates high added value based on world-class attractiveness.

There are no restrictions on the amount of investments in the authorized capital by foreign or local shareholders.

The competent authority of the free zone, administrative offices of the free zone, legal entities of the free zone and their employees, residents of the free zone are exempt from all taxes on their activities in the free zone.

Investors, shareholders, residents of the Free Zone and legal entities of the Free Zone have the right to invest in the Free Zone and the right to transfer their funds from their activities abroad without any restrictions.

At the same time, they have the right to work and make transactions in any foreign currency without any restrictions.

Industrial parks and sites

Industrial Park – a territory that has the necessary infrastructure and management institutions for entrepreneurial activities, used to produce competitive products and provide services through the use of modern technologies, contributing to the efficient operation and development of entrepreneurs.

Investment in industrial parks and sites in Azerbaijan reached $3.7 billion, which led to a significant increase in the production of goods and export operations.

Currently, there are six industrial parks in Azerbaijan – Sumgait, Balakhani, Mingachevir, Garadagh, Pirallahinsky and Aghdam, as well as four industrial sites – Neftchala, Masalli, Hajigabul and Sabirabad. Residents of industrial parks are exempt from paying property tax, land plot and income tax for 10 years from the date of their registration. They are also exempt from paying value added tax (VAT) and customs duties on machinery, technological equipment and equipment imported for production purposes for 10 and 7 years, respectively, from the date of obtaining resident status.

Meanwhile, the government has created two new industrial parks in the territories of Azerbaijan liberated from the Armenian occupation in 2020, namely in the Aghdam and Jabrayil regions.

Construction of the Aghdam Industrial Park is scheduled to begin sometime in August on an area of 190 hectares (470 acres). Nine enterprises have already received the status of park residents. The priority areas of the park are the production of building materials, packaging of agricultural products, canned fruits and vegetables, meat and dairy products, production and processing of feed and fertilizers, as well as refrigeration, storage and other services. Residents are expected to invest a total of about $30 million in the Aghdam Industrial Park.

In October 2021, the foundation of the industrial park of the Araz Valley economic zone was laid in Jabrayil. in Jabrayil. The country's authorities have allocated 200 hectares (494 acres) of land for the construction of the park. Once completed, it will include agricultural processing, industrial, social and technical zones. The park will also have a logistics and trade center, warehouse complexes, wholesale and retail facilities, a cargo park, a customs post, gas stations, car and other equipment repair points. Resident enterprises will have the necessary conditions for the production of building materials, packaging of agricultural products, as well as the manufacture and processing of canned fruits and vegetables, wine, meat, silk, etc.

Tax scenario in Azerbaijan

All types of companies existing in Azerbaijan are subject to taxation. Local law distinguishes between personal taxation, applicable to individuals deriving taxable income from activities developed in that country, and corporate taxation, applicable to legal entities developing business activities here.

The main points of corporate tax and income tax levied in Azerbaijan are listed below:

• corporate income tax applicable to legal entities or branches of foreign companies is levied at a rate of 20%;
• since January 1, 2013, corporate income tax is exempted from payment in case of registration of resident entities in industrial and technological parks, tax exemption is provided for 7 years from the date of registration;
• Azerbaijani companies with an annual turnover of up to AZN 200,000 can be registered as simplified tax payers;
• Simplified tax payers offering trading services will be taxed at a rate of 6% on their annual profits;
• Establishments operating in the catering sector are taxed at a rate of 8%;
• Azerbaijan has withholding taxes, interest is taxed at 10%, rent and royalties are taxed at 14%, and financial and insurance services are taxed at 4%.

Why invest in Azerbaijan?

Investments in Azerbaijan – one of the profitable steps any business investor can take. This is one of the easiest ways to move existing business finances and use the profits of the business. Here is a guide on why to invest in Azerbaijan to help you better understand the investment scenario:

• Business-oriented and growing economy
• Huge investment opportunity
• Suitable for both beginners and seasoned business professionals

For foreigners interested in starting a business here, Azerbaijan has a number of competitive advantages. The country has an excellent reputation among the economies of the world and is ranked 18th in the world in terms of ease of starting a business (World Bank Doing Business Report 2018). The study examines the economic climate in 190 jurisdictions.

Businessmen interested in setting up a company in Azerbaijan should also be aware that local commercial law gives them the opportunity to set up a local company with 100% foreign capital. With almost no restrictions on the rights of founders, company owners, financing options, or other material issues that might be of interest to companies seeking to enter a foreign market, international investors are also allowed to form joint ventures.

Azerbaijan is an energy-provided country with huge reserves of oil and natural gas. This factor acts as the basis of its industry, and hence there is no shortage of fuel for an industrial device.

Corporate income tax in Azerbaijan is only 20%, which is less than the world average.

The country offers a productive business environment with its own infrastructure, investment incentives and financial services.