Company Registration in Azerbaijan

In this article, we will explore the key aspects of launching a business and establishing a company in Azerbaijan, including fundamental legal requirements, procedural nuances, and tax obligations. Various legal entity forms available for registration will be meticulously outlined, alongside the steps required for a successful commencement of operations in this jurisdiction. Additionally, amendments to legislation facilitating the registration process and local business support will be elucidated.

Investment climate in Azerbaijan

The investment climate of Azerbaijan is characterized by stable economic growth, active state support for investment activities, and continuous improvement of the business environment. These factors collectively create favorable conditions for attracting domestic and foreign investments.

The Government of Azerbaijan is implementing a series of programs and initiatives aimed at stimulating investments in key sectors of the economy. Special attention is being paid to the development of oil and gas, as well as renewable energy sources, agriculture, information technology, and tourism. In recent years, legislative and tax incentives for investors have been actively developed, including reductions in tax rates and the provision of land plots for the construction of production facilities.

Azerbaijan incentivizes investment through a variety of fiscal measures, including tax holidays and exemptions from import duties on equipment and raw materials crucial for investment projects. Additionally, the country leverages special economic zones and free trade zones, offering further advantages such as streamlined business registration and operational procedures.

Azerbaijan is actively engaged in enhancing its investment infrastructure, striving to create favorable conditions for foreign direct investment. The construction of new transport corridors and logistics centers, such as the International Sea Trade Port in Alat, contributes to increased trade turnover and improved transport accessibility of the country.

The legal system of Azerbaijan ensures the protection of rights and interests of investors. The country has signed numerous international agreements on investment protection and avoidance of double taxation. The judicial system strives for enhanced transparency and independence, thereby fostering investor confidence.

From a strategic standpoint, the country can be viewed as a nexus bridging Europe and Asia. Azerbaijan offers unique market opportunities for companies seeking to expand their presence in these markets. The country actively fosters trade relations, enhancing export and import operations.

In 2023, the economy of Azerbaijan reached a gross domestic product (GDP) of $81 billion (against $78.7 billion in 2022), showing a steady year-to-year growing trend in the major economic sectors, like the oil sector, country's foreign trade turnover, etc. Key imported goods include iron and steel, machinery, automobiles, and food products. Important export destinations include Italy, Turkey, Israel, and India.

Analysis of industries with high potential for starting a business in Azerbaijan

Azerbaijan is experiencing significant economic growth in several key sectors, creating favorable conditions for registering companies and starting a business. Key economic sectors such as industry, trade, transport, construction, and agriculture, as well as renewable energy, represent areas with high investment potential.

These directions underscore Azerbaijan's potential as a business launchpad, offering access to a burgeoning market and opportunities to engage in diverse economic ventures.

Choosing a location to start a business in Azerbaijan

Choosing the right location is a key aspect when planning to register a company in Azerbaijan. Different regions of the country offer unique advantages depending on the industry, size of operation and target market.

Baku is a center of business and finance

Baku, the capital and largest city of Azerbaijan, serves as the epicenter of the nation's economic activity. It hosts key governmental institutions, financial establishments, and international corporations. For companies operating in finance, real estate, technology, and international trade sectors, Baku offers a sophisticated infrastructure, skilled workforce, and access to major markets.

Sumqayit and Ganja are industrial units

Sumqayit, renowned for its chemical plants and metallurgical industry, presents an ideal locale for the establishment of a company within the industrial sectors of Azerbaijan. Ganja, the second-largest city in the country, also holds allure for the industrial sector, particularly in the realms of engineering and food processing.

Sheki, Ismailli and Quba are regions for agricultural business

For companies in Azerbaijan interested in agribusiness, such as cultivation of cereals, fruits, or grapes, regions like Sheki, Ismailli, and Quba offer fertile soils and a favorable climate. These locales are ideally suited for establishing enterprises in the agricultural sector, providing access to local resources and markets.

Quba, Sheki and Gebele are tourist destinations

Tourism is deemed as one of the swiftly burgeoning sectors in Azerbaijan. Regions such as Quba, Sheki, and Gebele present lucrative opportunities for investors aspiring to establish a firm within the hospitality industry or entertainment sector. These areas boast captivating natural landscapes and a rich cultural heritage, rendering them ideal for tourism development.

Special economic zones (SEZ) of Azerbaijan

Azerbaijan is developing a network of special economic and free economic zones, offering special conditions for businesses. These zones provide preferential tax and customs terms, making them attractive to international companies seeking to establish manufacturing and export-oriented enterprises.

These zones stimulate economic activity by attracting investments in priority sectors and creating favorable conditions for international business. Registering a company in one of Azerbaijan's SEZ can significantly streamline the business process and provide access to international markets.

The choice of location for launching a business in Azerbaijan should be based on a meticulous analysis of market conditions, resource availability, and target audiences. Each region offers unique opportunities and potential for growth, making company registration in Azerbaijan a promising and auspicious endeavor.

Brief overview of the legal aspects of doing business in the country

The legal system of Azerbaijan provides a clear and structured framework for doing business. Below are the key laws governing business activities in the country.

The Civil Code of the Azerbaijan Republic (1999)

This code constitutes the primary document governing civil legal relations, encompassing transactions, contracts, property rights, and obligations. It delineates the legal foundations of corporate activities, including company registration, their rights, and obligations.

The Law on State Registration and State Register of Legal Entities (2003)

This law establishes procedures for registering businesses within the territory of Azerbaijan, requirements for documentation, and the process of amending founding documents. The law plays a pivotal role in ensuring transparency and legality in the operations of enterprises.

The Tax Code of the Republic of Azerbaijan (2000)

The code regulates tax relations between the state and enterprises, establishing tax rates, the procedure for their payment, and exemptions. An important aspect is the classification of taxes for various types of activities and special tax regimes for investors in special economic zones.

The Labor Code of the Republic of Azerbaijan (1999)

The Labor Code regulates relations between employers and employees, encompassing labor conditions, rights and obligations of the parties, the procedure for resolving labor disputes, and occupational safety issues. It holds particular significance for foreign companies in Azerbaijan establishing enterprises and hiring local staff.

The Law on Investment Activity

This law provides a framework for all investment operations in the country, including protection of investor rights, guarantees for the return of investments and profits therefrom, as well as measures to stimulate investment activity. The law is particularly important for foreign investors planning to establish a firm in Azerbaijan.

The Law on Free Economic Zones

This law establishes the legal framework for the creation and operation of free economic zones, providing participants with significant tax and customs privileges. It plays a crucial role in attracting foreign investments and supporting export-oriented projects.

These laws create a stable and predictable legal environment for conducting business in Azerbaijan. Foreign companies seeking to expand their presence or establish an enterprise in the country are advised to meticulously examine these and other relevant legislative acts to ensure compliance with local legal requirements.

Regulatory authorities of Azerbaijan

To achieve smooth company incorporation in Azerbaijan, navigating a network of governmental entities and regulatory bodies is essential. These organizations safeguard adherence to regulations, distribute requisite permits, and register new businesses. Here are the key authorities with whom entrepreneurs must collaborate when setting up a firm in Azerbaijan:

These regulatory bodies offer essential frameworks for setting up and effectively running a business in Azerbaijan. Interacting with these organizations requires knowledge of regional laws and strict adherence to all required procedures, which will eventually promote the development of a viable business.

Main forms of legal entities in Azerbaijan

A firm may choose to register under one of several types of legal organizations available in Azerbaijan, depending on its objectives, the amount of investment, and other considerations. The primary categories of legal entities that exist in the nation are as follows:

LLC

LLC is the preferred corporate type for foreign entrepreneurs. This legal entity type is suitable for any commercial purposes. There are no restrictions on the number of members an LLC can have, as outlined in the Civil Code. When registering an LLC in Azerbaijan, members contribute capital shares to the authorized capital, which has no statutory minimum requirement. The entire investment capital must be fully contributed before the LLC can be registered.

This form of business can be initiated by just one person and is well-suited for small and medium-sized enterprises. The position of director may be held by both local and foreign nationals. If selecting a manager from abroad, it is imperative to note that they must possess a valid work permit.

An LLC is appropriate for small to mid-sized companies in Azerbaijan, as well as for businesses with international investments.

JSC

A joint-stock company has the potential to be listed on the stock exchange or privately owned, making it a suitable structure for large-scale ventures involving a multitude of stakeholders. A publicly traded JSC may offer its equity on the secondary market, while shares of a private JSC are restricted to its founders or a pre-defined investor pool. Shareholders hold limited liability, meaning their financial responsibility is capped at the value of their investment. The establishment of a JSC necessitates the appointment of a board of directors and a supervisory board.

Understanding that a sealed JSC is restricted from issuing tradable shares differs from an unsealed JSC, where such a process is permitted.

Full Partnership

In a full partnership, all participants (partners) bear complete and joint responsibility for the business obligations with their personal assets. This form is suitable for small enterprises where the founders wish to conduct business based on personal trust and close interaction.

Limited Partnership

The limited partnership distinguishes between two types of partners: limited partners (whose liability is restricted to their invested capital) and general partners (who bear full responsibility for the company's obligations). This form is suitable for enterprises seeking to attract investors wishing to limit their liability to their invested funds.

Sole Proprietorship

An individual entrepreneur manages their own business and does not establish a legal company. Although the entrepreneur has limitless accountability for their company responsibilities, this is the most straightforward and affordable way to conduct business within the jurisdiction of Azerbaijan.

Foreign citizens wishing to start a business in the form of an individual entrepreneur must first obtain a residence permit in Azerbaijan.

Branches and Representative Offices

Branches of foreign companies may engage in commercial activities in Azerbaijan and are subject to registration in accordance with local legislation. A branch in Azerbaijan may only conduct the same activities as the head organization. All responsibility for debts or other obligations lies with the foreign head company. In most cases, branches are utilized by companies in the banking and insurance sectors. Representative offices, in turn, represent the simplest form in which a foreign company can explore the Azerbaijani market to determine if it meets the requirements for expanding its overseas enterprise. These structures are often used by foreign companies to expand their presence in the Azerbaijani market.

The selection of the appropriate legal entity is crucial for ensuring business success, compliance with legislative requirements, and optimizing tax burdens. Each form has its own characteristics that must be carefully considered when planning to establish an enterprise in Azerbaijan.

Stages of company registration in Azerbaijan

The registration of a company in Azerbaijan encompasses several clearly defined stages, each of which demands attention to detail and compliance with local legislative requirements. The process may vary depending on the legal form of the entity, but the fundamental steps remain standardized.

Registration of a company with the Tax Inspectorate of Azerbaijan

Following receipt of the certificate of registration from the Ministry of Economy, the firm has to register with the Azerbaijani tax authorities. It is necessary to register in order to pay taxes, obtain a tax identification number (TIN), and conduct formal financial transactions.

Here is a detailed description of the procedure:

Opening a corporate account in a bank in Azerbaijan

To conduct business activities within the territory of Azerbaijan, registered entities are also required to establish a banking account. This enables enterprises to manage their finances, conduct transactions with partners, suppliers, and clients, as well as execute other financial operations.

There are a number of large banks operating in Azerbaijan that offer a wide range of banking services to corporate clients. Among them:

Kapital Bank is one of the largest and most stable banks in the country, offering a full range of corporate banking services.

Pasha Bank specializes in catering to large corporations and medium-sized enterprises, offering products in the field of trade finance, lending, and deposits.

AccessBank is known for its services to small and medium-sized enterprises, as well as the provision of international banking services.

Bank of Baku offers a variety of banking services, including corporate lending and servicing payroll projects.

These banks offer a variety of banking products including current accounts, loans, deposits, and internet and mobile banking services.

Corporate banking services may include:

• Current & Foreign Currency Accounts
• Short & Long-Term Loans
• Online Banking
• Trade Finance Solutions
• Financial Advisory

Opening a corporate account in an Azerbaijani bank requires the following steps:

1. Selecting a bank. You need to choose a bank based on the services offered, rates and reputation.
2. Preparation of documents. Typically the following documents are required:
   • Certificate of registration issued by the state for the company.
   • Articles of association for the company.
   • Minutes recording the selection of the company's leader.
   • Identification documents of executives and originators.
   • Tax identification number of the company.
   • Official documentation verifying the legal domicile of the company.
3. Submitting an application. An application for opening an account is submitted to the selected bank along with the necessary documents.
4. Validation and authorization. The financial institution will authenticate the details and paperwork submitted. Upon satisfactory authentication, the institution will commence account establishment.
5. Signing a banking agreement. After the application is approved, the client signs a banking agreement and gains access to banking services.

Depending on their internal policies, banks can need further paperwork. Prior to beginning the procedure, it is advised to get an official list of papers. Although it might take some time, creating a bank account normally doesn't take long.

In order to initiate the process of establishing a bank account at an Azerbaijani branch, it might be necessary to submit supplementary documentation. This could entail providing copies or officially authenticated copies of the foreign company's articles of incorporation, along with the director's endorsement on the application form.

Acquiring essential licenses and permits for businesses in Azerbaijan

Certain activities in Azerbaijan may require companies to obtain specific licenses and permits. These papers are essential to guarantee that a company's operations align with local laws and regulations. While the procedures for acquiring licenses and permits can differ based on the industry, the fundamental steps typically remain consistent.

Tax system and accounting in Azerbaijan

Legal entities in Azerbaijan are obliged to pay various taxes, such as VAT, profit tax, and income tax.

Simplified tax system

The simplified tax system applies to small enterprises that are not registered as VAT payers and whose annual income does not exceed 200,000 AZN. However, this system does not extend to producers of excisable goods, banks, insurance companies, investment funds, and participants in the stock market.

Since the beginning of 2019, certain categories of enterprises have been excluded from the simplified system, including:

• Wholesalers.
• Manufacturing enterprises with more than 10 employees.
• Insurance market participants.
• Companies providing services to tax residents.
• Companies engaged in licensed activities other than construction.
• Trade and catering enterprises with a turnover of more than 200,000 AZN per year.

Since 2020, companies in the construction sector are also excluded from the simplified system if they did not start construction before January 1, 2020.

Dividends received by shareholders from companies operating under the simplified system are exempt from taxation. The tax rate under the simplified system for all taxpayers is 2%, except for the catering sector, where the rate remains at 8% for transactions exceeding 200,000 AZN. Special rates are applied in certain sectors.

A simplified tax of 1% is also levied on cash withdrawals by companies and individual entrepreneurs.

Features of accounting and reporting

• Monthly reporting: VAT and excise tax reports required for registered companies.
• Quarterly reporting: Income tax return due every quarter.
• Annual reporting: Prepare and submit annual tax return and audited financial statements.

Advantages of registering a company in Azerbaijan

The procedure of registering a company in Azerbaijan is drawing the attention of both international direct investors and local enterprises owing to the array of economic and logistical benefits it offers. These serve as the primary justifications for setting up a business entity in Azerbaijan.

• Strategic location: Azerbaijan bridges Europe and Asia, ideal for expanding enterprises.
• Tax benefits: competitive rates and incentives, especially in priority sectors.
• Easy registration: streamlined process with minimal bureaucracy and e-services.
• Government support: initiatives to boost private sector and foreign investment.
• Financial infrastructure: well-developed banking system for corporate needs.
• Skilled workforce: high-quality talent pool, especially in tech and business.
• Stability: political and economic resilience ensures predictability.
• Trade advantages: access to international markets through trade agreements.

These advantages make Azerbaijan an attractive place to start a company and expand a business, which contributes to the influx of investment and development of entrepreneurship.

Conclusion

Azerbaijan, positioned as one of the premier commercial hubs in its region, has shown consistent strides in bolstering its economic landscape. While historically reliant on oil and gas extraction and processing, the nation has recently laid down the groundwork for fostering growth across various sectors including tourism, agriculture, transportation, information and communications technology, and electronic commerce.

For companies contemplating establishing a presence in Azerbaijan, strategic investment in sectors poised to benefit from substantial reforms is advisable. Notably, the country has emerged as a frontrunner in implementing reforms aimed at enhancing the business environment globally.

For detailed insights and assistance with company registration in Azerbaijan, individuals are encouraged to reach out to the seasoned professionals at IQ Decision for comprehensive support.