Factors foreign companies should consider when looking at possible investments in Azerbaijan.

A favorable and strategic geographical location, oil, gas, and other rich natural resources, rapidly developing open economy, a stable and reliable financial regime, favorable environment for foreign investment, large opportunities in the non-oil sector, competitive labor force, developed transportation and telecommunications infrastructure—all of these are crucial factors that have made Azerbaijan the leading FDI destination in the region. Attracting foreign investment is an integral part and priority of Azerbaijan's economic development strategy.

In recent years, Azerbaijan has significantly improved its business-enabling environment by facilitating business procedures in the country. Through the introduction of a “one-stop shop" registration system in 2008, the Ministry of Taxes simplified the registration procedure and reduced the “red tape" in business registration, costs, and paperwork associated with the process and enabled submission of all documents to a single state body. Important reforms were also carried out in other areas, such as employment, registration of property, access to finance, taxes, and investor protection.

As a result of such reforms, according to the Doing Business 2012 report issued by the World Bank, Azerbaijan is now ranked 66th among 183 economies globally for the ease of doing business in the country. Azerbaijan's ranking in the categories of business startups and protection of investors ranks 18th and 24th, respectively. Currently, the government of Azerbaijan is implementing measures to support continuous economic reforms further improving a business-enabling environment and developing the non-oil sector in tandem with the oil sector.

The legislation of Azerbaijan establishes a friendly policy for foreign businesses, as well as a very open national regime for FDI, where foreign investors are welcome in any sector where local investors are allowed to invest. Foreign investors also have the right to repatriate profits, revenues, and other proceeds of investment provided that all applicable Azerbaijani taxes have been paid. In addition to laws creating many opportunities for investors, the Azerbaijani government has signed treaties regarding the elimination of double taxation and the promotion and mutual protection of investment with a number of countries. All limitations on converting profit to different currencies, transferring to other countries, and reinvesting were removed and a common exchange rate was formed on the basis of market economy principles. These measures have further increased the interest of foreign investors, international financial institutions, and economic organizations in Azerbaijan.


The establishment of a legal presence in Azerbaijan is mainly regulated by the Civil Code and the Law on State Registration and the State Register of Legal Entities. The “one-stop shop" system has simplified the procedure for the registration of local companies (with local or foreign investment), representative and branch offices of foreign companies, thus facilitating the establishment of a legal presence in Azerbaijan. All required documents are submitted to and registration is carried out by a single state authority—the Ministry of Taxes. Registration takes three days. According to the Presidential Decree on Measures for the Provision of Electronic Services by Government Bodies, relevant amendments were made to the Law on State Registration and the State Register of Legal Entities and the online registration of commercial legal entities became possible in February 2012. From now on, all the documents required for registration can be submitted to the Ministry of Taxes through the online system. However, it should be noted that only locally owned companies are eligible to pass electronic registration at the moment.

The electronic tax system allows companies to carry out certain correspondence with tax authorities and banks via the internet at Furthermore, a call center is operating to respond to questions on an individual basis and from companies regarding tax legislation and any other issues, and can be reached by dialing 195 while inside the country.

A foreign investor may choose either a limited presence in the form of a representative office or branch, or full presence in the form of a company as set forth by the legislation. Under Azerbaijani law, legal entities can be established in one of the following forms: open or closed joint-stock company, limited or additional liability company, general or limited partnership, or any other structure in line with Azerbaijani law.

According to the legislation of Azerbaijan, neither representative offices nor the branches of foreign legal entities are considered as legal entities in Azerbaijan. Both the representative office and the branch are subdivisions of a legal entity that is located somewhere other than the legal entity's location. The difference is that representative office only represents the interests of the legal entity and protects such interests, while a branch performs all functions or parts thereof of a legal entity, including representation. This means that the scope of a branch's activities is wider than that of a representative office, because, as opposed to a representative office, a branch may engage in commercial or business activity. However, the necessary documents to be submitted to the Ministry of Taxes for the registration of a representative office or branch are the same, as is the amount of state duty, which is AZN220.

A representative office and a branch are the locally registered presence of a foreign legal entity and have “non-resident" status with regards to Azerbaijani tax, legal, and currency regulations. A representative office is not subject to any profit taxes as its activities are strictly limited to providing representative services to the head office. Both a representative office and branch are responsible for the timely payment of all other applicable taxes, such as personal income tax and social fund payments for employees.

A subsidiary is an Azerbaijani legal entity with foreign ownership that can be registered as a limited liability company or joint-stock company. The parent company contributes property to its subsidiary, but is not liable for obligations. Despite the fact that a subsidiary may be owned by a foreign national, it is considered an Azerbaijani legal entity for tax, currency accounting, reporting, and other requirements.

The Tax Code applies the same tax rate and taxation principles to all types of legal entities with a registered presence in Azerbaijan. All those who pay profit tax are legal entities (including foreign legal entities) engaged in business activity in Azerbaijan. Profit tax is computed on the basis of an enterprise's taxable profit. Taxable profit is generally determined on the basis of gross inflow (receipts) and less deductible expenses, which are defined as any costs related to generating profits.

All foreign legal entities doing business in Azerbaijan through a permanent establishment must register with the tax authorities regardless of whether its activities are subject to profit tax payments. The registration of a representative office or a branch with the tax authorities should take place within one month from the start date of operations. The termination of a representative office's or branch's activities should be reported to the authorities one month prior to the termination of operations.

An 18% VAT rate is levied for each taxable operation and for the value of each taxable import. Starting from January 2010, legal entities with annual turnover of up to AZN150,000 and individuals with annual turnover up to AZN90,000 are eligible to register as simplified taxpayers. Simplified taxpayers are exempt from the VAT, profit tax, and property tax. Simplified tax is payable on a quarterly basis and calculated from revenue obtained from the supply of goods, provision of works, rendering of services, and non-sale profits at the rate of 4% for Baku and 2% for other regions. The legislation of the Republic of Azerbaijan defines entities that are not entitled to pay simplified tax. Legal entities with taxable transactions exceeding the aforementioned annual turnover amount must register as VAT payers.

The information contained in this article is valid as of the date of publishing. We are happy to provide upon request updates on the material contained in the article, or further information regarding a specific industry or area of Azerbaijani law in which you might have a particular interest.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

TBY would like to thank Fariz Mammadov of Baku Law Centre for compiling this analysis.