In the Republic of Azerbaijan, systematic activities are carried out for the sustainable and rapid development of the economy. Since independence from the former Soviet Union in 1991, many projects have been implemented to attract foreign investment and further improve the business and investment environment. According to the Law of the Republic of Azerbaijan “On the Protection of Foreign Investment”, the goal of the state is the attraction of foreign material and financial resources, advanced foreign equipment and technology, management experience, as well as the effective use of these resources, and for this purpose, the protection of the rights of foreign investors is guaranteed.
These reforms to attract foreign investment to the country have not been without results. Thus, at present, both the oil sector and the non-oil sector are witnessing an increase in the share of foreign investments. The main reason for this is, of course, favorable conditions for investment and business in Azerbaijan. According to “Doing Business” data, Azerbaijan ranks 34th among 190 countries in terms of ease of doing business (see also: https://www.doingbusiness.org/content/dam/doingBusiness/country/a/azerbaijan/AZE.pdf).
This is good enough for a country that has just regained its economic freedom, and it also gives reason to conclude that even better results will be achieved in the near term as a result of the policy of sustainable economic development. But what is the essence of the business-friendly environment in question? What are the reasons why foreign investors turn to Azerbaijan to do business?
I.Availability of favorable conditions for foreign investors: economic, political, legal stability
Current economic, political, and legal conditions in Azerbaijan are very favorable for business creation and new investments. Thus, the state’s foreign policy always serves to establish broad international relations and this is reflected in any field of activity. The main feature of the policy implemented in the economic field is openness to international trade and the state’s interest in this field. This means having a positive attitude towards foreign capital, as well as foreign workers.
A. Economic stability
Having a stable macroeconomic policy in the country is one of the important conditions for creating a favorable business environment. As a result of economic stability, the investor can make decisions and predict the future situation in advance, which in turn reduces business risks. Ensuring free competition enables the economic activity of both local investors and foreign investors to increase.
B. Legal stability
One of the main conditions for ensuring development in the economic sphere is the legal guarantee of these measures. Stable legislation means a favorable environment for business and investment. Thus, investors can plan their future risks. An unstable legislative environment creates the possibility that unfavorable conditions may arise in the future, even if current conditions are favorable for investment. In Azerbaijan, such cases are regulated by legislation. Thus, according to Article 10 of the Law on “Protection of Foreign Investment”, if the subsequent legislation of the Republic of Azerbaijan deteriorates the investment conditions, the legislation in force at the time of the foreign investment is applied within ten years.
C. “ASAN Visa”
One of the main indicators of the state’s foreign policy aimed at the development of international relations, as well as foreign investment, is the implementation of the EASY VISA system. This system was created to simplify the visa issuance procedure for foreigners and stateless persons who want to come to Azerbaijan. Thus, foreigners and stateless persons are freed from tedious processes such as the need to physically go to the embassy or consulate to fill out the application form, collect several required documents, and apply for 10-15 days. Applying for a visa anywhere with just an internet connection is possible.
The only document required to obtain a visa is a valid national passport or travel document. Individuals can obtain this visa within 3 working days with the standard visa application form and within 3 hours with the urgent visa application form. Through the system, foreigners and stateless persons can get an e-visa in 3 steps (apply, pay and upload the e-visa). For this, it is enough to apply through the electronic visa portal www.evisa.gov.az. Electronic visas are eligible only to citizens of 94 countries whose list is approved by the Ministry of Foreign Affairs of the Republic of Azerbaijan and to stateless persons permanently residing in those countries.
ASAN VISA system has led to a noticeable increase in the flow of foreign tourists to the country. Thus, foreign tourists easily travel to different regions of the Republic of Azerbaijan and get a chance to get acquainted with the economic potential of these regions. This allows them to learn about various business areas that are suitable for investment in the territory of the Republic of Azerbaijan, such as tourism, agriculture, industry, etc. and causes an increase in the volume of investments by foreigners.
II. Ease of starting a business in Azerbaijan
One of the main points that make Azerbaijan attractive to foreign investors is the ease of starting a business. Thus, Azerbaijan ranks 9th in the ranking of countries according to this criterion in “Doing Business” reports. Azerbaijan is irreplaceable for starting a business in terms of convenience of the process for starting a business, cost, time, and minimum capital requirements for company establishment.
A. Ease of procedure
One of the main points when starting a business is the correct and timely execution of procedural actions. Somehow, the complexity of the registration process hinders the activity of investors, which results in a waste of time. As foreign investors are not familiar with the legislation and legal system of the country, this process can be more complicated and tiring for them. Thus, the online registration process in Azerbaijan is one of the points that encourage foreign investors to start a business here.
According to Article 5-1 of the Law “On State Registration of Legal Entities”, application for registration of a legal entity can be made online. According to Article 20-1.3 of the Law “On State Duties”, this application is exempt from state duties and is completely free. According to the Law on “Administrative Procedure,” all registration documents are coded and sent electronically to commercial legal entities and are sufficient to start the company. Fast registration is available for companies with one founder.
B. Saving time
Company registration takes only two business days. Online registration takes 1-2 days. As a result, simple and accelerated procedures allow entrepreneurs to spend their time precisely on the development of their business.
C. Minimum Requirements when starting a business in Azerbaijan
One of the main issues when starting a business is capital. There is no minimum requirement for this in Azerbaijan. There is no capital declaration requirement when starting a business. It is possible to start a business activity in the Republic of Azerbaijan with any minimum funds, subject to the requirements of the legislation.
D. Simplicity of the licensing procedure
Another point that encourages business is the reduction of the number of types of business activities and permits that require a license. Simplification of the procedure for obtaining a license and the volume of fees encourage the formation of a favorable business environment for areas requiring a license.
E. Tax Policy
A favorable tax policy is one of the main reasons for starting a business in Azerbaijan. So, many tax benefits are applied for business development. For example, producers of agricultural products were exempted from paying profit, income, VAT, simplified tax, and property tax on objects used in the process of their activity. According to Article 199.9 of the Tax Code, legal entities and individuals currently engaged in the production of agricultural products are exempt from paying property tax for the property used in the process of that activity. Another example is that an individual entrepreneur who has received an investment promotion document is exempt from VAT, property, and land taxes for 7 years from the date of receipt of that document and 50 percent of its income is exempt from income and profit tax.
The purpose of applying tax concessions in many other areas is the development of business activities in the country and also, the increased interest in investing in the country. The tax policy of the state was formed in the direction of ensuring the interests of businessmen and supporting the business building. In this regard, no distinction is made between the rights of foreigners and stateless persons and citizens who plan to engage in business activities. The rights of foreigners and citizens of the Republic of Azerbaijan regarding implementing business activities are completely the same. Thus, foreign citizens and stateless persons can take advantage of these benefits of the tax system when establishing a business in Azerbaijan.
As the ACON team, we would be glad to provide consulting services to local and foreign investors when creating or investing in a business in the Republic of Azerbaijan!