Opening A Company In Azerbaijan: A Comprehensive Guide

Azerbaijan is an attractive prospect for investors, with a stable economy and a rich history and culture. The country's strategic currency reserves were close to 56 billion USD as of November 2022, and it has a well-developed agricultural, industrial, and tourism sector, as well as a booming oil and gas industry. Azerbaijan has also been ranked 18th in the World Bank's 2018 Doing Business Report for the ease of starting a business. There are several types of business entities to choose from, including limited liability companies (LLCs), joint stock companies, and sole proprietorships. The registration process is relatively simple and can be done remotely, with the help of specialists in company incorporation.

Choosing a business structure: limited liability company, joint-stock company, or partnership

When it comes to choosing a business structure in Azerbaijan, there are several options available: a limited liability company (LLC), a joint-stock company (which can be open or closed), or a partnership (which can be general or limited). Each of these business structures has its own advantages and requirements that should be considered before making a decision.

A limited liability company (LLC) is a popular choice for those starting a business in Azerbaijan due to its simplicity in terms of procedural and legal requirements. An LLC can be formed by one or more individuals, including foreign citizens, without any additional documentation requirements. There are no restrictions on the number of founders or the amount of charter capital, which can be set at any amount. The registration process for an LLC is also relatively simple, contributing to Azerbaijan's high ranking in the World Bank's "Starting a Business" indicator.

For larger businesses, a joint-stock company may be a more suitable option. A joint-stock company can be incorporated by one or more persons, and shares can be freely transferred and traded on the public market. In an open joint-stock company, the stockholders are responsible for the company's commitments and debts to the level of their contributions. On the other hand, a closed joint-stock company has limited liability for stockholders, but the shares cannot be transferred.

Partnerships are another option for conducting small operations in Azerbaijan. A general partnership grants all participants equal rights and obligations, while a limited partnership has at least one general partner with full responsibilities and several limited partners with specific rights and obligations. There are no share capital requirements for partnerships, and they can provide the benefit of partnering with local entrepreneurs to gain a better understanding of the local market.

When deciding on a business structure in Azerbaijan, it is important to consider the size and nature of the business, as well as the level of liability and flexibility desired. Each business structure has its own registration requirements, and seeking guidance from specialists in company incorporation can help ensure that the appropriate structure is chosen and all necessary documents are prepared.

Understanding registration requirements: necessary documents, processes, and costs

To register a company in Azerbaijan, you must submit the following documents to the Legal Entity Registration Department at the State Tax Service:

• Application Form—a form provided by the State Tax Service that must be notarized.
• Incorporation documents—a company's Charter, Resolution of its Shareholders on the establishment of an LLC, and appointment of a legal representative.
• Information about shareholders and founders—IDs and passports of founders. If the owners or shareholders are foreign legal entities, the Articles of Association, Memorandum, and Certificate from the Trade Registry are required.
• Receipt evidencing payment of the state registration fee and charter capital—the official registration fee for a new LLC is 11 manats (AZN) and must be paid in advance before incorporation. The state duty for the registration of representative offices and branches of a foreign legal entity is 220 manats (AZN). If specified by the charter, the capital must be paid within three months after the company's registration.

Additionally, if the shareholder is not the company's legal representative (director), you will need the notarial permission of the legal representative.

The registration certificate of a company in Azerbaijan can be issued in about one week. After receiving the certificate, you must submit applications for any special licenses and permits before starting business activities. A company seal is also necessary for all contracts and agreements.

If you are incorporating a company in Azerbaijan from overseas, you must appoint a representative with a power of attorney before drafting the documents for registration.

Selecting a strategic location: free zones, industrial parks, and sites

Azerbaijan has a stable economy and is strategically located between Asia and Europe, with important neighbours such as Russia, Turkey, Armenia, Georgia, and sea exits to the Caspian Sea. The country's most developed areas include agriculture, industrial production, the oil and gas industry, and tourism.

When selecting a strategic location for your company, it is worth considering the various free zones, industrial parks, and sites that Azerbaijan has to offer.

Free Zones

Free economic zones, or 'free zones', are areas where economic laws are different from the rest of the country. They are designed to attract foreign investment and boost economic development. Azerbaijan's primary free zone is the Alat Free Economic Zone (AFEZ), which is strategically located on the shore of the Caspian Sea, near the Baku International Sea Trade Port and global transport corridors. AFEZ aims to be a regional investment hub, providing an outstanding business environment for investors engaged in high value-added and export-oriented manufacturing, as well as internationally traded services.

AFEZ offers several incentives for investors, including:

• 0% customs duties and taxes
• 0% personal income tax
• Exemption from VAT, withholding tax, and corporate taxes
• No restrictions on foreign ownership
• Trade facilitation-based customs regime
• Full protection of intellectual property rights

Industrial Parks

Industrial parks play a crucial role in the sustainable development of the non-oil industry in Azerbaijan. The country has established several industrial parks to support entrepreneurship, create industrial enterprises based on modern technologies, and increase employment. Some of the notable industrial parks in Azerbaijan include:

• Sumgayit Chemical Industrial Park: This park was established to create institutions for the production and processing of competitive products in petrochemistry and other priority industries. It currently has 24 institutions, with 15 already operational.
• Balakhany Industrial Park: Located in Baku, this park was established to support entrepreneurship and modern technology adoption. It has a total of 19 registered institutions, with 16 operational.
• Garadagh Industrial Park: This park is located in Garadagh and has an institution called "Baku Shipyard" LLC.
• Mingachevir Industrial Park: This park contributes to the effective operation and development of entrepreneurs by providing necessary infrastructure and management structures.
• Pirallahi Industrial Park: Established to develop the pharmaceutical industry, this park offers necessary infrastructure services and other support to entrepreneurs.

Other Sites

In addition to the free zones and industrial parks, there are other strategic locations to consider when setting up a company in Azerbaijan. For example, the country's recent liberation of territories has created favourable conditions for economic development, particularly in the industrial sector. The rich water supply, electricity, minerals, and industrial recreation opportunities in these liberated territories will contribute to the country's economy in the coming years.

Furthermore, Azerbaijan has well-developed transportation and logistics infrastructure, with international transport corridors and a modern cargo airport. The country's location between Asia and Europe also makes it an ideal hub for transportation and trade.

When selecting a strategic location for your company in Azerbaijan, it is essential to consider factors such as infrastructure, transportation, proximity to suppliers and partners, access to talent, and any industry-specific requirements. By choosing the right location, you can take advantage of the country's stable economy and favourable business environment.

Registering the company: submitting documents to the Legal Entity Registration Department

Registering a company in Azerbaijan involves a few key steps, and the process has been designed to be straightforward to encourage investment in the country. Here is a detailed guide on registering your company by submitting the required documents to the Legal Entity Registration Department.

Firstly, you will need to obtain the necessary business registration forms. These can be acquired in person from the Azerbaijani Centre for Company Registration (a division of the Taxation Ministry) or downloaded online. The forms are in Azerbaijani, but the office staff speak fluent English and Russian, and the forms come with instructions. It is recommended to have electronic versions of the forms to make any necessary modifications easily.

The following documents will be required:

• A formal letter of intent to create a business
• A form to register the MMC (Kommersiya hüquqi şəxsinin dövlət qeydiyyatı haqqında ərizə)
• A form confirming the identity of the founder/founders (Kommersiya hüquqi şəxsinin dövlət qeydiyyatı haqqında ərizə)
• The statutes of the company (Nizamnaməsi)
• Authorization and proof of company domiciliation (Raziliq ərizəsi)
• Confirmation of professional activity
• Confirmation of registration fee payment

Documents 1-5 can be obtained in person from the Azerbaijani Centre for Company Registration, and all documents need to be completed in Azerbaijani. It is advisable to seek assistance with translation. Additionally, some documents will need to be notarized by a notary office.

Once all the documents are completed and notarized, they should be submitted to the Azerbaijani Centre for Company Registration. After submitting the registration dossier, verify the completeness of the submission. After one week, contact the Centre again, and you should receive a plastic card with a unique registration number, which serves as the registration certificate.

After receiving your registration certificate, there are several more steps to take before you can commence business operations. These include:

• Obtaining a Mobile Signature (ASAN Imza) or e-signature for the legal representative
• Obtaining a corporate seal for the company
• Opening a bank account with a copy of the tax certificate submitted to the selected bank via the e-taxes system
• Registering the legal representative's employment agreement at the state registry of employment agreement notices

Post-incorporation: accounting, intellectual property, and employment agreements

Once your company is incorporated in Azerbaijan, there are several post-incorporation matters to address, including accounting, intellectual property protection, and employment agreements.

Accounting

As a business owner in Azerbaijan, you must comply with the country's accounting and taxation requirements. This includes registering for taxation, VAT, and social security contributions with the relevant authorities. Additionally, you must maintain proper accounting records and ensure compliance with tax laws. Azerbaijan offers several tax exemptions for small and medium-sized enterprises and startups, so be sure to explore these opportunities.

Intellectual Property

Intellectual property rights are protected in Azerbaijan, and you should take steps to safeguard your company's intellectual assets. The country has clear procedures for registering trademarks, patents, and copyrights. Trademark registration typically takes 6-10 months and requires a thorough examination by the Center for Expertise of Patents and Trademarks of Azerbaijan Intellectual Property Agency. To initiate the process, you must submit an application with the claimed trademark and applicant details to the Azerbaijan Intellectual Property Agency. If you are a foreign legal entity or individual, you must be represented by a registered trademark attorney in Azerbaijan.

Employment Agreements

Employment laws in Azerbaijan strictly regulate work conditions, specifying minimum standards that employers must adhere to. The Employment Code of Azerbaijan covers various aspects, including work hours, annual leave, minimum salary, termination conditions, and compensation. Normal working hours may not exceed eight hours per day, and the standard workweek consists of five workdays. The minimum annual leave is 21 days, with 30 days specified for specialist positions. Employers are responsible for providing safe working conditions and mandatory workplace insurance.

When drafting employment agreements, it is essential to pay close attention to the mutual agreement between the employer and employee. While the law favors employees' rights, employers and employees can agree on more favorable conditions beyond the mandatory standards. However, any agreement restricting these standards would be null and void.

Additionally, consider seeking legal support for employment-related matters, including contract drafting, HR management, payroll, and compliance with labour legislation.

Frequently asked questions