Expatriates Forums in Azerbaijan

DOING BUSINESS IN AZERBAIJAN

STARTING A BUSINESS

STANDARDIZED COMPANY
Legal Form: Limited Liability Company (LLC)
Minimum Capital Requirement: 0
City: Baku

Registration Requirements:

Procedure 1. A notary notarises sample signature of a "legal representative" and the registration documents

Time to complete: 1 day

Cost to complete: AZM 150,000

Comment: It is not legally required to hire a lawyer to register the LLC. The LLC, however, needs to have a legal representative for the purposes of the registration with the State registering authority (the Ministry of Justice or its divisions). Although there is no stated requirement that this legal representative be a legal professional, he must be able to confirm correctness of the facts and documents submitted to the Ministry of Justice.

The costs are: AZM 22,000 for the notarization of the foundation agreement; AZM 1,100 for the notarisation of copies of the documents (in practice, the Ministry of Justice requires the submission of one notarised original copy of the company's foundation agreement, 2 notarised original copies of the charter); AZM 1,100 (approx. 0.25 USD) for the notarisation of signatures on the documents.

Procedure 2. Obtain a confirmation on the legal address of the company from the proposed lessor

Time to complete: 1 day

Cost to complete: no charge

Comment: Normally, the document confirming the legal address is the document evidencing the right of the LLC to use the premises (normally, a lease agreement) where the LLC's permanent governing body will be located. Before the LLC has been registered, a guarantee letter from the proposed lessor along with a notarised copy of the ownership certificate for the premises is also acceptable as an evidence of the LLC's legal addres

Procedure 3. Deposit the charter capital in a bank and obtain a receipt; pay the state registration fee and get a proof

Time to complete: 1 day

Cost to complete: AZM 75,000

Comment: Most of banks require payment of fee for the opening of an account, e.g. in International Bank of Azerbaijan it is AZM 100,000. A state fee is paid at to the special account of the treasury of Azerbaijani government maintained at the special account of the National Bank of Azerbaijan. The LLC's charter capital is usually paid in cash and obtained payment slip is accepted by the Ministry of Justice as a valid proof. The state fee can be also paid by bank transfer to the special account of the Ministry of Justice. The bank account is open, in escrow, upon submission of a copy of charter to the bank and transfer (or deposit) of 100% of the charter capital. The payment of the charter capital may also be evidenced by an extract from the bank account which would be acceptable by the Ministry of Justice as an evidence of the payment of the charter capital. Thereafter, the bank will issue a letter addressed to the Ministry of Justice and confirming payment of the charter capital. The bank account cannot be used for other purposes until tax authority consent is received following registration.

Procedure 4. Prepare a design of the official stamp/seal of the LLC

Time to complete: 1 day

Cost to complete: nominal, varies depending on the arrangement made.

Procedure 5. File documents with the company registrar, Ministry of Justice

Time to complete: 18 days

Cost to complete: AZM 100,000

Comment: Pursuant to the Law on Changes and Amendments to the Law on State Registration and State Register of Legal Entities of June 28, 2005 and changes to the Civil Code of June 24, 2005 the requirement to produce signature samples of legal representatives of legal entities was eliminated. The Law on Changes and Amendments to the Law on State Registration and State Register of Legal Entities of June 28, 2005 also eliminated possibility of requesting documents which are not required under the Law on State Registration and State Register of Legal Entities.

New statutory time limits of registration were introduced by the Law on Changes and Amendments to the Law on State Registration and State Register of Legal Entities dated June 28, 2005 (effective as of September 4, 2005). Pursuant to these changes, registration of commercial legal entities shall be completed within 5 working days, A provision allowing extension of review of documents for further 30 working days period was repealed. From January 2004 the statutory time limit on processing the registration application is extended from 10 days to 30 working days. However, in practice this term may be prolonged for further 30 working days period for the purposes of additional review of documents. No later than 10 working days after the review (or after making the necessary corrections) the Ministry is required to issue a state registration certificate or issue a written refusal to an applicant. If no certificate or refusal is issued within the prescribed period, then the company is supposed to be considered to be registered and the Ministry is required to issue a state registration certificate for such company within 105 working days. Nonetheless, in practice registration still takes 2-3 weeks. Seal/stamp sketch shall be submitted to the Ministry of Justice together with the registration documents. It shall be returned to the applicant together with the registration documents after the registration and bear stamp of the Ministry together with a letter of the Ministry to a stamp maker (any anonymous stamp manufacturer) authorizing such stamp manufacturer to produce the seal/stamp as per the submitted sketch approved by the Ministry.

Procedure 6. Obtain an official seal

Time to complete: 1 day

Cost to complete: AZM 100,000

Comment: No state duty. The cost of the stamp depends on the price of the private contractor and varies between AZM 20,000 - 200,000 . The order for the production of a seal can only be accepted upon production of a copy of the certificate of state registration and originals of permission for producing a seal and a seal design approved by the Ministry of Justice. Usually, permission and approved design are issued to the applicant along with the certificate of state registration. There are various companies producing seals and the law does not restrict a company to any particular producer.

Procedure 7. Register with the Statistical Committee to obtain a permanent statistics code

Time to complete: up to 7 days

Cost to complete: no charge

Procedure 8. Obtain a "Control Book"

Time to complete: 1 day

Cost to complete: AZM 10,000

Comment: An LLC may wish to obtain the Control Book which is used for the purposes of recording the LLC's audits by various state agencies. Since 2003 Control Books are to be obtained from the Ministry of Economic Development (rather than the Statistical Committee).

Procedure 9. Register with the local Tax Inspectorate to obtain a tax code

Time to complete: 2 days

Cost to complete: no charge

Comment: There are two time limits involved:

(1) the first is the deadline for the submission of documents to the tax office after the registration with the Ministry of Justice has been completed, which is 30 calendar days after the date of such registration (but not from the date of issuance of the Registration certificate, although tax offices take this date into account) and

(2) the second is the term within which the tax office must register an applicant (the company in this case) and issue the Tax Payers ID number, which in 2004 was reduced from 10 to 2 calendar days. According to the new registration law, the silent is consent rule applies and the Justice Ministry automatically issues a certificate after 2 days.

In 2004, list of required foundation documents for tax registration was simplified and is now limited to the company charter. Tax registration forms can be downloaded from the Azeri Tax Ministry's website.

Due to new internal rules of the tax authorities, the foreign representative of a registering company should either have a residence card or should appoint a tax agent (resident in Azerbaijan). The residence card is obtained by appearing in person before the police authorities. For this, a lease agreement giving the residential address, passport and 2 passport photos must be provided.

Procedure 10. Register with the Social Protection Fund and obtain registration number.

Time to complete: up to 10 days

Cost to complete: no charge

Comment: Documents should be submitted prior to the opening bank accounts and no later than one month after the registration with the Ministry of Justice. It takes up to 10 days after the Notification-Duplicates referred to in Proc. 12 below are submitted to the Fund's local office after the opening the bank accounts.

Procedure 11*. Register with employment centres

Time to complete: 2 days (simultaneous with procedure 10)

Cost to complete: no charge

Comment: The procedure can be started as soon as registration with registry (maintained by the Ministry of Justice) and with the State Statistics Committee is completed and tax payer's identification number is obtained from the Ministry of Taxes. Registration with the employment centre can be obtained simultaneously with the registration with the State Social Protection Fund.

Procedure 12. Register for VAT purposes

Time to complete: 7 days

Cost to complete: no charge

Comment: Under the Azeri Tax Code, VAT payers are a legal entities or individual entrepreneurs whose taxable turnover within the last three-(calendar)-month period exceeds the amount equivalent to 22,500 times the conditional financial unit. (AZM 5,500). These entities must register as VAT payers. Any other entity may register for VAT voluntarily. An application for VAT registration must be filed with the tax authorities within ten days upon expiration of the three-month period.

Procedure 13. Open a permanent bank account

Time to complete: 1 day

Cost to complete: AZM 150,000 (depending on banks)

Comment: This requires the issuance by the local tax authority (where the LLC is registered) and the local department of the Social Security Fund of a special authorisation form called the notification duplicate addressed to a bank where the LLC's account is to be opened. The LLC must open its permanent bank account within 10 days after the notification duplicate is issued. Each bank account requires two notification duplicates: one from the tax office and one from the social Protection Fund department.

Generally, LLCs open two bank accounts, one US Dollar account and one Azeri Manat account, and therefore obtain 4 notification duplicates, i.e 1 notification duplicate from each involved agency for each bank account. The bank must fill in the required information and return the portions of the notification duplicates to the tax office and the State Social Protection Fund's local department.

Procedure 14. Return the Notification-Duplicate(s) to the tax office and the Social Protection Fund

Time to complete: 1 day

Cost to complete: no charge

Procedure 15. Obtain workbooks for employees from the Ministry of Labour

Time to complete: 1 day

Cost to complete: nominal

Note: Procedures sometimes take place simultaneously. Instances of this are marked with an asterisk (*).

FORMS OF BUSINESS ORGANISATION

Sole proprietorship

Number of partners/shareholders:
1 person.

Minimum and/or maximum capital:
No minimum capital.

Liability:
The owner is liable for debts of the company on his personal assets.

Release of financial documents:
No

Private Limited Company

Number of partners/shareholders:
No minimum.

Minimum and/or maximum capital:
No minimum capital.

Liability:
Liability is limited to the amount contributed.

Release of financial documents:
No

Public Limited Company

Number of partners/shareholders:
Minimum 3 partners.

Minimum and/or maximum capital:
No minimum capital.

Liability:
Liability is limited to the amount contributed.

Release of financial documents:
Yes

Limited partnership

Number of partners/shareholders:
Two types of partners: active partners and sleeping partners.

Minimum and/or maximum capital:
No minimum capital.

Liability:
Liability of active partners is unlimited.
Liability of sleeping partners is limited to the amount contributed.

Release of financial documents:
No

TAXATION

Corporate tax
Tax on enterprises: 22% (effective from January 1st 2006)

Taxation occurs at the national and municipal levels. Residents are taxed on their worldwide income, with a credit for foreign tax. Most Azerbaijan-source income of non-residents is taxed. The rate of corporate tax has been decreased from 24% to 22% from January 1st 2006 in accordance with the adoption of the Law on Changes and Amendments to the Tax Code of Azerbaijan on December 17th 2005. The authorities are empowered to impose a minimum tax, taking into account the circumstances of each specific business sector. A 10% withholding tax applies to repatriated profits of foreign companies.

Individual tax
Progressive rates up to 35%

Resident individuals pay tax on worldwide income; non-residents pay tax on Azerbaijan-source income only. A person is resident if present in the country for 183 days in a calendar year. The progressive rates to 35% apply to employment income. Entrepreneurs are taxed at progressive rates to 35%.

Capital gains
Taxed as income

Capital gains are generally taxed as part of income.

Indirect tax
Standard rate: 18%

Value-added tax (VAT) applies to most transactions. Exempt items include exports, subway transport, financial services (banking, leasing, etc), mass media (except for advertising), insurance services, and oil and gas companies working under the Production Sharing Agreement taxation regime.

Tax administration and compliance
Tax year: Corporations: calendar year; Individuals: calendar year

Enterprises pay corporate income and assets taxes quarterly in advance. VAT is paid and reported on a monthly basis. All enterprises must submit their annual corporate income-tax returns to the tax authorities before March 31st of the year following the relevant tax year. Payroll taxes are withheld and remitted monthly by employers on behalf of their employees.

Additional tax information

Withholding taxes: Dividends 10%, Interest 10%, Royalties 14%.

Tax treaties: Azerbaijan has concluded more than 15 tax treaties. There is no tax treaty with the US.

Dividends: Dividends are taxed by withholding at 10%.

Revenue protection: There is no transfer-pricing or anti-haven (CFC) legislation.

Groups: There is no provision for group taxation.

Incentives: Taxation under the Production Sharing Agreement regime in the oil and gas sector (removed from January 1st 2006).

Other taxes: Mining tax, Property taxes, Excise taxes, Customs duties, Land taxes, State duty, Road taxes.