Azerbaijan legislation guide
By James E Hogan
Salans
Tel: +994 12 4 90 75 65 Fax: +994 12 4 97 10 57 Website: www.salans.com
Azerbaijan has made considerable progress in recent years streamlining the procedures that apply to doing business in the country. These measures have included the establishment of centralised property and mortgage registries, a reduction in the number of activities requiring licences, and the introduction of ‘single window’ or ‘one stop shop’ systems for company registration, customs processing, and immigration and work-permit formalities.
Ease of doing business
Azerbaijan has achieved some of the highest rates of growth in the world in recent years: 2005 (26.4%); 2006 (34.5%); 2007 (23.4%); 2008 (10.8%); 2009 (9.3%) and 2010 (5%). This extraordinary growth can be attributed to the opening of major new hydrocarbon export routes via the Baku-Tbilisi-Ceyhan Pipeline and the South Caucasus Pipeline, as well as to a number of recent improvements in the business environment.
In the Doing Business 2011 report published by the World Bank and the IFC, an independent evaluation of the ease of doing business in countries, Azerbaijan achieved an impressive 54th place ranking out of 183 countries. This was a slight improvement on the previous year’s ranking (although the published 2010 ranking was 38th place, a change in the methodology for ranking used in 2011 would have resulted in a 2010 ranking of 55 if it had been employed last year). The survey noted the recent revision of Azerbaijan’s tax code, which lowered several tax rates and simplified the process for paying corporate profits tax and value added tax. In addition, improved access to credit has resulted from the establishment of an online platform allowing financial institutions to access and provide data onto a public credit registry.
Company registration
Perhaps the most far-reaching recent change facilitating the start-up of new businesses in Azerbaijan was the promulgation of Presidential Decree No. 2458 of October 25 2007. Pursuant to this Decree, since January 1 2008 all entities (with the exception of non-commercial organisations, which continue to be registered by the Ministry of Justice) undergo company registration with the Ministry of Taxes. As part of this ‘single window’ process, the Ministry subsequently handles the additional registrations required with the State Statistics Committee, the Social Protection Fund, local tax authorities and the National Employment Centre (in the case of joint stock companies, shares must still be registered separately with the State Securities Committee). Most dramatically, the company registration process, which typically required four to eight weeks prior to the change in procedures, now requires only five to eight days.
Electronic filing systems
Various initiatives are underway to increase the availability and use of electronic filing systems, as highlighted in Presidential Order No. 1056 of August 11 2010 – ‘On the Approval of the State Programme on the Development of Communications and Information Technologies in the Azerbaijan Republic for the Years 2010-2012 (Electronic Azerbaijan)’. This was also highlighted in the more recent Presidential Decree No. 429 of May 23 2011 – ‘On Certain Measures in the Field of the Organisation of the Provision of Electronic Services by State Bodies’.
The online filing of profits tax, value-added tax, land tax, property tax and simplified tax declarations has been in effect within the Ministry of Taxes for a number of years and is gaining popularity. An online facility that allows taxpayers to raise questions with tax officials has also been very effective. This is in an environment where written requests seeking clarification from government bodies often meet with significant delays.
Since July 1 2011, individual entrepreneurs, who are required to register with the Ministry of Taxes, have been able to submit registration applications online. This greatly reduces the timeframe and bureaucratic formalities that had previously hindered individuals seeking to engage in business activities. It has been announced that, sometime in 2012, an online system for the registration of legal entities will be implemented by the Ministry of Taxes. Such a system, assuming that it is broadly applied to company registrations and notifications, would revolutionise the process for starting businesses in Azerbaijan. It would also reduce the time necessary for existing companies to take routine actions, such as amending the company registry to account for changes to legal addresses and revisions to company charters.
The legal and business climate in Azerbaijan is far from perfect, but the direction of changes in recent years has clearly been geared to facilitating the start up of new businesses.