Investing In... 2025 Comparisons

The Constitution of Azerbaijan was adopted following a public referendum in 1995 and has the highest legal force. Legislative power in Azerbaijan rests with the unicameral parliament (the Milli Maclis), while executive power rests with the President.

Judicial power rests with the Azerbaijani courts. This includes the Constitutional Court, Supreme Court, appellate courts, as well as courts of general jurisdiction and other specialised courts.

The office of the ombudsman, the commissioner for human rights, has been operating since October 2002.

Azerbaijan has a civil law system. As in most other civil law system jurisdictions, notaries are legal professionals certifying the legality of civil law transactions among other things.

Investment is classed as any funds, securities, and other assets (such as rights in rem and other rights of a monetary value) contributed into objects of business activity to make profits. Both entities and citizens of Azerbaijan as well as foreigners, stateless persons, non-resident entities, including through branch and representative offices, international organisations and foreign governments or states can engage in regulated investing. Investing includes:

• the establishment of entities;
• the acquisition of securities;
• sole proprietorship;
• making agreements;
• the acquisition of property, including rights in rem; and
• rights to lease land.

International investment agreements, which Azerbaijan is a party to, offer advantages to participating parties. These are bilateral investment treaties (BITs), treaties with investment protections (TIPs), and investment-related instruments (IRIs). Azerbaijan is a party to about 50 BITs, several TIPs, and a majority of IRIs.

In 2022, Azerbaijan adopted the Socio-Economic Development Strategy for 2022-26 (the “Strategy”), with a focus among other things on promoting FDI into non-oil and non-gas sectors of the economy. The Strategy targets FDI increases of between 10% and 15% year-on-year between 2022 and 2026. That said, by the end of 2026, the foreign sovereign debt threshold is expected to be USD10 billion.

Restrictions for foreign investment participation in important industries also continue to apply. A local bank cannot be a subsidiary of a foreign entity (ie, have more than 50% of its voting shares) (except foreign banks and bank holding companies). Another restriction is that persons of listed offshore zones cannot establish or own local banks or register their branches or representative offices.

Only local insurers, facilitated by local intermediaries, may undertake insurance of interests in rem in Azerbaijan. Nevertheless, insurance risks related to commercial international maritime and air transportation, as well as space missions, transportation, and installations may be insured directly by foreign insurers.

Only state enterprises and joint stock companies controlled by the state may engage in the production and processing of oil, oil products, and natural gas and the refining of waste oil and oil products. The existing contractors under oil and gas production sharing agreements (PSAs) operate pursuant to agreements approved into law prevailing over most conflicting provisions.

Only state enterprises and joint stock companies controlled by the state may engage in the mining of precious stones and gold.

As of 2023, GDP was reported by the State Statistics Committee to be AZN123,005.5 million (USD72,356.2 million), representing 0.07% of the world economy. Over a 33-year period, from 1990 to 2023, GDP, according to the World Bank, peaked at USD78.81 billion in 2022 and hit a low of USD445 million in 1992.

FDI net inflow in Azerbaijan peaked at USD5.29 billion in 2012 and dipped to USD4.47 billion in 2022. For 2023, the FDI net inflow amounted to a modest USD252,836,000. Despite that, Azerbaijan has been ranked seventh among the top ten countries for “FDI momentum” in 2024. Most recently, the government appears focused on developing renewable energy projects, which are supported by international financial institutions, such as the European Bank for Reconstruction and Development (EBRD) and the Asian Development Bank (ADB).

Making investments and their regime, including protections, are governed by the Law of Investment Activity of 2022 (the “Law on Investing”). Azerbaijan is a party to a number of bilateral free trade agreements with former member states of the Soviet Union. The country is also a party to the preferential trade agreement with Türkiye. Among other multilateral agreements, Azerbaijan is a signatory to the Agreement on Establishment of Free Trade Area between the GUUAM Participating States, which is yet to become operational.

Azerbaijan offers investors tax exemptions available among others through an investment incentive certificate as well as special economic regimes, including special and free zones, industrial parks and districts, technology parks, other special regimes, and a public-private partnership (PPP) mechanism. The Alat Free Economic Zone has recently become operational and was established by a special legal act. Entities in the Zone may be owned in whole by foreign investors.

PPP/joint ventures are governed by the Law on Public Private Partnership, effective 27 December 2022 (the “PPP Law”).

Investors may acquire investment securities (ie, shares and bonds) and financial instruments. Investment securities, whether paper-based or paperless, are issued as registered securities. A public offering is made through a stock exchange.

The Baku Stock Exchange (the “BSE”) is the main stock exchange of Azerbaijan. It was founded on 27 August 1997 as the Baku Stock Exchange JSC and was reorganised on 25 October 1999 as the Baku Stock Exchange CJSC.

Azerbaijan is a party to the Convention on Recognition and Enforcement of Foreign Arbitral Awards (the “New York Arbitration Convention”) and the Convention on Settlement of Investment Disputes between States and Nationals of Other States (the “ICSID Convention”), the Energy Charter Treaty, the Convention Abolishing Requirement of Legalisation for Foreign Public Documents (the “Apostille Convention”), and the 2002 CIS Convention on Legal Assistance and Legal Relations over Civil, Family, and Criminal Cases.

The Law on Arbitration, enacted on 25 January 2024 replaced the Act that came into effect on 31 January 2000 that enacted the UNCITRAL Model Law on International Commercial Arbitration. The new Law on Arbitration incorporates the amendments adopted in 2006 to the Model Law. While Azerbaijan hosts a permanent arbitration institution, international arbitration proceedings, whether institutional or ad hoc, remain rare (as does local arbitration).

Since the restoration of statehood in 1991, Azerbaijan has focused its efforts on transforming the economy around oil and gas. Underlining the strategic importance of oil, major oil deals in Azerbaijan have been approved by the country’s legislature. In the absence of a PSA law and a law on petroleum, every oil deal in the form of a PSA (the prevailing form of oil agreements in Azerbaijan) is approved into law prevailing over any other conflicting Azerbaijani law (except for the Constitution, acts adopted by public referendums, and international agreements).

The pattern was followed by other important commercial agreements, including on international pipelines to transport oil and gas. Much of the major M&A activity in the country has been and is still revolving around shares in PSAs.

Joint ventures with foreign partners were common in the Azerbaijani oil industry in the early and mid-1990s and reached four joint ventures in total.

Other major transactions included privatisations of state property governed by privatisation rules and programmes. Privatised assets include various state-owned assets both in Azerbaijan and abroad, such as industry (primarily construction) enterprises and state commercial banks and insurance institutions.

Other than PSA and privatisation deals, major transactions are common in the banking, retail, and real estate sectors of the economy.

Azerbaijan has recently been developing its securities market. This was the debt securities market initially but this is now being followed by developing an equity securities market. These offerings are mostly minority stakes in large established enterprises, including with state ownership in them. Shareholders with less than 10% have limited influence, while those holding a significant participation share, or 10% and more, have enhanced rights, such as calling for a general assembly, proposing agenda items, and requesting a special audit.

Changes requiring corporate registration include modifications to a company’s name, founding documents, legal address, charter capital, and shareholders.

Responsible persons involved in a merger and acquisition transaction must comply with AML and CFT legislation. Compliance requires fulfilling reporting obligations to the Financial Monitoring Service (the “FMS”), verifying the identities of customers and beneficial owners, ensuring lawful representation, and conducting comprehensive due diligence on transactions.

M&A transactions must be notified to the State Service for Antimonopoly and Consumer Market Control under the Ministry of Economy (to be reorganised into an eponymous agency that will report to the Azerbaijani President). This requirement applies to local deals, those involving foreign parties, and foreign-to-foreign transactions, provided the parties have a presence in an Azerbaijani market.

Approval from the competition authority is required where:

• one party holds a dominant market position;
• financial institutions cannot resell shares;
• the combined turnover of any merging party or entity created post-merger exceeds AZN25 million;
• the total turnover of parties, both domestic and abroad, exceeds AZN35 million in the last fiscal year;
• a party’s domestic turnover exceeds AZN15 million, and the other(s) exceed AZN5 million; and
• the total turnover of all parties in the last fiscal year exceeds 20% of a market, even if other thresholds are not met.

Qualifying transactions, such as a sale and purchase of shares, must be approved by the Central Bank (the “CBA”). Investments in Azerbaijan’s other industries may likewise require approvals.

A foreign investor may operate in Azerbaijan through a limited presence, such as a branch office (as well as a sole proprietor) or a full presence establishing a business entity locally. Full presence can be formed as a partnership or a company in any of the following forms:

• general or limited partnership;
• joint stock company (JSC);
• limited liability company (LLC); and
• additional liability company.

JSCs can be open or closed, while private enterprises predominantly adopt the LLC structure. JSCs are subject to stricter governance standards, including mandatory board and shareholder meetings, while LLCs offer simplified management frameworks with fewer reporting obligations.

All business entities, including branches and representative offices, must be registered in the state registry before commencing operations.

Entities of public importance must report under the IFRS. Any entities with two or more subsidiaries must also prepare consolidated financial reports under the IFRS except where securities of the entity are not publicly traded among other exceptions. Entities of public importance are credit institutions, insurers, reinsurers, investment funds and their managers, private social funds, persons licensed to act at securities market, listed entities, and businesses that exceed the following thresholds:

• annual revenue of AZN200 million;
• an average of 1,500 employees in a year; and
• a final balance sheet total of AZN500 million.

In JSCs, minority investors have the right to vote on amendments to a company charter, increases in authorised capital, and approvals of financial statements. Shareholders holding at least 25% of the voting rights can block major resolutions. Minority investors are also entitled to access detailed information about a company and its financial condition as well as initiate claims for compensation against management actions.

In LLCs, minority investors enjoy a proportional right to dividends, the right of first refusal granting existing shareholders priority to purchase shares offered for sale by others, and have a voice in corporate decisions, and are entitled to their share of assets upon liquidation.

Despite these protections, enforcement challenges persist, especially in sectors dominated by major shareholders or companies with significant government involvement. Corporate governance standards, while in place, remain voluntary, and their broader adoption is necessary to fully safeguard minority investor rights. Ongoing reforms aim to improve transparency, accountability, and the overall protection of shareholder interests in Azerbaijan.

Foreign investors acquiring 5%, 10%, 25%, 50% or 75% of a publicly traded company’s voting shares are required to notify the company within four trading days. The company, in turn, must disclose this information publicly within three trading days.

Foreign investors must also provide details of the ultimate beneficial ownership, funding sources, and the purpose of the investment. Any changes in ownership that cross these thresholds must also be reported.

A business partnership or company that acquires more than 20% of the authorised capital of an LLC or more than 20% of the voting shares of a JSC must promptly publicise this information.

Azerbaijan is developing its capital markets within its overall financial system, which is overseen by the CBA. The BSE serves as the central platform for trading securities, facilitating transactions in government and corporate bonds, equities, and financial derivatives.

The banking sector dominates as the primary source of funding for businesses in Azerbaijan. Banks provide term loans, credit lines, and asset-based lending, often secured by collateral.

Capital markets, while secondary to bank financing, offer strategic opportunities to raise funds through equity or bond issuance.

The issuer may place investment securities upon the state registration of their issuance. The subscription period for the securities is limited to three months. After the subscription period has ended, the issuer must start the placement in five business days and the placement process may not last more than seven business days.

Presently, raising debt capital by issuing corporate bonds is more common than equity offerings although the latter are gaining momentum.

The CBA supervises security market participants, manages licensing processes, and registers securities issuance. The BSE is Azerbaijan’s principal securities trading platform.

Companies aiming to list securities on the BSE can do so directly or through licensed investment companies. These companies, regulated by the CBA, assist with preparing offer documentation.

Investment companies and depositaries of investment funds, ie, persons holding licences to act as a depository, jointly form the depositary system. The depositary system is run by the National Depository Centre, which operates as a not-for-profit organisation and is not liable for the liabilities of its members.

Investment companies, including foreign investment companies acting through their divisions in Azerbaijan, stock exchanges, depositories of investment funds, and clearing organisations operate on the basis of respective licences issued by the CBA.

For foreign investors structured as investment funds, FDI in Azerbaijan would not subject the fund to any regulatory review.

A foreign investment fund may not operate in Azerbaijan, itself, ie, through a branch. It may only operate through a local subsidiary, a JSC. Additionally, subject to a permit from the CBA, a fund may have a representative office. This type of permit may also be issued to a manager of a foreign fund.

Until 2015, foreign capital was capped at 50% of the total capital of Azerbaijani insurers, increasing to 100% as of 2017. The exceptions to the foreign capital rules are international financial institutions, foreign insurers, and institutional investors such as banks, pension funds, and investment funds.

A regulated concentration includes the following.

• A merger of two or more independent entities, or divisions or lines of their businesses, including a merger or acquisition.
• Acquiring by an entity, either directly or indirectly, control over one or more other entities, including financial institutions, or their divisions, through specific methods, such as:
1. acquiring more than 25% of the voting shares of a company, or 50% of the voting shares in a company where a shareholding of 25% to 50% was already held, or 75% of the voting shares in a company where a shareholding of 50% to 75% was already held; and
2. acquiring control over a significant portion of an LLC’s share capital.
• Transferring key assets (including production and intangible assets) exceeding 20% of an entity’s value.
• Granting rights to use, lease, or manage key assets or business operations for more than six months or indefinitely.
• Acquiring:
1. assets of a financial institution exceeding a threshold (to be determined);
2. the right to manage or operate another entity’s business or governing functions;
3. control over voting shares or rights of a foreign entity in the same or related business; and
4. involvement of individuals with the ability to influence the market behaviour of multiple entities within their management or governing bodies.
• A joint venture established with shared control or management, where decisions are made jointly by the founders.

A clearance must be sought from the State Service for Antimonopoly and Consumer Market Control within 30 days of making the relevant transaction where:

• a party holds a dominant market position, either individually with a market share above 50% (or above 35% with market influence), or jointly having a combined market share exceeding 50% (for two or three parties) or 70% (for four or five parties);
• financial institutions are not able to resell the shares, except when the shares are acquired devoid of voting rights within a year, with a possible one-year extension;
• the combined turnover of any merging party or the post-merger formed entity surpasses AZN25 million;
• the total turnover of the parties, both domestic and abroad, is greater than AZN35 million in the previous fiscal year;
• a party’s domestic turnover outpaces AZN15 million, and the other(s) exceed AZN5 million; and
• the total turnover of all parties in the last fiscal year tops 20% of the market, even if other thresholds are not met.

Distinct criteria for determining market dominance or triggering pre-merger notification for financial undertakings are pending. The Cabinet of Ministers Resolution No 363 dated 29 July 2024, approved the predefined form of an application for a merger consent. Additionally, the state duty for initiating a merger clearance is set to be introduced.

Where combined turnover of merging parties or the post-merger entity exceeds 70% of the applicable threshold, the undertakings involved in the merger must notify the regulator within 30 days of closing a transaction.

Mergers are assessed based on their potential impact on market structure and competition over the next three years. Various factors fall under the assessment, such as:

• the market share of all parties involved, dominant entities and their rivals;
• the financial capabilities of dominant entities;
• the market ties of dominant entities with other participants;
• an ability of other market players to transact with anyone other than dominant entities;
• actual and potential shifts in competition of the relevant market;
• the likelihood of new entrants or expansion by rivals, and barriers to entry or growth;
• flexibility of a consumer choice and influence over dominant entities;
• market access for supply or sales by other businesses;
• network effects, such as the added costs for customers to switch between services of firms;
• benefits from network effects; and
• a party’s market power and impact on competition via innovation.

Mergers involving joint ventures or agreements to co-ordinate market behaviour are also evaluated to determine whether the co-ordination restricts competition, particularly in production and sales.

If a merger results in the creation or strengthening of a dominant position that limits or distorts competition in the relevant markets, it is prohibited. However, the merger may be cleared if its technological, efficiency, and other pro-competitive benefits outweigh any anti-competitive effects, do not harm consumer interests, or cannot be achieved in other ways.

Multiple-related mergers, may be treated as a single transaction if linked by common business activities, financial resources, product offerings, and sales markets.

The merger control regime in Azerbaijan does not mandate remedies or commitments from undertakings. However, the regulations empower the regulator to initiate a separate investigation if any potential anti-competitive behaviour arises from an approved merger. If concerns are identified, the regulator may issue instructions to market participants and appeal to a court, including among other things for the undoing of a transaction, minimising its effects or unbundling a business.

A failure to obtain a consent for a notifiable merger or if the merger results in anti-competitive effects may lead to a sanction of up to 5% of the undertaking’s total turnover for the last financial year, or, if turnover cannot be determined, a sanction ranging from AZN50,000 to AZN200,000. Additionally, a failure to comply with the regulator’s decision incurs a sanction of up to 10% of the total turnover, or, if turnover cannot be determined, a sanction ranging from AZN200,000 to AZN500,000. If the regulator identifies potential anti-competitive effects arising from a merger, an unscheduled audit can be carried out.

If an undertaking has carried out an unapproved merger that restricts competition and fails to comply with an order for its dissolution, the regulator may seek unwinding before the court.

An enforcement or administrative act may be appealed within 30 days of its effective date. If the act does not specify remedies or affects the legal interests of other parties, an administrative complaint can be filed within six months. The appeal period before the administrative court is also 30 days, which is suspended during an ongoing administrative review and resumes once a decision is made.

Under the Law on Investing, foreign investors are subject to equal treatment with domestic investors. However, provisions of the Law establishing a non-discrimination regime do not affect the application of the local laws upon a significant threat to public safety, environmental safety, public order, and the security and economic interests of Azerbaijan.

Investors must comply with mandatory requirements in the areas of protection of life and health of the population, the environment, historical and cultural monuments, urban planning and construction, labour legislation, technical safety, safety of goods (works, services), fire and radiation safety, as well as national security.

Otherwise, investing in all lines of business is generally allowed. However, specific restrictions apply under the rules governing particular activities and operations. For example, guarding state security facilities and other facilities, the list of which is approved by the Cabinet of Ministers, and safety of citizens is carried out by the state and its agencies.

The AML and CFT rules define high-risk areas (conflict zones) as jurisdictions and areas lacking an adequate AML/CFT system assessed by reputable AML and CFT sources, supporting armed separatism, extremism, mercenaryism, and terrorism, not requiring disclosure of identification information or documents in financial transactions, and subject to sanctions and similar measures imposed by international organisations.

The FMS and responsible reporting persons may implement restrictions and special measures, such as special KYC reviews, denying licences, and restricting business and financial transactions, in relation to high-risk areas. The FMS promulgates the list of high-risk jurisdictions subject to a FATF call for action, which presently includes the Democratic People’s Republic of Korea (DPRK), Iran, and Myanmar (Burma).

Azerbaijan does not have a foreign investment or national security review regime. However, the FMS is responsible for ensuring transactions comply with the AML/CFT regime.

There is no applicable information in this jurisdiction.

There is no applicable information in this jurisdiction.

Adopted on 14 July 2023, the PPP Law replaced the 2001 Law of the same name and subject, which was based on the 1994 UNCITRAL Model Law on Procurement of Goods, Construction and Services. The replacement of the 1994 Model Law with the UNCITRAL Model Law on Public Procurement 2011 together with the country’s internal considerations dictated the adoption of the new Law.

Public procurement is the process of acquiring goods, works or services initiated by state bodies, state funds outside of the state budget, public entities, and entities controlled by the state. Unlike the old Law which applied to entities controlled by at least 30% by the state, the new Law does not establish a threshold for this control.

The Law on Public Procurement does not cover:

• supplies (of products, works or services) exclusively from government agencies and natural monopolies with regulated prices;
• obtaining loans;
• transactions with securities, currency exchange, and related services;
• procurement under public-private partnerships;
• notarial services;
• investment and asset management services;
• procurement in relation to banknotes, foreign exchange reserve management, foreign exchange purchase and transportation, procurement in the exercise of control measures, including a bank resolution, over controlled subjects;
• centralised procurement of foodstuff financed out of the state budget;
• procurement of stationery for courts of first instance;
• supplies in the Alat Free Economic Zone;
• procurement by an entity transferred into management by a lottery organiser and a gambling operator;
• small purchases up to AZN10,000 (AZN20,000 for some organisations); and
• procurement for defence and security under defined criteria.

Procurement using funds of international organisations is carried out according to the terms of an applicable instrument.

Under its governing law, the Alat Free Economic Zone may adopt its own rules, including corporate, competition, and FDI rules, except where the principal economy law applies, ie, criminal law and AML and CFT rules. Whether these were adopted or not is not known (on a previous occasion, the Zone authority failed to publicise the corporate rules it had apparently adopted).

Under the PPP Law, project offers are assessed based on the following criteria.

• Amounts payable by a public partner to a private partner and how they are shared during a project’s lifetime.
• State support and guarantees.
• Term of the project where the implementation period is part of an offer.
• Forecast of results of work and compensation for damages related to failures to perform contractual obligations.
• Technical, esthetic-functional, and innovative features of a project offer.
• Risk management measures offered by an applicant.

Where required by international undertakings or considerations of public safety of Azerbaijan, participation in competitive procedures of listed foreign applicants or applicants from listed foreign jurisdictions, their ability to make offers as a part of a private initiative, or direct negotiations can be restricted. PPP agreements with foreign counterparties, including persons they control, or involving foreign and international financiers can be governed by foreign law.

Taxes are governed by the Tax Code, which came into effect in 2001 and are levied at the Republic’s, Naxcivan Autonomous Republic’s, and local levels, ie, depending on a payor and sometimes payee, the same taxes apply at different government levels.

Profits tax and corporate income tax in Azerbaijan are set at 20% and are applied to the worldwide income of tax resident entities, which is determined by the place of establishment or management of a company in Azerbaijan, where its commercial decisions and daily operations occur.

Non-resident entities are only taxed on source-based income or on income allocated to their permanent establishments, which are defined as places where business is conducted for at least 90 consecutive days within any 12-month period, subject to adjustments under bilateral tax treaties.

Tax transparency (pass-through) is only granted to contractual joint ventures that do not constitute a separate entity.

The value added tax (VAT) rate in Azerbaijan is 18% and is applied on the turnover of registered taxpayers whose taxable transactions exceed the threshold of AZN200,000 in a consecutive 12-month period. No reduced VAT rate applies, except for incentives such as a zero rate and specific exemptions. A voluntary VAT registration is available.

If at least 50% of a business’ turnover is taxable or zero-rated, a VAT refund is granted within 20 days of applying. Others will receive refunds within four months. Businesses that receive goods or services from international organisations or foreign entities under agreements with Azerbaijan can have a VAT refund within 45 days of applying for it.

The simplified tax regime is available to businesses with 12 consecutive months of taxable transactions up to AZN200,000, taxing them at 2% of gross revenue, while public catering businesses exceeding this threshold are taxed at 8%. This regime is an alternative to both corporate income tax and VAT.

Excise taxes are levied on tobacco products, alcoholic beverages, energy drinks, petroleum products, vehicles, and other items as outlined in the Tax Code. The excise rates vary based on the product category, eg, duties on alcoholic beverages range from AZN0.2 to AZN4.8 per litre, AZN45.5 per 1,000 units for tobacco products and between AZN0.30 and AZN70 per cubic centimetre of engine capacity for automobiles.

In Azerbaijan, businesses must pay a 1% annual tax on the residual value of main assets, including property used for business purposes over AZN500.

The land tax applies based on the size and purpose of the land, with rates ranging from AZN2 to AZN20 per 100 square metres for non-agricultural land and AZN2 per 100 square metres for unused agricultural land or AZN0.06 per conditional point for land that is used or technically unusable.

A highway tax of between USD15 and USD2,800 is imposed on foreign vehicles entering Azerbaijan, based on vehicle type, seating capacity, load capacity, total weight, road grade, distance travelled within Azerbaijan and transportation of hazardous materials. A tax of AZN0.02 per litre is levied on gasoline, diesel, and liquefied gas, both domestically produced and imported, based on their wholesale price.

Companies extracting minerals must pay a mining tax based on the wholesale price, with rates of 26% for crude oil, 20% for natural gas, 3% for metallic ores, and fixed per cubic metre rates for non-metallic minerals.

Companies that are residents must withhold taxes of 5% on dividends, 10% on interest payments, and 14% on royalties paid to non-residents. Additionally, payments for risk insurance and reinsurance are subject to a 4% withholding tax, while payments for international transport services are taxed at 6%. Other types of income of non-residents are subject to a 10% withholding tax at source.

These rates may be reduced under an applicable double taxation avoidance treaty, with withholding tax rates on dividends starting from 5%, interest from 7% to 10%, and royalties from 5% to 10%, along with other exemptions or reductions.

After tax has been withheld on dividends, interest, or royalties, no further tax is imposed on the income when received by foreign investors.

A branch (PE) profits tax rate is 10% (unless exempt under a double taxation avoidance treaty). Considering the rate of corporate income tax is 20%, an effective rate of taxation for a PE is 28%.

Any mitigation strategies are transaction- and structure-specific as follows.

• Start-ups focusing on innovation are exempt from corporate income tax on innovation-related income for three years.
• 50% of profits from a company’s shareholding in another for at least three years are exempt from taxation.
• 75% of profits of microbusinesses are exempt from taxation.
• Grants, donations, and membership fees of not-for-profits can be exempt from taxation.

In the Alat Free Economic Zone, companies are exempt from corporate income tax, withholding taxes, and VAT. To become a resident, they must produce export-oriented products with high added value that meet international standards and ensure that at least 75% of their production is exported abroad.

Clustered small and medium enterprises, which are businesses grouped together in a collaborative network or cluster, benefit from tax exemptions for seven years starting from the moment they are included in the cluster. Additionally, residents of industrial and technology parks in Azerbaijan enjoy various tax exemptions to promote innovation and business growth.

Companies can carry taxable losses forward for up to five years. Tax losses cannot be carried back to offset previous years’ profits.

Through acquisition structures that allow for a step-up in the depreciable asset basis, companies can increase the value of their assets for tax purposes, leading to higher depreciation deductions and lower taxable profits in the early years of ownership.

Businesses holding an investment promotion certificate are entitled to a 50% exemption from taxes on profit for seven years. The certificate is typically issued for large-scale, capital-intensive projects, such as manufacturing, energy, and infrastructure projects.

In Azerbaijan, there is no specific capital gains tax. Instead, capital gains from the sale of assets by foreign investors are subject to the standard corporate income tax or personal income tax in the case of individuals. However, tax treaties may provide relief and reduce the tax burden.

Investors can optimise their tax position by structuring investments through tax-efficient vehicles or by targeting qualifying sectors or special economic zones that offer additional incentives.

While there are no specific anti-avoidance rules for FDIs, both general and special anti-avoidance measures are effective.

Starting from the 2017 amendments to the Tax Code, tax authorities may challenge tax avoidance schemes. These schemes are considered arrangements aimed at obtaining a tax advantage by avoiding tax payment obligations without altering the actual economic substance of the transaction by recalculating taxes, interest, penalties, and fines based on the true economic substance.

Interest on foreign loans and loans from related parties can be deducted, provided the deduction does not exceed the interest rate for loans with a similar currency and term from the interbank credit auction. If no auction is held, the deduction is capped at 125% of the interbank credit rates published by the CBA.

Interest deductions on foreign loans are also limited if the loan exceeds twice the taxpayer’s equity. This rule does not apply to resident banks or credit institutions.

Tax authorities may deny benefits under a tax treaty if they are used for tax avoidance or by beneficiaries who do not have a genuine connection to the countries involved. As of 24 September 2024, following the ratification of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting, signed on 20 November 2023, this power has been significantly strengthened through Section 7 of the Convention.

A foreign entity that is not a resident for tax purposes in Azerbaijan is subject to taxation and deemed to be a controlled foreign corporation (CFC), where:

• a resident or related party holds more than 50% of voting rights, share capital, or profit;
• the tax paid by the entity is less than 75% of what would be due in Azerbaijan; or
• over 30% of income comes from passive sources, such as interest, royalties, gains from share sales, income from financial leasing, insurance, banking, or similar operations, and income from goods or services with no economic value.

Taxable profits from a CFC are included in an Azerbaijani resident’s income, with credit for any taxes already paid. However, dividends, profits from consolidated CFC earnings, and income taxed in Azerbaijan through a CFC’s PE or subsidiary are not included in taxable profits. The CFC notification must be filed with the tax authority.

Azerbaijan regards a jurisdiction to be low-tax based on any of the following criteria:

• those with a tax rate of 75% and a tax rate lower than the applicable rate under the Tax Code;
• those not exchanging information with Azerbaijan according to the relevant standards under international agreements; and/or
• those with laws protecting confidentiality of information of companies enabled to preserve secrecy of their financial data or beneficiary of property or income (profits).

The list of these jurisdictions is approved by the President and was last updated in 2023. The following jurisdictions are on the list of low-tax foreign jurisdictions and territories:

• Andorra;
• Anguilla;
• Antigua and Barbuda;
• Aruba;
• the Bahamas;
• Bahrain;
• Barbados;
• Belize;
• Bermuda;
• the British Virgin Islands;
• Brunei Darussalam;
• Cape Verde;
• the Cayman Islands;
• the Cook Islands;
• Dominica;
• Fiji;
• Gibraltar;
• Grenada;
• Guernsey;
• Hong Kong (PRC);
• the Isle of Man;
• Jersey;
• Labuan (Malaysia);
• Liberia;
• Lichtenstein;
• Macao (PRC);
• the Maldives;
• the Marshall Islands;
• Mauritius;
• Monaco;
• Montserrat;
• Nauru;
• Niue;
• Palau;
• Panama;
• Saint Kitts and Nevis;
• Saint Lucia;
• Saint Vincent and the Grenadines;
• Samoa;
• the Seychelles;
• Taiwan (PRC);
• Thailand;
• Trinidad and Tobago;
• the Turks and Caicos Islands;
• Vanuatu;
• Union of the Comoros; and
• the US Virgin Islands.

Direct and indirect payments except for certain listed ones by residents of Azerbaijan, including resident individuals not tax registered in Azerbaijan and PEs in Azerbaijan of non-residents to persons incorporated in the listed jurisdictions, including their branch and representative offices in third jurisdictions, as well as bank accounts in the listed jurisdictions are regarded as sourced from Azerbaijan and taxed accordingly.

Transfer pricing in Azerbaijan is triggered in transactions between:

• residents and dependent non-resident entities or their branches abroad;
• non-resident permanent establishments in Azerbaijan and their entities abroad;
• Azerbaijani residents or permanent establishments and entities in low-tax jurisdictions;
• transactions involving non-residents with products traded on international commodity exchanges; and
• transactions involving non-residents if the total income exceeds AZN30 million, with more than 30% from transactions with non-residents.

To determine transfer prices, businesses can use methods such as comparable uncontrolled price, resale price, cost plus, transactional net margin, and profit split.

Transactions below AZN500,000 do not require filing, but compliance with pricing rules is still mandatory. Transfer pricing analysis can utilise exchange quotations, foreign trade statistics, and specialised databases, while the regulations also cover dispute resolution and the prevention of double taxation.

From 1 January 2020, Azerbaijani entities belonging to multinational corporations with consolidated income above EUR750 million have had to file a country-by-country report available at www.cbcr.tmfi.gov.az/login.

Non-compliance with the regulatory requirements may result in a financial sanction of AZN10,000.

The Labour Code came into effect in 1999 and defines the minimum labour rights of individuals and the rules ensuring the implementation of those rights. While the Labour Code has traditionally been viewed as pro-employee, this has been changing.

The Labour Code does not apply to, among others, foreigners who enter into employment with a foreign employer to discharge their functions at an enterprise (branch, representative office) in Azerbaijan.

Foreigners and stateless persons wishing to temporarily reside and work in Azerbaijan, along with a temporary residence permit, must have a work permit. A work permit is a document allowing a foreigner and a stateless person to engage in paid labour in Azerbaijan. Employers must employ their non-Azerbaijani employees by making employment agreements with them for the period of validity of the respective work permits.

Trade unions are independent, public non-political organisations that voluntarily unite workers, pensioners, and students to protect their labour, social and economic rights. Having said that, trade unions in Azerbaijan are not strong or powerful. The Confederation of Trade Unions of Azerbaijan was established in 1993 and unites 27 sectoral trade unions and an inter-sectoral association of trade unions of the Naxcivan Autonomous Republic.

On 17 March 2023, the Cabinet of Ministers approved a tripartite collective bargaining agreement signed between the Cabinet of Ministers, the Confederation, and the National Confederation of Organisations of Entrepreneurs (Employers) for 2023 to 2025.

Cash is the most common framework used to compensate employees. Except for multinational enterprises, equity (whether as compensation or an option) rights are not common. There is the minimum statutory wage, and salaries are typically payable once a month in arrears.

With the consent of an employee, up to 20% of the wages may be paid in kind in the form of consumer goods.

Except for cases of change of ownership of an enterprise or its liquidation, organisational and structural changes at the enterprise, termination of employment agreements, or termination or suspension of the activities of a trade union do not lead to termination of a collective agreement. In the event of a change of ownership of the enterprise, the collective agreement will remain in force for a period of three months. In the event of a change in the ownership of an enterprise, only a manager, their deputies, the chief accountant and heads of other structural units performing direct management functions may be terminated.

Where the owner of an enterprise changes, labour contracts and their terms concluded between all remaining employees and the previous owner will be maintained in force by the new owner and may only be terminated on the relevant grounds specified in the Labour Code.

A new owner may only terminate or change the employment conditions of a manager, their deputies, the chief accountant and heads of other structural units performing direct management functions at the enterprise.

The new owner or employer is not allowed to terminate employees en masse without revealing their professional level and skills and incompetence by way of attestation of workplaces and employees. En masse refers to a total number of employees within three months of the change of ownership. This is more than 50% when the total is between 100 and 500 people, more than 40% when the total is between 500 and 1,000 people, and more than 30% when the total is more than 1,000.

Intellectual property is an important aspect in screening FDI in Azerbaijan. Importation of goods is an area where the protection of IP rights might negatively affect FDI screening by an investor for Azerbaijan. It is possible for a holder of an IP right to restrict an import of counterfeit products. However, a parallel import is not restricted legally or, for the absence of a register maintained for authorised distributors or importers, practically.

Use of pirated software is common and cannot be prevented through a straightforward process.

While Azerbaijan has been developing a framework for the protection of intellectual property rights, including by acceding to various international instruments, serious issues remain as far as the interpretation and implementation of those protections are concerned.

Azerbaijan participates in agreements such as the Berne Convention, the Geneva WIPO Copyright Treaty and the Paris Convention.

The primary laws governing intellectual property in Azerbaijan are:

• the Law on Copyright and Related Rights of 5 June 1996;
• the Law on Selection Achievements of 15 November 1996;
• the Law on Patents of 25 July 1997;
• the Law on Trademarks and Geographical Indications of 12 June 1998;
• the Law on Legal Protection of Integrated Circuit Topographies of 31 May 2002;
• the Law on Legal Protection of Folklore Expressions of 16 May 2003;
• the Law on Legal Protection of Compilations of Data of 14 September 2004; and
• the Law on Ensuring Intellectual Property Rights and Combating Piracy of 22 May 2012.

Foreign applicants seeking protection for industrial property in Azerbaijan must appoint a registered patent attorney to represent them before the Intellectual Property Agency for procedures related to trade marks, geographical indications, and patents, which include utility models, industrial designs and innovation applications.

There is no similar requirement for copyright protection. While copyright protection is recognised upon publication, authors may register their works, including electronically.

Those whose rights have been infringed may seek protection through both civil actions and criminal proceedings. Criminal protection is only available if damages exceed AZN50,000 for trade marks or AZN1,000 for other rights.

In Azerbaijan, patents are not granted for inventions, utility models, or industrial designs deemed to contravene public policy, ethical standards, or humanistic principles, especially those that cause significant harm to human or animal health, plant life, or the environment.

Azerbaijan does not yet have specific regulations for the protection of AI-generated works, despite its involvement in multilateral arrangements such as the Framework Convention on Artificial Intelligence and Human Rights, Democracy and the Rule of Law of the Council of Europe.

The Law on Personal Data of 11 May 2010 covers the collection, processing, and protection of personal data, including the rights and obligations of data controllers and operators.

Although the Law does not explicitly provide for extraterritorial application, it addresses cross-border data transfers, permitting the transfer of personal data outside Azerbaijan only if the receiving jurisdiction ensures an adequate level of protection comparable to local standards or if the transfer is necessary to protect vital interests, such as life, health, or other critical matters.

The legislation establishes administrative liability for offences such as unregistered data processing systems and failure to ensure data protection, destruction, or cessation of processing, with the Ministry of Digital Development and Transport issuing a protocol for court consideration and possible penalties being imposed, ranging from AZN300 to AZN500.

In addition to administrative penalties, aggrieved individuals or entities may pursue civil actions to recover damages caused by violations of data protection obligations.