Azerbaijan operates a civil law system grounded in codified legislation, with the Constitution serving as the supreme legal act. The Civil Code is the principal source governing private law relations, company law, contracts, property, secured transactions and commercial activities. Sectoral laws (the Law on Securities Market, Law on Licences and Permits, Law on Banks, etc) complement the Code and provide the regulatory infrastructure for businesses operating in the jurisdiction.

The judiciary comprises courts of general jurisdiction, specialised courts (including those for commercial disputes), appellate courts and the Supreme Court as the highest appellate instance as a cassation instance. Judicial review of normative acts is vested in the Constitutional Court. Administrative bodies – most notably the Ministry of Economy, State Tax Service, State Service for Antimonopoly and Consumer Market Control (the “Competition Authority”) and Central Bank of Azerbaijan – play an active role in supervising compliance in their respective spheres.

For foreign investors, the system offers an adequate legal environment with investment protections embedded directly in primary legislation, equal treatment of local and foreign investors, and access to courts and commercial arbitration. Azerbaijan is a contracting state to key multilateral treaties, including the New York Convention on Recognition and Enforcement of Arbitral Awards (1948), enabling the enforceability of foreign arbitral decisions.

Azerbaijan does not maintain a standalone FDI screening regime and does not require foreign investors to undergo a national security type or foreign ownership review as a condition for market entry. Instead, foreign investment operates within a general investment framework built around several core statutes that apply equally to domestic and international investors.

Investment Activity Law (2022)

The Law on Investment Activity (No 551-VIQ, 22 June 2022) constitutes the principal instrument governing investment operations. It applies to all investment activities carried out in Azerbaijan by both local and foreign investors (Article 3.1). The law sets out the overarching rights and guarantees for investors, including non-discrimination, protection of property rights, access to dispute-resolution mechanisms and freedom to repatriate profits.

Article 6 establishes a suite of state support and promotion measures designed to encourage both domestic and foreign capital inflows. These include:

• tax and state-payment incentives, applied through special regimes or investment promotion certificates;
• preferential financing, including concessional loans for qualifying projects;
• special economic zones, industrial parks and other preferential regimes to host investment projects;
• expansion of public–private partnership (PPP) mechanisms;
• advisory and informational support via online investment platforms, including access to investment project pipelines and potential local partners; and
• additional state measures aimed at strengthening Azerbaijan’s overall investment climate.

Law on Public–Private Partnership (2022)

The Law on Public–Private Partnership (No 691-VIQ, 9 December 2022) regulates relations arising in the implementation of PPP projects. It covers infrastructure development, public service delivery, and the creation and operation of facilities required for those services. The law governs the interactions between the state, the authorised state body, the public partner, private partners and bidders. PPP has become a key channel for attracting foreign investors to large-scale infrastructure, utilities, healthcare and transport projects.

Law on the Use of Renewable Energy Sources in Electricity Production (2021)

The Law on Renewable Energy (No 339-VIQ, 31 May 2021) provides a comprehensive framework aimed at expanding renewable generation capacity and deepening private sector participation in the energy transition. It outlines state support mechanisms, rules for producer selection, tariff determination and procedures for allocating land for renewable projects. The law signals a long-term strategic commitment to creating an investment-friendly renewable energy ecosystem, an area where foreign investors have shown substantial interest.

Azerbaijan’s near-term outlook is characterised by moderating but positive growth, continued fiscal and external buffers from hydrocarbons, and a strong policy focus on diversifying into non-oil sectors. The International Monetary Fund (IMF) projects real GDP growth of around 3% in 2025, with inflation expected to remain within the Central Bank’s target band. The World Bank expects medium-term growth to converge towards approximately 2.5% as declining crude output is increasingly offset by expanding non-energy activities. The government’s Socio-Economic Development Strategy 2022–26 explicitly targets higher FDI inflows – particularly into non-oil sectors – through structural reforms, improved investment facilitation and the development of priority industries such as energy transition, logistics, water infrastructure and agriculture.

The year 2025 has seen a continuation of large-scale strategic foreign investment, particularly in energy, renewables and infrastructure. The most significant project is the USD2.9 billion expansion of the Shah Deniz gas and condensate field, led by BP and its international consortium partners. This programme, aimed at developing low-pressure gas reserves, will extend plateau production and underpin Azerbaijan’s long-term export commitments to regional and European markets. Its scale and technical complexity make it one of the region’s largest upstream undertakings and a central pillar of Azerbaijan’s external sector resilience.

A second major development is BP’s move into utility-scale solar generation in the Karabakh region, through the construction of a 240 MW solar power plant valued at approximately USD200 million. Scheduled for completion by mid-2027, the project is strategically positioned as both a post-conflict reconstruction initiative and a flagship of the government’s green energy corridor vision. It demonstrates a growing appetite among international energy companies to participate in the redevelopment of newly reintegrated territories.

Renewables more broadly continue to attract significant Gulf-based investment. The 240 MW Khizi–Absheron wind project being implemented by ACWA Power (Saudi Arabia) marks one of the largest wind-energy installations in the South Caucasus. In parallel, Azerbaijan is progressing a broader 1,000 MW renewable-energy programme with Masdar (UAE), including wind, solar and integrated green-hydrogen development. These projects collectively reinforce Azerbaijan’s positioning as an emerging regional clean energy hub and illustrate sustained, high-value interest from long-term institutional investors.

The year 2025 has also seen important movement in water infrastructure investment, an area designated as a national strategic priority. The government has advanced a large desalination plant project on the Absheron Peninsula, awarded under a PPP structure to a foreign-led consortium. Designed to address long-term water security challenges, the facility will combine seawater desalination with modern transmission infrastructure and represents one of the largest non-energy infrastructure investments in the country. Its scale, financing model and international participation signal a broadening of Azerbaijan’s FDI profile beyond hydrocarbons.

Overall, Azerbaijan’s political environment remains stable, with policymaking strongly centralised and government priorities clearly aligned around diversification, infrastructure renewal and regional integration. For foreign investors, the combination of macroeconomic stability, targeted state support measures, robust demand for large-scale infrastructure and an expanding renewables pipeline creates a favourable near-term outlook. While structural reforms in competition, state-owned enterprise (SOE) governance and regulatory transparency are still evolving, sectoral opportunities, particularly in energy transition, water management, logistics and reconstruction, continue to anchor Azerbaijan’s attractiveness for strategic inbound investment.

M&A transactions in Azerbaijan typically follow standard structures, with share acquisitions being the most commonly used approach for both foreign and domestic investors. For private companies, transactions generally involve the direct transfer of participatory interests from existing owners to the acquirer. Asset acquisitions are used where the buyer seeks to acquire specific business units or isolate liabilities, but they are less common than share purchases.

The new Competition Code of the Republic of Azerbaijan, effective from 1 July 2024, is a central factor in determining transaction structure. It introduces a comprehensive framework governing mergers and acquisitions and defines “economic concentration” broadly. Article 26 identifies the following as concentrations:

• merger or combination of two or more independent economic entities or their separate fields of activity;
• acquisition of control over voting shares in a joint stock company JSC at the thresholds of 25%, 50% and 75%;
• acquisition of ownership in a joint stock company (LLC) at one-third, 50% and 75%;
• transfer of more than 20% of the balance sheet value of main assets or intangible assets;
• long-term or indefinite rights over key assets;
• acquisition of significant assets of financial institutions;
• acquiring rights to perform entrepreneurial or executive functions of another entity;
• acquisition of more than 50% of voting shares in foreign entities operating in the same or a related market;
• joint management arrangements affecting market behaviour; and
• creation of joint ventures jointly controlled by founders.

These thresholds guide foreign investors in structuring transactions, particularly where incremental purchases or minority investments may inadvertently trigger concentration rules.

The Competition Code serves as the primary framework for reviewing domestic concentrations. Transactions falling within Article 26 must be notified to and approved by the Competition Authority before completion. This applies where mergers, acquisitions of control, significant asset transfers or joint venture formations meet the Competition Code’s thresholds. The regulator assesses whether the concentration could distort competition or strengthen an existing dominant position.

Beyond merger control rules, corporate registration requirements are essential:

• for LLCs, changes in ownership of participatory interests must be registered with the State Tax Service under the Ministry of Economy, which maintains the official registry of companies; and
• for JSCs, share transfers must additionally be registered with the National Depositary Centre, which records all changes in ownership of dematerialised shares.

Corporate governance requirements in Azerbaijan are primarily set out in the Civil Code of the Republic of Azerbaijan. In addition, certain regulated entities such as banks, investment companies and insurance companies must comply with mandatory corporate governance standards adopted by the Central Bank of the Republic of Azerbaijan.

Foreign investors typically establish their presence in Azerbaijan by opening a branch or representative office, or by incorporating a subsidiary in the form of an LLC or a JSC. The LLC is the most commonly used structure due to its straightforward incorporation process and comparatively lighter regulatory burden. Its internal governance is largely determined by its charter, and the Civil Code imposes fewer mandatory rules on LLCs relative to JSCs. Unlike JSCs, there is no statutory minimum charter capital for LLCs, and LLCs are not subject to Central Bank reporting requirements.

By contrast, the JSC form is subject to minimum charter capital rules under Azerbaijani law. After registration, a JSC must issue and register its shares, and its corporate governance framework is significantly more rigid, allowing less flexibility for shareholders to customise governance arrangements.

Branches and representative offices have limited interaction with Azerbaijani corporate law. They may carry out certain commercial activities but cannot engage in specific licensed sectors such as insurance.

Minority shareholders in Azerbaijan benefit from a number of statutory rights under the Civil Code. These include the right to receive dividends, to obtain information about the company’s activities, to review annual reports and financial statements, and to participate in the election of executive bodies in both LLCs and JSCs.

In LLCs and closed JSCs, minority shareholders also benefit from a right of first refusal over the sale of another shareholder’s participatory interest or shares, exercisable in proportion to their existing ownership.

The Civil Code also contains specific protections for minority shareholders in LLCs and open JSCs (OJSCs). If a shareholder seeks to acquire more than 50% of a company’s shares, they must first offer to purchase the shares of the remaining shareholders. Minority shareholders may freely decide whether to sell or retain their shares. This mechanism prevents a majority shareholder from obtaining disproportionate control without giving minority shareholders an opportunity to exit on equal terms.

Azerbaijani law does not prescribe FDI-specific disclosure obligations. However, depending on the legal form of the entity receiving the investment, certain disclosure and reporting requirements may arise.

For open joint stock companies, a transaction involving more than 25% of the value of the company’s net assets qualifies as a special significant transaction. Such transactions must be approved by the general meeting of shareholders, and information regarding the transaction must be disclosed in accordance with the company’s charter (this requirement does not apply to branch offices of foreign banks).

Additionally, members of the executive board or board of directors of a JSC must disclose relevant information before entering into any agreement concerning securities in their ownership.

Azerbaijan’s capital markets remain at an emerging stage of development, and businesses continue to rely primarily on debt and bank financings as their main sources of funding. Long-term credit facilities provided by local banks constitute the dominant financing channel for both large enterprises and SMEs, reflecting the relative depth of the banking sector compared with the still-developing debt and equity markets.

Alongside bank lending, state financial resources, including budget allocations and state-supported programmes, play an important role in funding strategic sectors and large infrastructure projects. Own funds and retained earnings also remain a significant source of corporate financing, particularly for mid-sized companies that may not have access to capital market instruments.

Access to capital markets is gradually expanding. Companies may obtain financing through the issuance of corporate bonds or equity placements, typically conducted via investment companies licensed to operate in the securities market. While still limited, capital-market financing is viewed as an increasingly viable option, particularly for companies seeking to diversify funding sources or improve financial transparency.

Regulation of Azerbaijan’s capital markets is overseen by the Central Bank of the Republic of Azerbaijan, which is responsible for supervising the securities market and establishing the rules governing the issuance, placement and public offering of investment securities. The Baku Stock Exchange (BSE) is the country’s primary trading platform for publicly traded securities.

Settlement, custody and registration of securities are carried out by the National Depository Centre, which maintains the centralised register of securities and provides depository, clearing and information disclosure services. Investors must hold a depository account with a licensed investment intermediary in order to purchase, hold or sell securities on the BSE.

Issuances in Azerbaijan may take the form of a public offering or a private placement (to fewer than 50 investors). Subscription to investment securities must be completed within three months from launch, and a placement is deemed finalised once the initial owners of the securities are registered in their depository accounts.

Foreign investment funds may operate in Azerbaijan only through a representative office, which requires prior authorisation from the Central Bank. To obtain this permit, the fund must submit detailed documentation, including:

• information on the beneficial owner;
• evidence of managerial experience and professional qualifications of key personnel (legalised/apostilled);
• audited financial statements covering the period of activity;
• the charter of the representative office;
• the foreign fund’s charter and state-registration documents (legalised/apostilled);
• the decision of the authorised body establishing the representative office; and
• relevant licences and permits from the fund’s home jurisdiction.

There are no specific exemptions available to foreign investment funds. Additionally, foreign capital participation limits apply in certain regulated sectors. The Central Bank determines maximum foreign ownership levels for investors seeking to acquire shares in banks and insurance companies. Within the insurance sector, the combined participation of international financial institutions (of which Azerbaijan is a member), foreign insurers and foreign institutional investors – including banks, credit institutions, pension funds and investment funds – may not exceed 50% of the insurer’s authorised capital.

Azerbaijan operates a formal merger control regime under the Competition Code, which entered into force on 1 July 2024. The competent authority is the Competition Authority. Importantly, this framework is not an investment screening mechanism; it governs transactions irrespective of whether the acquirer is foreign or domestic, and the analysis is limited to the concentration’s effects on competition within Azerbaijan.

Transactions requiring notification are regulated under Article 27 of the Competition Code, which provides that a concentration must be notified when any of the following alternative thresholds are met:

• dominant position – one of the undertakings involved holds a dominant position in the relevant market;
• financial institution resale exception – a financial institution cannot dispose of shares acquired for resale within the period permitted under the Competition Code;

• individual turnover – turnover of any participating undertaking, or the entity formed as a result of the concentration, exceeds AZN25 million (approximately USD14.7 million;

• combined worldwide turnover – combined turnover of all parties, inside and outside Azerbaijan, exceeds AZN35 million (approximately USD20.6 million);

• domestic turnover – one undertaking exceeds AZN15 million (approximately USD8.84 million) domestic turnover, and the other exceeds AZN5 million (approximately USD2.95 million) domestically; and

• market share – combined turnover below financial thresholds but representing over 20% of the relevant market.

Under Article 30.3, each participating undertaking is separately responsible for filing.

Process and timelines include, first, a compliance check (ten working days), after which the Authority examines completeness and may request corrections, which must be addressed within the same ten-day period. Then, a primary investigation (30 working days) may follow. Once complete, the Authority conducts a substantive review and may:

• leave the application unconsidered (eg, outside Article 27 or deficiencies unresolved);
• clear the concentration; or
• refuse approval if competition would be restricted or dominance created/strengthened.

Subsequently, the remedies stage may follow. If concerns are remediable, the Authority notifies the parties within three working days, and the parties have 15 working days, or 30 working days for extensive measures, to resolve them. Extensions can be made by the Authority. The investigation may be extended twice, each for 30 working days, to determine additional circumstances.

The review period pauses when deficiencies are identified or where other investigations or court proceedings affect the matter.

All decisions, including extensions and refusals, must be communicated within three working days. A straightforward filing can be completed within 33 working days, assuming the submission is complete and no substantive concerns arise. Moreover, the substantive criteria for merger review are yet to be determined by the Cabinet of Ministers of the Republic of Azerbaijan.

The Competition Code contains a merger control regime, but it does not overlap with any foreign investment review. The analysis is strictly competition-based.

Under Article 28, the Authority assesses concentrations on the basis of:

• their expected impact on market structure over the next three years;
• the market shares of all participants;
• whether the concentration restricts competition or creates/strengthens dominance;
• whether efficiency-enhancing or technological benefits outweigh any restrictive effects;
• whether consumer interests are preserved; and
• whether equivalent benefits could be achieved through less restrictive means.

The review concerns only competitive effects in Azerbaijan, with no assessment of investor nationality or foreign investment considerations.

Where a concentration requires approval under Article 27, the Competition Authority evaluates potential competitive effects under Article 28.

Possible outcomes may include:

• approval – granted when the concentration does not restrict competition or when efficiency-enhancing or technological benefits outweigh any restrictive effects and do not harm consumers;
• prohibition – issued when the concentration could restrict competition, create or strengthen dominance, or otherwise adversely affect market structure; and
• conditional approval/remedies – available when concerns can be addressed through corrective measures.

If the Authority identifies restrictions that can be corrected, it informs the applicant within three working days. Parties must implement remedies within:

• 15 working days; or
• 30 working days for complex measures.

Remedies may relate to eliminating anti-competitive effects, preventing the creation of dominance, or correcting structural or behavioural issues identified by the Authority.

The Competition Authority does not evaluate or block foreign investment as such. Its mandate is limited to assessing transactions that meet merger control thresholds and their competition effects within Azerbaijan. Accordingly, the regime should be viewed as antitrust merger control, not FDI screening.

The Authority may:

• refuse a concentration;
• approve it unconditionally;
• approve with remedies; or
• treat multiple transactions as a single notifiable concentration.

If a notifiable concentration is implemented without prior clearance:

• each participating undertaking bears individual liability;
• administrative penalties may apply;
• the transaction may be subject to unwinding or corrective measures; and
• the Authority may impose structural or behavioural remedies.

These consequences underscore that merger clearance is a mandatory pre-closing requirement for transactions meeting Article 27 thresholds.

Azerbaijan does not operate a dedicated foreign investment or national security review regime. Instead, foreign investors are governed by the general framework applicable to all investors under the Law of the Republic of Azerbaijan “On Investment Activity”, which expressly provides that foreign investors are entitled to a national treatment regime. Accordingly, in comparable circumstances, foreign investors and their investments must be treated no less favourably than domestic investors and their investments. Foreign investors are also treated no less favourably than other foreign investors.

This equal-treatment regime does not exclude the application of Azerbaijani laws aimed at protecting human life and health, the environment, public order, and state and economic security, provided such laws are applied without discrimination. These provisions empower the state to apply general protective measures where necessary, without creating a separate FDI-specific review mechanism.

Although there is no national security screening system targeting foreign investment, certain restrictions may arise under the Law of the Republic of Azerbaijan “On Combatting the Legalization (Laundering) of Criminally Obtained Property and the Financing of Terrorism”. This law establishes limitations for legal entities associated with high-risk jurisdictions. For example, subsidiaries or branches of financial institutions established, managed or operating in high-risk zones may be denied licences in Azerbaijan. Similarly, business relationships and financial transactions may be restricted for persons whose registration, residence or primary place of activity is located in such zones, or whose transactions are carried out through those regions.

Outside the AML/CFT framework, there is no separate notification process, no pre-investment approval requirement and no national security review authority for foreign investment.

Azerbaijani legislation does not establish a foreign investment or national security review regime. In general, foreign investments are treated equally with national entities. Therefore, (i) no statutory criteria, (ii) no sector-specific triggers, (iii) no differentiated analysis for partnerships or joint ventures, (iv) no special rules for acquisitions by foreign governments or sovereign entities, and (v) no separate treatment for non-controlling minority investments are prescribed under Azerbaijani law.

All investors are subject solely to the general legal framework governing business activities and the AML/CFT rules noted in the foregoing.

Because Azerbaijan does not operate a foreign investment or national security review regime, no remedies, conditions or commitments may be imposed specifically on foreign investors in connection with FDI.

Any obligations imposed on investors arise under general legislative frameworks, including sector-specific licensing laws, AML/CFT compliance and other generally applicable regulatory requirements.

There is no authority in Azerbaijan tasked with supervising foreign investments or conducting national security reviews of FDI. No regulator has the statutory power to block, suspend or unwind a foreign investment specifically on national security grounds.

Generally, the Ministry of Economy acts as the co-ordinating authority for the development of trade and foreign investment initiatives, but it does not supervise or review FDI transactions, nor does it exercise approval or enforcement powers in this context.

As Azerbaijan does not require prior approval for foreign investments, there are no consequences for making an investment without prior governmental clearance. Foreign investors remain subject only to the ordinary regulatory framework, including general commercial law, tax law, licensing rules where applicable and AML/CFT oversight.

As Azerbaijan does not operate a dedicated FDI regime, foreign investors are subject only to the generally applicable legal frameworks already outlined in the preceding sections, and no additional FDI-specific laws or screening mechanisms apply.

Taxation in Azerbaijan is governed by the Tax Code of the Republic of Azerbaijan, in force since 1 January 2001. Under the Tax Code, non-resident legal entities are required to establish a permanent establishment (PE) if they carry out entrepreneurial activities in Azerbaijan for at least 90 consecutive days within any 12-month period. Companies operating through a PE – as well as domestic companies – are subject to 20% profit tax, regardless of organisational form.

Non-residents that do not create a PE are taxed through withholding at source at a rate of 10% on income derived from Azerbaijani sources, without deduction of expenses.

VAT applies at a standard rate of 18% for individuals and entities that are voluntarily or mandatorily registered. Mandatory VAT registration applies where taxable transactions exceed AZN200,000 (approximately USD117,647) in any month of a 12-month period, or where the value of a single contract exceeds this threshold.

Dividends and interest received by a foreign investor from Azerbaijani sources are subject to withholding tax. A non-resident operating in Azerbaijan is taxed at source at 5% of net profit transferred from its PE.

The standard withholding tax rates are:

• 5% on dividends; and
• 10% on interest.

These rates may be reduced or fully eliminated under double taxation treaties, which commonly impose minimum ownership thresholds for reduced dividend rates. For example, the Azerbaijan-United Kingdom double tax agreement (DTA) limits dividend taxation to 10% if the beneficial owner holds at least 30% of the voting rights of the payer.

Azerbaijan has also acceded to the Multilateral BEPS Convention (law dated 31 May 2024). Under the Law, treaty benefits apply only if the investor meets minimum shareholding requirements and a 365-day holding period. Anti-abuse rules restrict treaty relief where dividend payments are deductible or where ownership structures have been arranged artificially.

A number of tax planning methods exist in practice, although their use is limited by anti-avoidance rules in the Tax Code. These include the following.

• Transfer pricing: transactions between related parties may involve artificial prices. For example, an Azerbaijani company may sell goods below market value to a subsidiary in a low-tax jurisdiction, shifting profits abroad.
• Abuse of tax incentives: certain entities, such as start-ups classified as micro or small businesses, are exempt from tax on income from innovation activities for three years. Entities operating in the Alat Free Economic Zone are exempt from withholding tax and VAT on profits related to their Free Zone activities. Holders of investment promotion certificates receive a 50% profit tax exemption for seven years.
• Controlled foreign companies (CFCs): Azerbaijani-resident companies may use subsidiaries in offshore jurisdictions to reallocate profits through artificial transactions.
• Treaty shopping: companies may insert intermediary entities in treaty jurisdictions without real economic activity to access reduced treaty rates.

The Tax Code includes counter-measures such as the “risky taxpayer” concept, limits on the use of intermediary entities, market value substitution for transfer pricing purposes and cancellation of benefits where dividends are treated as deductible expenses.

Azerbaijan does not impose a separate capital gains tax. Instead, income from the sale or alienation of assets, shares and property (by companies or individuals) is taxed as ordinary income.

For share transactions, if shares are sold above their nominal value, the difference between the offering price and nominal value is treated as taxable profit and subject to 20% profit tax. If shares are sold below net asset value, the difference between net asset value and nominal value is treated as taxable profit. For individuals, income is taxed at 14%. Double taxation treaties may allow the taxation of gains at lower rates.

No additional rules apply specifically to the sale of FDI, and no separate “blocker” or tax-preferred corporate vehicle regime/concept exists beyond standard corporate and tax rules.

Azerbaijan does not impose anti-avoidance rules targeted specifically at FDI. However, the Tax Code contains general anti-evasion regimes applicable to both domestic and cross-border transactions, including transfer pricing, CFC rules, thin capitalisation limits and beneficiary ownership requirements.

Transfer Pricing

Transactions must comply with the arm’s length principle. Transfer pricing rules apply to transactions between:

• a tax resident and a non-resident that are associated;
• a non-resident’s PE in Azerbaijan and its foreign head office, branch or representative office; and
• a tax resident or non-resident PE and companies in low-tax jurisdictions.

If prices deviate from market value due to the relationship between parties, tax authorities may apply market prices for tax purposes.

Thin Capitalisation

Interest on loans from related or foreign parties is deductible only up to 125% of the average interbank rate. Where total foreign debt exceeds twice the net assets, interest on the excess portion is non-deductible.

Beneficiary Concept

Taxation applies to the actual beneficial owner of income rather than intermediaries lacking economic substance.

CFC Rules

Profits of foreign companies are attributable to an Azerbaijani resident shareholder where:

• the resident owns more than 50%; and
• the CFC’s effective tax rate is less than 75% of the Azerbaijani corporate tax rate; or
• passive income exceeds 30% of total income.

Certain income is excluded from CFC taxation, including dividends from the CFC and profits related to its PE.

Employment relations in Azerbaijan are principally governed by the Labour Code of the Republic of Azerbaijan (in force since 1 February 1999), which establishes minimum labour standards and the rights and obligations of employers and employees.

The Labour Code applies to all workplaces registered in Azerbaijan, whether established by local or foreign legal entities. However, expatriates who are employed by a foreign legal entity under a foreign employment contract and perform their duties at that entity’s branch or representative office in Azerbaijan are not subject to the Labour Code.

Expatriate employees generally require both a work permit and a temporary residence permit. Work permits are issued by the State Migration Service. Certain categories of expatriates are exempt from this requirement, including managers and deputy managers of foreign-invested legal entities and of branches or representative offices of foreign legal entities. Foreign investors employing staff in Azerbaijan must comply with all applicable provisions of the Labour Code.

Employees have a statutory right to form and join trade unions, and to participate in collective bargaining. These arrangements are most common in the public sector, state-controlled industries and the oil and gas sector, while they are less prevalent in the private sector. A general collective agreement for 2023–25 was signed in 2023 between the Cabinet of Ministers, the Trade Unions Confederation and the National Confederation of Entrepreneurs’ Organizations.

Employee compensation in Azerbaijan is predominantly cash-based. Salaries must be paid in Azerbaijani manat (AZN) and may not be lower than the statutory minimum wage of AZN400 (approximately USD2,325). With the employee’s consent, up to 20% of salary may be paid in kind in the form of consumer goods. Equity-based compensation is not common in the jurisdiction.

Employees are entitled to paid annual leave of at least 21 calendar days, with certain specialists and managerial staff being eligible for 30 days. Unused annual leave must be compensated financially if not taken within the relevant work year.

Retirement and pension benefits are provided through the mandatory state pension system, which is funded through compulsory social insurance contributions: 22% of salary is paid by the employer and 3% by the employee.

When employment is terminated due to a change in enterprise ownership, the employer must pay severance of at least three months’ average salary.

A change of ownership of an enterprise does not terminate employment contracts. All existing labour agreements remain valid and must be honoured by the new owner. Only the contracts of certain senior personnel, such as the director, deputy directors, chief accountant and other managers performing direct administrative functions may be modified or terminated by the new owner.

The new owner may not unlawfully exercise entrepreneurial rights by dismissing employees on a mass basis without first assessing their professional qualifications and ability to continue performing their job duties. Where an employment contract is terminated, employees are entitled to the statutory notice period or, alternatively, to monetary compensation in lieu of notice. The length of notice varies according to the employee’s tenure.

The Labour Code does not contain specific rules governing the automatic transfer of employment. Employees may resign if they do not wish to continue their employment relationship following a change of ownership.

There are no works councils, consultation or collective bargaining requirements that must be satisfied to complete an acquisition or other investment transaction in Azerbaijan.

Azerbaijani legislation does not establish a dedicated authority or regulatory framework for screening foreign direct investment from an intellectual property (IP) perspective. Therefore, there is no FDI-specific IP review process.

Nevertheless, IP rights may play a significant role in transactional structures involving foreign investment, particularly in sectors where franchising, licensing, know-how transfers and technology agreements are common.

In addition, in the broader context of border and customs controls, IP right-holders may request the relevant state authority to suspend the release of pirated or counterfeit goods, which can be relevant where foreign investment involves the importation or distribution of branded products.

Azerbaijan provides IP protection under its domestic legal framework and through participation in a number of international conventions and treaties, including the Berne Convention, Madrid Protocol, Nice Agreement and Patent Cooperation Treaty. IP rights generally cover copyright, trade marks, patents, utility models and industrial designs.

Copyright protection arises automatically and does not require registration, though right-holders may voluntarily register their works with the Intellectual Property Agency of the Republic of Azerbaijan (the “Agency”). Certain categories, such as official documents, state symbols and daily news, are excluded from copyright protection.

Trade marks require registration with the Agency and are protected for ten years from the date of application. Trade marks not registered in Azerbaijan may still receive protection if covered by applicable international treaties. Signs that lack distinctiveness, are misleading, or contradict public order are ineligible for protection.

Patents similarly require registration and confirm exclusive rights over inventions for the statutory protection period. Subject matter such as discoveries, scientific theories and architectural works cannot be patented.

Azerbaijani law does not require secondary political authorisation for obtaining IP rights, the granting process follows statutory timelines and AI-generated works are not explicitly protected under current legislation.

IP right-holders may assign their rights to third parties and may seek damages, criminal sanctions, and confiscation of infringing goods in cases of violation.

Data protection is governed principally by the Law on Personal Data of 11 May 2010, which regulates the collection, processing, storage, transfer and cross-border transmission of personal data. Although the Law on Personal Data does not expressly provide for extraterritorial application, it is generally understood to apply to activities conducted within Azerbaijan.

Cross-border transmission of personal data is permitted if it does not jeopardise national security and if the receiving jurisdiction ensures a level of legal protection equivalent to Azerbaijani law. Where such protection is lacking, cross-border transfer may still proceed with the data subject’s consent or where necessary to protect the individual’s life or health.

While the Law on Personal Data does not provide for international enforcement mechanisms, violations may give rise to civil, administrative or criminal liability under Azerbaijani legislation. Potential consequences include:

• claims for material and moral damages;
• administrative fines of AZN300–500 (approximately USD177–295) for improper protection or management of personal data; and
• fines of two to four times the revenue generated from unlicensed activity, or six months to seven years’ imprisonment, for operating personal data systems without a required licence.