The article will be useful to those who plan to start doing business in Azerbaijan. After reviewing the information provided, you will gain basic knowledge about all forms of doing business, their differences and features, and the necessary steps to officially register your business and start operating in the country.
Azerbaijan as an environment for investment
Azerbaijan is a country located in the eastern part of the South Caucasus, on the coast of the Caspian Sea and has land borders with Russia, Georgia, Armenia and Iran. Factors such as a favorable geographical location, political and economic stability, and the presence of rich natural resources have attracted the attention of foreign investors to the country for many years.
The Azerbaijani government has always adhered to the policy of establishing and strengthening international relations and attracting investment to the republic. At the moment, in this regard, among other things, measures are being taken to stimulate the non-oil sector of the economy and develop business in the lands of Azerbaijan liberated from occupation.
In this regard, today a large number of foreign investors are interested in doing business in Azerbaijan.
On the way to doing business in Azerbaijan, every investor may have numerous questions about how to lay the foundation for their activities.
This article will help you find answers to your basic questions, decide on the right form of doing business for you, and also understand the steps you need to take to start a business.
Forms of business in Azerbaijan
Before you start doing business in Azerbaijan, it will be useful to familiarize yourself with the forms of doing business provided for by national legislation.
Entrepreneurial activity in Azerbaijan can be carried out in one of the following forms:
1. Individual entrepreneurship for individuals.
2. Legal entity. The Civil Code offers several options for registering a legal entity:
- Partnership:
- Full partnership;
- Limited partnership.
- Community:
- Limited Liability Company;
- Company with additional liability;
- Public corporation;
- Closed joint stock company.
- Cooperative.
3. Branch or representative office of a foreign legal entity.
Despite numerous options, the most common and preferred form of doing business by foreign investors in Azerbaijan is the establishment of a limited liability company (“LLC”) or a branch/representative office of a foreign legal entity, since these enterprises are the simplest in terms of both their registration and legal requirements for their activities. According to the latest statistics, among the enterprises registered in Azerbaijan today, 89.8% are LLCs, 1.4% are joint stock companies, while all other forms are included in the remaining percentage.
The authorized capital of an LLC is divided into shares. Participants in such a company are not liable for the obligations of the company and bear the risk of losses associated with the activities of the company only to the extent of the value of the contributions they made.
LLC participants can be both individuals and legal entities, both citizens of Azerbaijan and foreign citizens. However, the law establishes the maximum number of participants, which in an LLC should not exceed 50 participants.
Unlike joint stock companies, a limited liability company is not legally limited by the requirement for a minimum amount of authorized capital. It must be taken into account that the authorized capital cannot be equal to zero.
The supreme body of an LLC is the general meeting of its participants. The management of the current activities of the LLC is carried out by the executive body of the company. An LLC can also create a board of directors and an audit commission.
Branches and representative offices
Also, quite often foreign investors engage in business activities in Azerbaijan by opening a branch or representative office of their foreign company. This form has a number of features that distinguish it from LLC.
First of all, a branch and a representative office are not independent legal entities, but divisions of a legal entity. The head office is jointly and severally liable for the activities of its branch or representative office.
Unlike a representative office, a branch can perform all the functions of the head office, including carrying out entrepreneurial and commercial activities. A representative office does not have the right to carry out commercial activities, and its role is to represent and protect the interests of the legal entity to which it belongs.
The management of the activities of the branch and representative office is carried out by a director appointed by its head office.
Other forms of business
For comparison, we provide general information about other forms of doing business.
An individual entrepreneur is an individual registered with the tax authority and is liable for his business obligations with all his property, which is the main risk of this form of doing business.
The authorized capital in a company with additional liability is also divided into shares as in an LLC, however, the participants of such a company bear additional liability for its obligations with their property in the same multiple of the value of their contributions.
In joint stock companies (“JSC”), the authorized capital is divided into a certain number of shares. While in an open JSC shareholders have the right to transfer their shares to third parties without the need to obtain the consent of other shareholders, in a closed JSC shares are distributed only among its founders or another predetermined circle of persons.
Unlike companies, in partnerships the founders bear the risk of losses not only within the limits of the invested share, but also with personal property. In a general partnership, all participants are general partners , bearing the risk of losses with personal property, and in a limited partnership, in addition to general partners, there are also limited partners, bearing the risk of losses only within the limits of the invested share.
A cooperative is a voluntary association of individuals and (or) legal entities on the basis of membership for joint activities and is created in order to satisfy the material and other needs of the participants by combining property share contributions by its members. Members of the cooperative bear subsidiary liability for its debts.
Features of various forms of business
| Form of business | Legal status | Peculiarity |
| Individual entrepreneur | Individual | Responsible for his business obligations with all his property |
| Limited Liability Company | Entity | The authorized capital is divided into sharesParticipants bear the risk of losses up to the value of the deposits made |
| Company with additional liability | Entity | The authorized capital is divided into sharesParticipants bear additional liability with their property in the same multiple of the value of the deposits for all |
| public corporation | Entity | The authorized capital is divided into sharesShareholders have the right to transfer their shares to third parties without the consent of other shareholders |
| Closed joint stock company | Entity | The authorized capital is divided into sharesShares are distributed only among a certain circle of persons |
| General partnership | Entity | Share capital consists of contributions from participantsParticipants bear the risk of loss of personal property |
| Limited partnership | Entity | Share capital consists of contributions from participantsSome participants bear the risk of losses due to personal property, the other part – only within the limits of the invested share |
| Cooperative | Entity | The fund consists of share contributionsMembers bear subsidiary liability for its debts |
| Branch | Division of a legal entity | The head office is responsible for the activitiesCan perform all functions of a legal entity |
| Representation | Division of a legal entity | The head office is responsible for the activitiesNot entitled to carry out commercial activitiesOnly represents and protects the interests of a legal entity |
What needs to be done in order to open a company in Azerbaijan?
Once you have decided on the form of business you want to open in Azerbaijan, a number of measures must be taken to ensure that your enterprise is officially registered, which involves interaction with a number of government bodies, including the State Tax Service and the State Statistics Committee.
Below we will consider the process of registering the most common forms of business in Azerbaijan – LLC and branch/representative office of a foreign legal entity.
Choosing a name (for LLC)
In the case of a branch and representative office, the enterprise will bear the name of its head office with the addition of the words “branch/representative office in the Republic of Azerbaijan.” However, for an LLC, it is necessary to choose an original name, which will be approved by the registration authority only if it is not used by any other company in Azerbaijan.
Choosing a field of activity
In addition to the name, the enterprise must also decide on the areas of activity that it plans to engage in in Azerbaijan and notify the registration authority in the process of opening the enterprise by selecting the appropriate activity codes.
Determination of legal address
All paper correspondence with government agencies and official documentation of the enterprise is carried out at its legal address. For this reason, it is important to indicate a legal address where the company can easily receive all documents sent to it.
Selecting a tax regime
Registration of an enterprise also implies registration with the tax authority as a taxpayer. Therefore, it is necessary to choose one of the following tax regimes that will apply to the enterprise:
- income tax regime (20%) and value added tax (18%).
- simplified tax regime (2%). Can be chosen by business entities whose volume of taxable transactions during any month(s) of a consecutive 12-month period is AZN 200,000 or less.
Appointment of a legal representative
During the state registration of an enterprise, it is necessary to appoint a legal representative – a person who has the authority to act on behalf of the enterprise, whose name will be reflected in the state register and who will represent the interests of the enterprise.
Determination of the amount of authorized capital and distribution of shares (for LLC)
Since an LLC has its own authorized capital, in the case of LLC registration, it is necessary to determine the amount of capital and the distribution of shares between participants, and also reflect this in the constituent documents.
As noted above, for an LLC there is no legal requirement for a minimum amount of authorized capital. However, it must be taken into account that the authorized capital cannot be equal to zero.
This requirement does not apply to branches and representative offices, since they do not have an authorized capital.
Payment of authorized capital (for LLC)
For an LLC, Azerbaijani legislation allows payment of the authorized capital both upon registration of the company and within 3 months from the date of registration.
Preparation of documents
This stage is the longest and requires attention. Before applying to the registration authority, founders must prepare all the company’s constituent documents and other documents required by law to open a business in the official language of the country.
Payment of state duty
The process of registering a legal entity in Azerbaijan is carried out with the payment of a small state fee of 15 manats (about 9 US dollars) for a limited liability company and 300 manats (about 176 US dollars) for branches and representative offices of foreign legal entities.
Contacting the State Tax Service
The main stage is the registration of the enterprise with the State Tax Service, which also includes registration with the tax authority as a taxpayer. The government agency reviews the application and registers the legal entity within 2 working days from the date of application.
It is also necessary to take into account that an enterprise is considered created from the moment an entry is made in the state register.
Comparison of LLC and branch/representative office
| Branch/representative office | OOO | |
| Legal status | Division of a legal entity | Entity |
| Responsibility | Full responsibility of the head office for the obligations of the branch/representative office | Limited liability of participants up to the value of the contributions made |
| Management | Director of the branch/representative office | General meeting of participants and executive body |
| State registration fee | 300 manats (about 176 US dollars) | 15 manats (about 9 US dollars) |
| Name | The name of the head office with the addition of the words “branch/representative office in the Republic of Azerbaijan” | original name |
| Authorized capital | Absent | Must be paid upon registration or within 3 months |
What needs to be done after the business is open?
After the company has been successfully registered, it is necessary to take a number of measures in order to ensure the further activities of the company:
- Purchasing codes . As soon as the company has been registered, you should apply to receive codes to enter electronic accounts on the website of government agencies.
- Purchasing a print . A seal is an important attribute of a document signed on behalf of an enterprise. Therefore, acquiring a seal is the next post-registration step.
- Acquisition of ” ASAN İmza “ . “ASAN İmza” is a mobile signature that confirms identity in the electronic environment. It provides access to numerous electronic services provided by public and private organizations, including sending invoices and submitting reports to relevant authorities without paper processes.
- Opening a current account in a bank . Considering that, in accordance with local legislation, payments between taxpayers are allowed only through payment from a bank account, opening a bank account is an important post-registration step necessary for the further activities of the enterprise. The duration of the process of opening a bank account, as well as the list of required documents and actions will depend on the selected bank.
- Purchasing a license . Enterprises in Azerbaijan have the right to engage in any type of activity that does not contradict the company’s charter and the legislation of Azerbaijan. However, depending on the type of activity that the company will carry out in Azerbaijan, it may be necessary to purchase an appropriate license. To do this, you must submit an application and documents to the government agency, where this application will be considered within 5 working days. With the exception of licenses for certain types of activities, licenses in Azerbaijan are issued for an indefinite period.
- Hiring workers . This process is not a mandatory post-registration step, since local legislation does not establish restrictions on the activities of an enterprise without employees. However, if the investor believes that there is a need to hire employees, concluding employment contracts and registering them in the state system is the next step after registering the enterprise. An employment contract can be concluded with both Azerbaijani citizens and foreigners. However, it is worth considering that before concluding an employment contract with a foreign citizen, it is necessary to obtain a work and residence permit for him in Azerbaijan. Directors and deputy directors in branches/representative offices of foreign companies, as well as in local companies with foreign capital, can enter into labor relations without obtaining a work permit.
As you can see, registering an enterprise and starting a business in Azerbaijan is a simple process. However, for successful registration and ensuring the further activities of the enterprise, it is important to take into account the features and legal formalities of the registration process, preparation for it, as well as post-registration actions.
BDO can offer you its professional assistance in registering your company in Azerbaijan, including all related services and business advice. We provide a full range of auditing, accounting, tax, legal and consulting services.