Investment Climate Statements for 2016 - Azerbaijan

Executive Summary

The overall investment climate in Azerbaijan continues to improve incrementally, although significant challenges remain. Over the past few years, the Government of Azerbaijan has worked to integrate the country more fully into the global marketplace, attract foreign investment, diversify its economy and maintain growth. However, as a country dependent on oil and gas products for roughly 90 percent its export revenue, continued low world oil prices have hit Azerbaijan’s economy hard. Economic growth slowed to 1.1 percent in 2015 from 2.8 percent in 2014, and the European Bank for Reconstruction and Development forecasts GDP growth of 2.5 percent in 2016 as a result of the drop in world oil prices.

While the oil and gas sector have historically attracted the majority of foreign investment, the Azerbaijani government has targeted four non-oil sectors as key to diversifying the country’s economy and ensuring future prosperity: agriculture, transportation, tourism, and information/communication technology. Economic diversification and greater foreign investment continue to be the stated goals of President Aliyev and the government. Although significant challenges remain for U.S. companies and investment in the non-oil sector, such as red tape and weak legal institutions, the Azerbaijani government has begun taking necessary steps to improve the business climate and reform the overall economy. Steps planned or underway include suspending certain inspections of businesses, doing away with certain redundant business license categories, empowering the popular “ASAN” government service centers with licensing authority and active steps to improve transparency, simplifying certain customs procedures, and creating tax incentives for investors. In March 2016, President Aliyev signed a decree on a strategic roadmap of the national economy and assigned a working group, led by the newly appointed Assistant to the President for Economic Reforms Natig Amirov, to draft an economic development strategy and action plan for 2016-2020. President Aliyev signed another decree in March 2016 establishing a free trade zone area next to the Alat seaport, located 65 km south of Baku, and has assigned the Ministry of Economy the task of drafting the necessary legislation and development concepts within six months. Newly adopted amendments to the Customs Tariff law provide exemptions of up to seven years to entrepreneurs importing capital equipment for priority sectors. Additionally, up to 50 percent of their revenues can be exempted from income, property, and land taxes for up to seven years. Furthermore, Azerbaijan’s business community reports seeing real improvements in customs, including more transparency, and improved and systematized customs fee collection procedures.

Azerbaijan has worked to improve its regulatory system over the past several years, but opaque procedures in a number of areas and continued allegations of corruption remain problems. In early 2016, several roundtable discussions brought government and business community representatives together, including an April-session that the President held with the board of the American Chamber of Commerce in Azerbaijan, with both sides welcoming and applauding this increase in communication and engagement.

Under Azerbaijani law, foreign investors may engage in investment activities not prohibited by law. Private entities may freely establish, acquire and dispose of interests in business enterprises. Foreign citizens, organizations, and enterprises may lease, but not own land. Azerbaijan's Law on the Protection of Foreign Investments protects foreign investors against nationalization and requisition, except under certain specified circumstances. The Government of Azerbaijan has not shown any pattern of discriminating against U.S. persons or entities by way of an illegal expropriation. The Bilateral Investment Treaty (BIT) between the United States and Azerbaijan provides U.S. investors with recourse to settle any investment dispute using the International Center for the Settlement of Investment Disputes (ICSID). The average length of time it takes for international business disputes to be resolved, either through the use of domestic courts or alternative methods of dispute resolution like mediation and/or arbitration, varies widely.

In 2015, Azerbaijan devalued its local currency, the manat (AZN), by 35 percent in February and again by 48 percent in December as a result of continued low world oil prices and relieve pressure on the Central Bank’s foreign currency reserves. In general, however, there are no restrictions on converting or transferring funds associated with an investment into freely usable currency at a legal, market-clearing rate. Azerbaijan has an underdeveloped financial services sector – of which banking comprises more than 90 percent – that inhibits economic stability, growth, and diversification. Many state-owned enterprises (SOE's) enjoy quasi-governmental or near-monopoly status in their respective sectors, with unclear lines of separation between regulatory bodies and state corporate interests. Responsible Business Conduct (RBC) is a relatively new concept in Azerbaijan and local companies generally consider basic charitable donations and paying taxes as acts of social responsibility. There have been no known acts of political violence against U.S. businesses or assets, nor against any foreign owned entity.

Table 1



Index or Rank

Website Address

TI Corruption Perceptions index


126 of 175

World Bank’s Doing Business Report “Ease of Doing Business”


63 of 189

Global Innovation Index


93 of 143

U.S. FDI in partner country ($M, stock positions)



FDI Intelligence from The Financial Times Ltd

World Bank GNI per capita



1. Openness To, and Restrictions Upon, Foreign Investment

Attitude toward Foreign Direct Investment

Over the past few years, the Government of Azerbaijan has worked to integrate the country more fully into the global economic marketplace, attract increased foreign investment, diversify its economy, and maintain positive growth. Attracting foreign direct investment to support economic diversification continues to be the stated goal of President Aliyev and his government. Less than expected oil production over the past several years coupled with continued low world oil prices – and their concomitant impact on budget revenues – prompted the Azerbaijani government to pursue more comprehensive reforms. In February 2016, the government introduced amendments to the Tax Code, which provides tax benefits to legal and physical entities engaged in certain investment activities. With these amendments, these physical and legal entities can be exempt from paying taxes for 50 percent of their revenues and incomes, respectively, for up to seven years. Moreover, the government approved amendments to the law On Customs Tariff, under which legal and physical entities can be exempted from customs duties and value-added tax (VAT) on import of capital equipment for up to seven years. In addition, any organization or industrial or technology park operator who plans to import capital equipment in certain sectors may apply for permission to construct production facilities, or conduct research, test, and development activities.

Other Investment Policy Reviews

Azerbaijan has not conducted an Organization for Economic Cooperation and Development (OECD) investment policy review in the past three years. Over the past few years, Azerbaijan has made gradual progress in the World Bank’s, Doing Business Report:

Laws/Regulations on Foreign Direct Investment

Foreign investment in Azerbaijan is regulated by a number of international treaties and agreements, as well as by domestic legislation. These include the Bilateral Investment Treaty (BIT) between the United States and the Government of the Republic of Azerbaijan, which encourages the reciprocal protection of investment, dated August 1, 1997; the Azerbaijan-EC Cooperation Agreement dated April 22, 1996; Law on Protection of Foreign Investment dated January 15, 1992 (the Foreign Investment Law); the Law on Investment Activity dated January 13, 1995 (the Investment Activity Law); the Law on Investment Funds dated October 22, 2010 (the Investment Funds Law); the Law On Privatization of State Property dated May 16, 2000 (the Privatization Law); and the Second Program for Privatization of State Property of the Republic of Azerbaijan dated August 10, 2002 (the Second Privatization Program), as well as laws regulating specific sectors of the Azerbaijani economy. This legislation permits foreign direct investment in any activity in which a national investor may also invest, unless otherwise prohibited by law. Azerbaijani law is evolving in accordance with the government’s strategic goal of creating a welcoming environment for foreign businesses; as such, foreign investments are protected by guarantees provided under Azerbaijani law. The website of Azerbaijan’s National Council,, lists all laws of the Republic of Azerbaijan, but it is only available in the Azerbaijani language.

Business Registration

All companies operating in Azerbaijan are required to be registered. Without formal registration, a company may not do business in Azerbaijan (e.g., maintain a bank account, clear goods through customs). As part of the ongoing business law reforms, a “One Window” principle was introduced on January 1, 2008. The registration procedures involving several governmental bodies (Ministry of Justice, Social Insurance Fund, and State Statistics Committee) have been eliminated; therefore businesses only have to register with the Ministry of Taxes. The established period for state registration with the Ministry of Taxes is officially set at three days for commercial organizations. Online registration is available at and works adequately.

Azerbaijan ranks 63rd in Ease of Doing Business and 7th in Starting a Business out of 189 countries in The World Bank’s Doing Business Report (rankings are available at:

Industrial Promotion

President Aliyev has targeted the following sectors for attracting investment: agriculture, transportation, tourism, and information/communication technology.

The Azerbaijan Export and Investment Promotion Foundation (AZPROMO) is a joint public-private-initiative, established by the Ministry of Economy and Industry of Azerbaijan in 2003 with the goal of contributing to economic development and diversification by attracting foreign investment in non-oil sectors of the economy and stimulating expansion of Azerbaijan's exports of non-oil goods to overseas markets. AZPROMO has been involved in a number of business forums and training events both in Azerbaijan and internationally. According to a Cabinet of Ministers decision, small enterprises in Azerbaijan are defined as those with less than 25 employees and medium enterprises as those with less than 125 employees.

Limits on Foreign Control and Right to Private Ownership and Establishment

Azerbaijan imposes above average restrictions on foreign equity ownership compared to countries in the Eastern Europe and Central Asia region included in the IFC’s Investing Across Borders Report. Restricted sectors on investment include those relating to national security and defense. The Government of Azerbaijan also exerts some measure of control over other key sectors, such as agriculture, communications, oil, and mining. According to Azerbaijan’s laws, the state must retain a controlling stake in companies operating in the mining or oil and gas sectors. Thus, foreign (as well as domestic) capital participation is limited to a maximum of 49 percent ownership. Foreign ownership in the media sector is strictly limited as well. Unless any relevant international agreement with Azerbaijan provides otherwise, foreign shareholding in media companies is limited to 33 percent for newspaper publishers and is prohibited for TV broadcasting companies; currently, there are no such international agreements in place. While restrictions on foreign equity ownership in the financial services sectors (banking and insurance) have already been abolished, there are still sector-wide limits for total foreign capital participation.

Foreign investments enjoy complete and unreserved legal protection granted by the Law on Protection of Foreign Investment, in addition to any other guarantees contained within international agreements or treaties. This law stipulates that Azerbaijan will treat foreign investors, including foreign partners in joint ventures, in a manner not less favorable than the treatment accorded to national investors and allows the repatriation of profits, revenues and other investment-related funds as long as applicable taxes have been paid. Azerbaijan has endorsed limits on foreign control in the domestic insurance market. In compliance with the amendments to the Law on Insurance Activity, approved by the Azerbaijani Parliament in 2013, the share of foreign capital for one individual in the equity capital of insurance companies cannot exceed 10 percent, while the total share of foreign capital in such equities cannot exceed 50 percent. International financial institutions of which Azerbaijan is a member are exempt from these limits.

Privatization Program

Large-scale privatization has been particularly slow in Azerbaijan, and lags significantly behind other countries within the Commonwealth of Independent States (CIS). However, within the CIS, Azerbaijan scores higher than average with regards to small-scale privatization programs, which have also been comparatively more successful. Under Azerbaijani law, foreign investors can participate – according to existing legislation – in the privatization programs of state and municipal properties, and can invest in Azerbaijan through joint ventures with local companies or by establishing subsidiaries that are wholly-owned, as well as through representative offices and branches of foreign legal entities.

In January 2016, Azerbaijani President Ilham Aliyev ordered the government to draw up a major privatization program in a bid to revive the country’s economy, as it works to overcome the impacts of low world oil prices. Currently, the only sector targeted for privatization is public utilities. Although there is a public bidding process for the privatization programs, it is not transparent.

Screening of FDI

In 2008, Azerbaijan transferred responsibility for registering representative offices of foreign businesses, and the creation of business entities with foreign ownership, to the Ministry of Taxes based on the so-called “one-stop-shop” principle that greatly simplifies the registration process and reduces waiting times. The “online registration” system of legal entities has been available since 2012 and can be accessed in English at the following website: The registration of representative or branch offices of foreign non-commercial entities was not, however, transferred to the Ministry of Taxes; such entities are still required to register with the Ministry of Justice.

The World Bank’s Investing Across Borders (IAB) report offers an informative overview on how to start a business in Azerbaijan:

“It takes 7 procedures and 11 days to establish a foreign-owned limited liability company (LLC) in Azerbaijan. This is faster than the regional IAB average for Eastern Europe and Central Asia and much faster than the IAB global average. There are no additional procedures required of a foreign-owned company establishing a subsidiary in Baku, Azerbaijan’s capital, other than the requirement to provide an apostille or notarized and translated copy of the incorporation documents and charter of the parent company abroad. A foreign-owned company does not need to get an investment approval to establish itself in Azerbaijan. The company registration is completed at a one-stop shop that also serves for registration for VAT. The Ministry of Taxes issues the business registration within 3 business days and the VAT number within 5 days of application. In order to open a bank account (in local or foreign currency), the company submits a Ministry of Taxes registration form to the appropriate bank. The whole process can be done online and usually takes only 2–3 days. There is no minimal capital requirement for LLCs, although the capital must be fully paid in prior to the state registration.”


Competition Law

Over the past few years, Azerbaijan has been engaged in the process of updating several key pieces of legislation that impact the business environment. The State Committee for Antimonopoly Policy and Support of Entrepreneurship reviews transactions for competition-related concerns, whether domestic or international in nature. A new version of the Competition Code was undergoing revision in Parliament in late 2014, and some observers expect the law to pass in 2016. A hindrance to foreign direct investment is the difficulty of getting established Azerbaijani businesses to adopt standard investor-friendly practices, such as those associated with the concept of good corporate governance or international accounting norms.

2. Conversion and Transfer Policies

Foreign Exchange

There are no restrictions on converting or transferring funds associated with an investment into freely usable currency at a legal, market-clearing rate. Foreign exchange transactions are governed by the Law on Currency Regulation. The Central Bank administers the overall enforcement of currency regulation. It requires that local cash sales be conducted in Azerbaijani manats (AZN), in accordance with the Constitution. Foreign companies and individuals may have both manat and foreign currency accounts at a local bank. Currency conversion is carried out through the Baku Interbank Currency Exchange Market (BICEX) and the Organized Interbank Currency Market. The average time for remitting investment returns is two to three business days. Some requirements on disclosure of the source of currency transfers have been imposed in an attempt to reduce illicit transactions. Azerbaijan's foreign currency reserves declined from $11 billion in March 2015 to $4 billion in March 2016, due to Central Bank interventions to support the country's manat currency. The country’s strategic currency reserves amounted to $37.5 billion in December 2015, which included both the Central Bank’s foreign currency reserves ($4 billion) and Azerbaijan’s sovereign wealth fund (SOFAZ) assets ($33.5 billion). Since the December 21, 2015 devaluation of the manat, there has been a managed floating currency that has fluctuated between 1.55 to 1.8 manats to the dollar. On January 13, 2016 the Central Bank annulled the license of foreign exchange offices; therefore, currency exchange can be conducted only in banks and airports.

Remittance Policies

Foreign investors are subject to a corporate branch remittance tax of 10 percent on the remittance of all profits derived from business activities in Azerbaijan. There have not been any recent changes or plans to change investment remittance policies that either tighten or relax access to foreign exchange for investment remittances. There do not appear to be time limitations on remittances, including dividends; return on investment, interest and principal on private foreign debt; lease payments; royalties; and management fees. There do not appear to be limitations on the inflow or outflow of funds for remittances of profits or revenue. Azerbaijan is a Financial Action Task Force (FATF) permanent member and is listed as a country of concern. (The continuum of FATF listings are countries of primary concern, countries of concern, and monitored.) The main obstacle Azerbaijan faces is the endemic level of corruption, but other generators of illicit funds include robbery, tax evasion, smuggling, trafficking, and organized crime.

For further guidance on corporate tax policies see:$FILE/EY-business-guide-azerbaijan-2015.pdf

3. Expropriation and Compensation

The Law on the Protection of Foreign Investments protects foreign investors against nationalization and requisition, except under certain specified circumstances. The nationalization of property can occur when authorized by parliamentary resolution, although there have been no known cases of official nationalization or requisition against foreign firms in Azerbaijan. Requisition – by a decision of the Cabinet of Ministers – is possible in the event of natural disaster, an epidemic, or other extraordinary situation. In the event of nationalization or requisition, foreign investors are entitled to prompt, effective, and adequate compensation.

According to a local research organization (The Public Association for Assistance to a Free Economy), “Azerbaijani legislation allows the government to expropriate property in limited cases only, such as: a) for the construction of highway and communications infrastructure; b) for the protection of state borders; c) for the construction of defense and security premises; d) construction of extractive facilities. National law provides that a court order is required to expropriate property in Azerbaijan. Under national law, the government is required to purchase any property it expropriates at market value and pay an additional 20 percent of market value as compensation to the owners.”


The Government of Azerbaijan has not shown any pattern of discriminating against U.S. persons by way of direct expropriations. Indirect expropriation, such as confiscatory tax regimes, is sometimes employed against international companies due to widespread corruption and monopolistic attempts to stifle competition.

4. Dispute Settlement

Legal System, Specialized Courts, Judicial Independence, Judgments of Foreign Courts

The Azerbaijani legal system is based on Civil Law. Disputes or disagreements arising between foreign investors and enterprises with foreign investment, state bodies of Azerbaijan, and/or enterprises, public organizations and other legal entities of Azerbaijan, are to be settled in the court systems of Azerbaijan or, on agreement between the parties, in a court of arbitration, including international arbitration bodies. However, the current judicial process is not reliable in practice. While the laws on the books promote foreign investment, in practice investment disputes can arise when a foreign investor or trader’s success threatens well-connected or favored local interests.

The judiciary consists of the Constitutional Court of the Republic of Azerbaijan, the Supreme Court of the Republic of Azerbaijan, the appellate courts of the Republic of Azerbaijan, trial courts, and other specialized courts. The Supreme Court and appellate courts have civil, criminal, administrative, economic, and military panels. Trial court judgments may be appealed in appellate courts and the judgments of appellate courts can be appealed in the Supreme Court. The Supreme Court is the highest court in the country. Under the Civil Procedure Code of Azerbaijan, the judgments of the appellate court are published within three days of issuance but may, in exceptional circumstances, be published within ten days. The Constitutional Court has the authority to review laws and court judgments for compliance with the Constitution. The decisions of the Constitutional Court are published. Additionally, on February 3, 2016, President Aliyev established Boards of Appeal in the State Committee for Property Issues and the State Customs Committee to ensure transparency and impartiality in the review of complaints from entrepreneurs concerning their business operations.

The procedure for the enforcement of foreign judgments in Azerbaijan is established by the Civil Procedure Code. The Code only requires the enforcement of foreign judgments either pursuant to an international treaty or based on the principle of reciprocity and provides that foreign arbitral awards may be enforced in Azerbaijan, only so long as they do not contravene local legislation or public policy, and if reciprocity exists. A Bilateral Investment Treaty between the United States and Azerbaijan – which came into effect in 2001 – provides U.S. investors with recourse for the settlement of investment disputes through the International Center for the Settlement of Investment Disputes.

The Law on Protection of Foreign Investments, dated January 15, 1992 (the Foreign Investment Law), provides guidance to foreign investors seeking to resolve investment disputes, either through Azerbaijani courts or alternatively through dispute resolution procedures agreed to by the parties involved. Resolution of investment disputes may include international arbitration, either in Azerbaijan or abroad. The Law on International Arbitration, dated November 18, 1999 (the Arbitration Law), provides guidance on the conduct of international arbitration in Azerbaijan.

Azerbaijan has entered into several other bilateral treaties – principally with neighboring states – to facilitate the enforcement of foreign judgments, and is a party to the 2004 Commonwealth of Independent States (CIS) Convention on Mutual Legal Assistance in Civil, Family and Criminal Cases. In addition, Azerbaijan is a party to the Convention on Resolving Business Disputes, dated March 20, 1992 (also known as the Kyiv Convention). Azerbaijan is also a member of the Multilateral Investment Guarantee Agency (MIGA).


Azerbaijan’s Bankruptcy Law, which does not function effectively and is rarely used, continues to be a hindrance to economic development, as does the country’s weak credit reporting institutions. Under this law, which applies only to legal entities and entrepreneurs, not individuals, bankruptcy proceedings may be commenced by either a debtor facing insolvency or any creditor. In general, the legislation is focused on liquidation procedures. For example, a court-approved “rehabilitation plan” may not exceed two years.

The World Bank’s Doing Business Report includes in its country rankings the ease of “resolving insolvency” (rankings are available at: Azerbaijan ranks 84 out of 189 countries in this category.

Investment Disputes

Over the past 10 years, there has not been any visible pattern of investment disputes that have specifically discriminated against U.S. persons or other foreign investors. Property disputes have occasionally appeared in local media, as discussed above.

International Arbitration

The Law on International Arbitration guides the process of international arbitration in Azerbaijan:

“Under these rules, parties may select independent arbitrators of any nationality, proceedings may be conducted in any language chosen by the parties, the applicable law (except for those matters that must be exclusively resolved under Azerbaijani legislation) and arbitration procedure may be chosen by the parties, and, in general, parties may stipulate the terms of the arbitration process. Where the terms have not been stipulated by the parties, any omission may be resolved by the Supreme Court of the Republic of Azerbaijan.”


ICSID Convention and New York Convention

Azerbaijan is a member of the International Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID convention). Azerbaijan is also a party to the 1958 Recognition and Enforcement of Foreign Arbitral Awards (New York Convention), which provides for the recognition of foreign arbitral awards resulting from international arbitration.

Duration of Dispute Resolution – Local Courts

The length of time it takes to obtain a resolution on an investment/commercial dispute proceeding within Azerbaijan varies considerably.

5. Performance Requirements and Investment Incentives


Azerbaijan is not a member of the World Trade Organization (WTO). Azerbaijan's Working Party was established on July 16, 1997 and the first meeting of the Working Party was held in June 2002. Negotiations regarding market access are underway on the basis of revised offers in goods and services. Since December 2013, multilateral work has been proceeding on the basis of a Draft Working Party Report. The twelfth meeting of the Working Party took place in Geneva in March 2015.

Ongoing issues pending resolution include the application of discriminatory tax exemptions in Azerbaijan, production sharing agreements, local content requirements and investment incentives, state trading enterprises, permit requirements for alcohol and tobacco products, Azerbaijan’s commitment to join the Information Technology Agreement, existing technical barriers to trade (product standards and certification), transition periods for implementing WTO Agreements, and agricultural and non-agricultural export subsidies. Since Azerbaijan is not a WTO member, it has also not ratified the Agreement on Trade Related Investment Measures (TRIMs).

Investment Incentives

In 2016, an investment promotion certificate was introduced in Azerbaijan by the Presidential decree on additional measures in investment promotion. Investment certificate holders are exempt from paying 50 percent of income tax and land tax and from paying customs duties on machinery, equipment, and devices imported for investment purposes in priority industries of the economy for up to 7 years. The priority projects include work in industrial parks, creation of manufacturing plants, and research work.

Research and Development

There are no restrictions on the ability of U.S. and/or other foreign firms to participate in government-financed and/or subsidized research and development programs in Azerbaijan.

Performance Requirements

Performance requirements are generally not imposed on new investments, but investors who participate in the privatization process often assume specific obligations regarding future investment and employment. Foreign investors are not normally required to purchase from local sources or export a certain percentage of output. Except for certain state monopolies, there is no explicit requirement that nationals own shares in enterprises. Investors in Production Sharing Agreements (PSAs) assume obligations and requirements as provided within the PSA.

There is, however, an overall limit on the number of foreign workers permitted in Azerbaijan, as well as specific additional limits in the numbers of foreign workers permitted in particulate sectors, such as mining, oil and gas, and the media sectors. Employers wishing to hire foreign workers in Azerbaijan must obtain a license from the Ministry of Labor. Foreigners who wish to work in Azerbaijan must register with local authorities at their place of residence and obtain work permits from the State Migration Service. If foreign workers enter Azerbaijan without work permits, and have to extend their visits for more than 90 days within one calendar year, they are required to submit work permit applications within 30 days of arrival. Not submitting this documentation can lead to deportation/removal from Azerbaijan and potentially steep fines.

In 2014, the Cabinet of Ministers ruled that business travelers in specific industries may work in Azerbaijan for up to 90 days per year without having a work permit. The eight industry sectors that fall under this provision are: education; finance and insurance; information and communication technology; manufacturing; mining; power, gas, steam and artificial atmosphere supply; transportation; and water supply and sewage treatment. According to this new provision, business travelers in sectors not covered above may need to apply for work permits even for trips under 90 days.

Sole proprietors, heads of representative offices, and branches of foreign legal entities and their deputies, short-term (three months or less) , accredited foreign media representatives, education specialists, diplomats and international civil servants do not require work permits. As of July 2009, the State Migration Service (SMS) decreed a one-stop shop system for work and residency permits. According to this single window principle, within seven days of application, foreigners applying for residence and work permits should receive these documents, although not all applicants experience this level of efficiency. As of 2015, the fee to acquire a one-year license for a migrant worker is equal to 1,000 manats (approximately $600).

Despite these regulations, major U.S. and other international firms have reportedly encountered problems registering their expatriate employees with the State Migration Service.

Data Storage

There are no requirements for foreign IT providers to turn over source code or provide access to surveillance (backdoors into hardware/software or turn over keys for encryption).

6. Protection of Property Rights

Real Property

In 2006, the Government centralized the processing of residential real estate transactions through a network of notary offices under the Ministry of Justice. Since 2013, Azerbaijan’s State Real Estate Registry Service at the Committee for Property Issues has been the lead agency that manages the real estate registration system. Azerbaijan has been working with the World Bank to improve the property registration system, but the system remains awash with bureaucratic requirements and is generally seen as prone to corruption and inefficient. In 2016, the Index of Economic Freedom gave Azerbaijan less than favorable scores regarding the protection of private property rights.

The World Bank’s Doing Business Report includes Azerbaijan in its country rankings on the Ease of Registering Property. Rankings are available at: Azerbaijan ranked 22nd out of 189 countries in this category in 2015.


Intellectual Property Rights

In Azerbaijan, the legal structure covering IP protections is relatively strong. However, the level of enforcement within the country could be improved. Piracy and blatant infringements on intellectual property rights, such as fake international computer shops that are open for business in the capital, are commonplace. The Business Software Alliance put the software piracy figure at 85 percent in 2013. Moreover, the estimated value of unlicensed software in Azerbaijan was $103 million in 2013, compared to $52 million in 2009.

In the mid-1990s, Azerbaijan began implementing a national system for registering and protecting intellectual property rights (IPR) with the assistance of the World Intellectual Property Organization (WIPO), of which it is a member. Intellectual property rights in Azerbaijan include protections on all types of property, including inventions, industrial designs, utility models, trademarks, geographic names, domain names, and copyright and related rights. The process of registering each type of intellectual property is relatively straightforward. Azerbaijan enacted improved copyright legislation (Law on Copyright and Related Rights) in 1996 (amended in 2008), patent legislation (Law on Patents) in 1997, and trademark protection legislation (Law on Trademarks and Geographic Names) in 1998. The law On Securing Intellectual Property Rights and Combating Piracy, which was ratified in October 2012, brought Azerbaijan’s intellectual property regime more closely in line with the WTO Trade-Related Intellectual Property Rights (TRIPS) agreement and satisfied many of the requirements of the WTO Working Party as part of Azerbaijan’s WTO accession process.

Azerbaijan also is a party to the Convention Establishing the World Intellectual Property Organization, the Paris Convention for Protection of Industrial Property, and the Berne Convention for the Protection of Literary and Artistic Works. Azerbaijan is a party to the Geneva Phonograms Convention, and acceded to the two WIPO Internet treaties in 2005. Violation of intellectual property rights can result in civil, criminal, and administrative charges.

Azerbaijan tracks and reports on seizures of counterfeit goods, but does not publish statistics on this.

Resources for Rights Holders

For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at

Embassy POC:

Aleksey Sanchez
U.S. Embassy Baku, Azerbaijan
+994 12 488-3300

A list of local lawyers is available at:

Additional Resources in Azerbaijan include:

The American Chamber of Commerce in Azerbaijan:

+994 12 497-1333
Fax: +994 12 497-1091

7. Transparency of the Regulatory System

The Government of Azerbaijan has worked to improve its regulatory system over the past several years, using transparent policies and effective laws to foster competition and establish clear rules of the game. Legal, regulatory, and accounting systems are slowly approaching international norms. However, continued limited transparency and allegations of corruption in the regulatory system remain a problem. Draft bills are not made available for public comment or run through a public consultation process. Azerbaijan has yet to develop informal regulatory processes managed by private sector associations. This limited transparency and inconsistent enforcement of rules to foster competition are serious impediments to foreign direct investment.

In August 2013, Azerbaijan’s Parliament passed a law on the regulation of inspections in entrepreneurship and the protection of the rights of entrepreneurs. Following the law, businesses are to be divided into high, medium, and low risk groups, with the frequency of inspections regulated by these risk categories. Entrepreneurs who have not committed any legal infraction for a set period of time are categorized as low risk groups, which will result in less frequent inspections and may reduce opportunities for soliciting informal payments. On October 19, 2015, President Aliyev signed a decree that inspections for entrepreneurs will be suspended for two years, starting from November 1, 2015.

In October 2011, the President of Azerbaijan issued a decree calling on the Cabinet of Ministers to develop a Law on Licenses and Permits. The IFC and USAID have provided assistance in this effort. Despite plans to adopt 29 national accounting standards, so as to be in line with International Financial Reporting Standards (IFRS) by 2009, as of 2015 audited financial statements have only been adopted in the banking and finance sectors, and in the energy sector by the State Oil Company of the Azerbaijan Republic (SOCAR).

8. Efficient Capital Markets and Portfolio Investment

Azerbaijan has an underdeveloped financial services sector – of which banking comprises more than 90 percent – that inhibits economic stability, growth and diversification. Non-bank financial sector staples such as capital markets, insurance, and private equity are in the early stages of development. An effective regulatory system that encourages and facilitates portfolio investment, foreign or domestic, is not fully in place. There is not sufficient liquidity in the markets to enter and exit sizeable positions, and existing policies limit the free flow of financial resources into the product and factor markets. However, the Government of Azerbaijan and Central Bank respect IMF Article VIII by refraining from restrictions on payments and transfers for current international transactions, and credit is allocated on market terms. Foreign investors are also able to obtain credit on the local market, and the private sector has access to a variety of credit instruments.

In February 2016, the Financial Market Supervisory Body, a new financial supervisory authority, was established in Azerbaijan to take over all functions of the Azerbaijan State Committee for Securities, State Insurance Supervision Service under the country's Ministry of Finance and Financial Monitoring Service under the Central Bank of Azerbaijan. The Financial Market Supervisory Body aims to license, regulate and control the securities market, investment funds, insurance, credit organizations (banks, non-banking credit organizations and operator of postal communication) and payment systems, as well as to improve the oversight system on money laundering, preventing the financing of terrorism, and provide transparency and efficiency in this sphere.

Money and Banking System, Hostile Takeovers

Over the past decade, the banking sector has benefited from the government’s investment of oil revenues in the non-oil economy, and the rapid expansion of higher margin retail and micro-lending. With oil revenues declining, Azerbaijan’s banking sector faced significant increases in nonperforming loans. The prevalence of cash transactions – estimated at 70 percent by Central Bank authorities – hinders the financial system’s development. Non-resident foreigners may legally establish bank accounts in Azerbaijan. There have been no public cases of hostile take-overs in Azerbaijan.

By February 2016, there were 36 banks registered in Azerbaijan, including 22 banks with international activities. Twelve banks were either closed or consolidated following the December 21 devaluation, as a result of non-performing loans, lack of liquidity, and overall economic downturn due to decreased revenue from oil exports. Because banks rarely compete directly against each other for market share, they have little incentive to offer competitive terms. Commercial loan interest rates offered by banks in 2014-2015 varied between 16-34 percent.

Total banking sector assets stood at approximately $22 billion as of January 2016, with the top five banks holding almost 58 percent of this figure. The state-owned International Bank of Azerbaijan (IBA) accounts for approximately 35-50 percent of the country’s banking assets and has received several large cash infusions over the past several years from the government to ensure its solvency. The Central Bank of Azerbaijan has been focused on encouraging consolidation in the sector, and in August 2012 the CBA raised the minimum capital requirement from 10 million manats to 50 million manats, effective January 1, 2014.

Several recent projects designed to strengthen Azerbaijan’s financial services sector, including the Capital Market Modernization Project (CMMP), the diversification of the State Oil Fund’s (SOFAZ) investment strategy, and pension reform represent opportunities for U.S. firms that provide asset management and global custodian services.

Although the Baku Stock Exchange (BSE) was established in 2000, the securities market still is at an early stage of development. The CMMP is an attempt by the Government of Azerbaijan to build the foundation for a modern financial capital market, including the development of market infrastructure and automation, and the strengthening of the legal and market frameworks for capital transactions. One major hindrance to the stock market’s growth is the difficulty in encouraging established Azerbaijani businesses to adapt to standard investor-friendly practices of good corporate governance that are required of publicly listed companies.

In February 2016, Fitch Ratings downgraded Azerbaijan's long-term foreign and local currency Issuer Default Ratings (IDR) to BB+ from BBB-. The outlook is negative. Standard & Poor also downgraded Azerbaijan's credit rating to BB+ from BBB- on January 29, 2016 and forecast that country’s economy would shrink this year as exports fall and the currency devaluations curbs consumption. In February 2016, Moody's Investors Service downgraded Azerbaijan's government bond and issuer ratings to Ba1 from Baa3 and placed the ratings on review for further downgrade.

9. Competition from State-Owned Enterprises

In Azerbaijan, state-owned enterprises (SOEs) are active in the oil and gas, power generation, water supply, railway, and air passenger and cargo sectors. There is no published list of SOEs. Statistics are not available on the percentage of resources SOEs allocate to research and development (R&D). While there are no SOEs that officially have been delegated governmental powers, companies such as the SOCAR, Azerenerji (electricity) and Azersu (water) – all of which are closed joint-stock companies with majority state ownership and limited private investment – enjoy quasi-governmental or near-monopoly status in their respective sectors.

Many powerful state-owned enterprises can use their regulatory authority to block new entrants into the market – a clear conflict of interest. In sectors that are open to both the private sector and foreign competition, SOEs generally receive a larger percentage of government contracts or business than their private sector competitors. While SOEs regularly purchase or supply goods or services from private sector firms, domestic or foreign, private enterprises cannot compete with SOEs under the same terms and conditions with respect to market share, products and services, or incentives. Private enterprises do not have the same access (including terms) to financing as SOEs. However, SOEs are subject to the same tax burden and tax rebate policies as their private sector competitors. The SOEs are also afforded material advantages such as preferential access to land and raw materials, advantages that are not available to private enterprises. There is little information available on Azerbaijani SOEs’ budget constraints due to the limited transparency in their financial accounts.

OECD Guidelines on Corporate Governance of SOEs

Information is not available on the extent to which SOEs in Azerbaijan adhere to the OECD Guidelines on Corporate Governance for SOEs:

Sovereign Wealth Funds

Azerbaijan’s sovereign wealth fund is the State Oil Fund of Azerbaijan (SOFAZ). Its mission is to transform depleting hydrocarbon reserves into financial assets generating perpetual income for current and future generations and to finance strategically important infrastructure and social projects of national scale. Since it was established in 1999, SOFAZ has financed several projects relating to infrastructure, housing, energy infrastructure, and education. According to its bylaws, SOFAZ is not permitted to invest domestically. SOFAZ publishes an annual report and submits its books to an independent audit. The fund’s assets totaled $33.5 billion as of January 1, 2016.

10. Responsible Business Conduct

Responsible business conduct (RBC) is a relatively new concept in Azerbaijan. Producers and consumers do not have a general awareness of responsible business conduct, including environmental, social, and governance issues. No information is available on legal corporate governance, accounting, and executive compensation standards to protect shareholders in Azerbaijan. Larger foreign entities tend to follow generally accepted RBC principles – mainly in line with their international corporate ethos – and aim to educate their local partners, who generally consider basic charitable donations and paying taxes as acts of social responsibility. The American Chamber of Commerce in Azerbaijan established a Corporate Social Responsibility Committee in October 2011 to encourage companies to embrace the concept of social responsibility and encourage a positive impact through activities and dialogue with relevant stakeholders. The Chamber also has published a guide on RBC/corporate social responsibility for businesses in Azerbaijan. The standards of corporate governance, evaluation methodology of the application of these standards and the Code of ethical behavior in corporate governance sphere were developed by the Ministry of Economy in 2011. The ministry’s task is to hold meetings with entrepreneurs and explain the importance of using corporate governance standards.

11. Political Violence

There have been no known acts of political violence against U.S. businesses or assets, nor against any foreign owned entity.

12. Corruption

Pervasive corruption – including bribery of public officials – continues to be a major challenge for U.S. and other international firms operating in Azerbaijan. Although anti-corruption legislation is in place and the government has taken some steps to tackle low-level corruption, corrupt practices remain a barrier to greater foreign investment. Azerbaijan does not require private companies to establish internal codes of conduct that, among other things, prohibit bribery of public officials, nor does it provide protections to NGO’s involved in investigating corruption. Nevertheless, some private companies use internal controls, ethics, and compliance programs to detect and prevent bribery of government officials. United States firms have identified pervasive corruption as an obstacle to FDI in the following sectors: government procurement, awarding of licenses or concessions, transfers, performance requirements, dispute settlement, regulatory system, customs, and taxation.

The Government of Azerbaijan recognizes that corruption is a problem, and has been a participant in regional anti-corruption initiatives, but to date laws and regulations to combat corruption have not been effectively or consistently enforced. Azerbaijan has made modest progress in implementing a 2005 Anticorruption Law, which created a commission with the authority to require full financial disclosure from government officials.

On September 5, 2012, President Aliyev issued a decree for a National Action Plan on Open Government and a National Action Plan on Combating Corruption. The government is reviewing both of these plans to develop a new action plan to be adopted in 2016. ASAN service centers created by the State Agency for Public Service and Social Innovations under the President of the Republic of Azerbaijan were established in July 2012 by Presidential decree and became operational in February 2013. Eleven centers provide 30 government services from nine state entities, including the registration of commercial legal entities and tax payers, notary services, state registration of civil status acts, and the renewal of identity cards/passports of citizens. ASAN centers are intended to provide more transparent and accountable services through a “one window” model that reduces opportunities for rent-seeking and petty government corruption.

In 2015, Azerbaijan’s modest improvements in combating petty corruption were reflected by the global anticorruption watchdog Transparency International, which ranked Azerbaijan 119 out of 168 countries on its Corruption Perceptions Index. Popular opinion identifies the State Customs Committee as the institution of greatest concern to businesses in Azerbaijan, followed by the Ministry of Taxes – though the reputation of the customs and tax authorities has begun to improve recently as corruption-reducing reforms are implemented. Transparency’s 2013 Global Corruption Barometer – which examined bribery involved in people’s contact with customs, education, the judiciary, land related services, medical services, the police, registry and permit services, tax authorities and utilities – found that roughly 50 percent of Azerbaijani respondents had paid a bribe to one of the nine service providers in the twelve preceding months.

UN Anticorruption Convention, OECD Convention on Combatting Bribery

Azerbaijan signed and ratified the UN Anticorruption Convention and is a signatory to the Council of Europe Criminal and Civil Law Conventions. Azerbaijan is not currently a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

Azerbaijan has also been a participant in the Extractive Industries Transparency Initiative (EITI). In 2009, Azerbaijan became the first participating country to become fully compliant with EITI requirements. Azerbaijan was downgraded to “candidate” country at the 29th EITI Board meeting in Brazzaville in April 2015, due to deep concerns about the ability of civil society to engage fully in the EITI process in Azerbaijan. The EITI will review in May 2016 Azerbaijan’s status for its compliance with measures EITI recommended for Azerbaijan to undertake in order for it to be reestablished as a candidate country.

Resources to Report Corruption

Contact at Government of Azerbaijan responsible for combating corruption:

Kamal Jafarov
Acting Executive Secretary
Commission on Combating Corruption
Baku, Azerbaijan
(+994 12) 492-04-65

Contact at Transparency Azerbaijan (local chapter of Transparency International):

Rena Safaraliyeva
Executive Director
Transparency Azerbaijan
Baku, Azerbaijan
(+994 12) 497 81 70

13. Bilateral Investment Agreements

Bilateral Taxation Treaties

Azerbaijan has signed 48 Bilateral Investment Treaties (BIT) – including one with the United States – and 40 Tax Treaties to protect against double taxation.

The 2001 BIT between the United States and the Government of the Republic of Azerbaijan encourages the reciprocal protection of investment.

Azerbaijan also has bilateral investment treaties with the following countries: Albania, Austria, Belarus, Belgium, Bulgaria, Czech Republic, China, Croatia, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Iran, Israel, Italy, Jordan, Kazakhstan, Korea, Kyrgyzstan, Latvia, Lithuania, Lebanon, Macedonia, Montenegro, Moldova, Norway, Pakistan, Poland, Qatar, Romania, Russia, Serbia, Saudi Arabia, Syria, Switzerland, Tajikistan, Turkey, UAE, Ukraine, the United Kingdom, and Uzbekistan.

The United States currently does not have a tax treaty with Azerbaijan. The United States and Azerbaijan are however parties to the OECD Convention on Mutual Administrative Assistance in Tax Matters. Azerbaijan signed an intergovernmental agreement with the United States to implement the Foreign Account Tax Compliance Act (FATCA) on October 9, 2015, based on the “IGA Model 1a” form.

14. OPIC and Other Investment Insurance Programs

The Overseas Private Investment Corporation (OPIC) and the U.S. Export-Import (Ex-Im) Bank are open for business in Azerbaijan, providing political risk insurance, as well as financing and loan guarantees. Azerbaijan is also a member of the Multilateral Investment Guarantee Agency (MIGA), and the European Bank for Reconstruction and Development (EBRD). The World Bank, Asian Development Bank, and other third-country institutions are active in providing financing and insurance for investment in Azerbaijan.

OPIC has repeatedly provided funds for numerous banks operating in Azerbaijan in order to expand their small and medium enterprise (SME) lending portfolios, including $4.8 million to Rabita Bank in 2008 and $7.3 million to Turan Bank in 2009. In 2011, OPIC provided Muganbank a loan guarantee for $10 million to expand its operations, targeting SME borrowers. OPIC has also provided $1 million and $3 million, respectively, to FinDev and CredAgro for microfinance lending. In 2012, OPIC provided loan insurance to Viator Microcredit Azerbaijan LLC ($500,000), NBCO Vision Fund Azercredit LLC ($2 million), and FinDev again ($1 million). In 2013, OPIC signed a memorandum with Turanbank for a loan in the amount of $7 million with a term of seven years for SME financing. As of 2015, OPIC has active loan projects with two non-banking credit organizations: “KredAgro” and TBC Kredit.

In its 2014 annual report, the Export-Import Bank of the United States (Ex-Im Bank) stated that it has outstanding insurance and loan guarantees for Azerbaijan in the amount of $211.9 million, primarily in support of aviation sales. In 2011, Ex-Im Bank closed a $116.6 million loan with a ten-year repayment period to finance the Azerbaijani space agency’s purchase of the AzerSat-1 satellite from Orbital Sciences. In June 2015, Ex-IM Bank closed a $211.9 million loan to finance Azerbaijan Airline’s purchase of Boeing commercial aircraft.

15. Labor

A Labor Code that took effect in 1999 still regulates overall labor relations and recognizes international labor rights. The work week generally is considered to be 40 hours. The right to strike exists, though industrial strikes are rare. Azerbaijan is a member of the International Labor Organization (ILO) and has ratified more than 57 ILO Conventions. In practice, labor unions are strongly tied to political interests. Collective bargaining is not practiced. Azerbaijan has regulations to monitor labor abuses, health, and safety standards in low-wage assembly operations, but enforcement is less effective. A labor contract between employer and employee technically may be written or oral, but in order to be official there must be a signed agreement. This employment agreement is required for the employee to receive any unemployment or other employment related benefits.

Azerbaijan has an abundant supply of semi-skilled and unskilled laborers. Approximately 40 percent of the Azerbaijani population works in agriculture, although this constitutes only 6 percent of GDP. The construction sector tends to use temporary and contractual workers; reportedly many of these workers agreements are not formally registered with the government. The relatively limited supply of highly skilled labor remains one of the biggest challenges in Azerbaijan’s labor market. As of 2016, government sources estimate the rate of unemployment at 5.3 percent, but other sources estimate the figure at 15 percent or higher, with underemployment being much higher.

The average monthly salary as of March 2016 was $274. Upon termination of formally registered employment, employers must pay departing employees monetary compensation for unused vacation leave. A formally registered employee who becomes unemployed is entitled to 70 percent of his/her average monthly wage, calculated over the past 12 months at the last place of work. Unemployment benefits can be paid for a maximum of 26 weeks within a 12 month period. Formally unemployed people who are unable to find suitable employment within 12 months of registering as unemployed are entitled to an extension of unemployment benefits. In this case, unemployment benefits are set at the minimum level approved by law, which is $50. Azerbaijan currently is working with the World Bank and the European Union on a program to reform the state pension system.

16. Foreign Trade Zones/Free Ports/Trade Facilitation

Although the government announced its intention to create special economic zones in 2003 – and passed a law to establish such zones in 2009 – there are no foreign trade zones or free ports operating in Azerbaijan yet. President Aliyev signed a decree on March 17, 2016 on measures to create a free trade zone special economic area next to the Alat seaport, located 65 km of Baku. According to the decree, the Ministry of Economy should submit proposals on the creation of the free trade zone, including legislation, development concept, types of entrepreneurial activity, infrastructure and management to President Aliyev within six months. There may be commercial opportunities for international firms to be involved in this project with consulting, management, and engineering.

The Ministry of Communications and High Technologies has discussed plans to create other special economic zones, including a petrochemical complex and regional innovation zones to boost development of the telecommunications sector and turn Azerbaijan into a regional information and communications technologies hub, and a special zone to encourage the production of renewable energy. Such projects represent consulting, engineering, and other commercial opportunities for international firms.

17. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy


Host Country Statistical source*

USG or international statistical source

USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other

Economic Data






Host Country Gross Domestic Product (GDP) ($M)


$34.3 billion


$75.2 billion

Foreign Direct Investment

Host Country Statistical source*

USG or international statistical source

USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other

U.S. FDI in partner country ($M, stock positions)


$89.3 million


$15 million

BEA data available at

Host country’s FDI in the United States ($M, stock positions)






Total inbound stock of FDI as % host GDP







Table 3: Sources and Destination of FDI

Direct Investment from/in Counterpart Economy Data

From Top Five Sources/To Top Five Destinations (US Dollars, Millions)

Inward Direct Investment- from 2014 statistics

Outward Direct Investment

Total Inward



Total Outward




481.4 million




153.5 million




103.8 million




90.2 million




89.3 million



"0" reflects amounts rounded to +/- $500,000.

Table 4: Sources of Portfolio Investment


IMF Coordinated Portfolio Investment Survey data are not available for Azerbaijan.

18. Contact for More Information

U.S. Embassy Baku, Azerbaijan
+994 12 488-3300