Guidance

Doing business in Azerbaijan: Azerbaijan trade and export guide

Updated 13 October 2022

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1. Azerbaijan export overview

The UK is the largest investor in Azerbaijan.

There are currently more than 450 UK companies doing business in Azerbaijan. In addition to oil and gas, UK companies have been successful in areas such as construction management and design, waste management, retail and education.

Benefits for UK businesses exporting to Azerbaijan:

• high government spending on infrastructure projects
• diversification strategy

Strengths of the Azerbaijan market:

• rapidly developing country
• strategic location is a gateway between Europe, the Middle East and Asia

2. Challenges

Challenges include:

• lack of transparency
• inconsistent application of regulations
• inconsistent procedures relating to licensing or certification
• not a member of the World Trade Organization (WTO), causing some customs issues
• companies do not have comprehensive English language websites

3. Growth potential

After the coronavirus pandemic, according to the European Bank for Reconstruction and Development, Azerbaijan’s economy grew by 7.2% in 2021. Overall gross domestic product (GDP) for 2021 was £54.62 billion, an increase of 5.6% from 2020. The pandemic has damaged Azerbaijan’s economy as it has all other world economies. However, the dominant role of the oil and gas sector, made the Azerbaijan economy relatively resilient.

The government aims to develop the economy further through diversification.

Azerbaijan’s GDP is generated by:

• industry (49%)
• services (37.4%)
• agriculture (6%)
• manufacturing (5%)
• other (2.6%)

Unemployment has decreased significantly over the last decade. It dropped to 5.7% in 2021.

Azerbaijan withstood the global financial crises relatively well. The annual inflation rate in Azerbaijan was recorded at 6.7% in 2021.

4. UK and Azerbaijan trade

Total trade in goods and services between the UK and Azerbaijan was £1.1 billion between April 2021 and March 2022, which was an increase of 14.6% from the 4 quarters to the end of Q1.

Main exports from the UK include:

• services
• technology
• engineering equipment and oil machinery

5. Opportunities for UK businesses in Azerbaijan

5.1 Energy

Azerbaijan has a high potential for renewable energy sources. The government plans to increase the share of renewable energy in the domestic energy production to 30% by installing a total of 1500 MW new generation capacities by 2030.

In 2021, Azerbaijan adopted a new strategy for socio-economic development for the next decade, where ‘clean environment and green growth’ has been specified as one of the priority areas. In line with this strategy, the government identified top priorities on renewable energy sources, which include solar, wind, hydro and bioenergy among others.

The recently launched International Finance Corporation (IFC) Offshore Wind Roadmap provides strategic vision and a plan for the development of the country’s offshore wind potential, which is estimated at 157 GW.

International financial institutions (IFIs) are currently providing financial support for renewable projects in Azerbaijan and UK companies are very well placed to participate in these projects.

There are 400 British companies with clean energy capability already on the ground in Azerbaijan. UK companies are ideally positioned to work with Azerbaijani partners to support our shared prosperity interests.

5.2 Infrastructure

The Baku International Sea Trade Port is a faster sea route to Central Asia and China compared to going via Russia and Iran. This provides UK companies with an opportunity to benefit from the bonded warehouses and the port facilities to establish trade routes with Central Asia.

Other infrastructure projects include:

• regional infrastructure development ranging from wastewater treatment to tourism development
• restoration and reconstruction of the main highways
• master planning, restoration and preservation of cultural buildings, smart cities/villages, telecommunications infrastructure and tourism projects in Karabakh
• new rail and road links to Georgia, Turkey and Russia
• privately built power generation plants

The annual Caspian International Road Infrastructure and Public Transport Exhibition in Baku provides an opportunity to network and meet contacts in the infrastructure sector.

5.3 Financial and professional services

The Azerbaijani financial sector is going through reforms. In November 2019, the Financial Market Supervisory Authority was abolished and its functions have been entrusted to the Central Bank.

The financial sector consists of 113 licensed institutions which can grant loans including:

• 26 banks
• 42 credit unions
• 45 other Non‐Bank Credit Institutions (NBCIs)

This whole area of the economy is opening up rapidly, partly due to the government’s industry diversification strategy. This is aimed at development of non-oil sectors. However, the financial markets remain shallow and the financial products are not well diversified. There is scope for UK companies to support development and share experience and knowledge.

5.4 Agriculture

The country has significant agricultural potential due to its favourable climate conditions.

The government of Azerbaijan grants 16 types of subsidies to farmers for production of agricultural products. The drivers of agriculture development are to ensure food security for the country and employment in the rural areas. There is a particular need for:

• agronomy training
• research and development
• soil analysis
• crop protocols
• audits
• fertiliser index systems

The main problems affecting the agriculture are desertification and the availability of water.

The newly established Food Safety Agency is interested in absorbing the UK’s legislation on food hygiene rating and upskilling the food safety inspection.

5.5 Information and Communication Technology (ICT)

ICT is considered as one of the drivers of the non-oil economy in Azerbaijan. In recent years the IT sector’s volume has doubled every 3 years, with an average annual growth rate of about 20 to 25%. The ICT sector currently generates annual revenues equivalent to £1 billion.

The Ministry of Digital Development and Transportation has expressed an interest in the UK offer on Smart Cities26. The ministry is keen that the rebuilding of towns and cities in the recovered territories follows smart city and village concepts. The utilities and construction sectors are also interested in cost-effective solutions provided by Internet of Things, smart building and smart home concepts.

Expected legislative changes in 2022 are anticipated to spur the development and demand for fintech.

5.6 Healthcare

Important transformation efforts have been taking place in Azerbaijan in the past 4 years. These aim to increase the quality of health care services and decrease the out-of-pocket expenditures in health. In 2016, Azerbaijan established the State Agency for Mandatory Health Insurance (SAMHI). This provides for better health financing options and mandatory health insurance.

Combined public and private healthcare spending is projected to grow 9% from 2021 to 2024. This increase will support the government’s goals to broaden access to care, reduce financial barriers and improve overall quality of healthcare provision. The UK’s deep expertise in healthcare can play an essential role in the development and improvement of Azerbaijan’s health sector. There are opportunities in:

• education and training
• digital health
• healthcare systems strengthening
• clinical infrastructure
• clinical services

6. Start-up considerations

There are 2 main routes to market in Azerbaijan. These include:

• registering a local presence through a company (local legal entity) or a representative office or branch of a foreign legal entity
• approaching the market through local representation in the form of an agent or distributor, or a joint venture with a local partner

6.1 Setting up a company

Commercial companies, branches and representative offices of foreign commercial legal entities should register with the Ministry of Taxes (site in Azeri). Non-commercial companies, branches and representative offices of foreign non-commercial legal entities should register with the Ministry of Justice (site in Azeri).

There are a number of company legal entities that a foreign company may choose from, all of which are regulated by the Civil Code of Azerbaijan. They include:

• Joint Stock Company (JSC) which can be open (with shares traded publicly) or closed (with shares traded among the restricted group of owners) type
• Limited liability company
• partnership (general and limited)

Shares in JSCs must be registered with the Baku Stock Exchange.

7. Legal considerations

Azerbaijani legal system is based on a civil (continental) law system.

Foreign investment is regulated by a number of international treaties and agreements, and domestic legislation. The main laws are:

• law on privatisation of state property
• law on investment activity
• the state programme of privatisation
• law on banks
• law on commercial activity
• law on unfair competition
• law on anti-monopoly activity
• law on licences and permits

International treaties prevail over local law (except for the Constitution and acts adopted by referendum) regulating the same issue.

Azerbaijan acceded to the New York Convention on the enforcement of foreign arbitral awards in 1999. Azerbaijan also passed a law on international arbitration.

The Central Bank of Azerbaijan is the central regulatory body for the banking sector and a wider financial sector.

7.1 Standards and technical regulations

The State Service for Antimonopoly and Consumer Market Control manages the spheres of standardisation, metrology, quality management, accreditation, protection of consumers’ rights and state control of the consumer market.

7.2 Intellectual Property Rights

The Intellectual Property Agency of the Republic of Azerbaijan has responsibility for registering intellectual property rights. Although Azerbaijan has acceded to a number of conventions designed to protect intellectual property rights, infringement of intellectual property rights is common for Azerbaijan.

Disputes related to industrial property rights are considered by the Appellate Board of the Patent Committee. Their decisions can be challenged in Azerbaijani courts.

In practice, foreign legal entities must file a trademark application through a recognized patent attorney. However, the registration of a mark with the relevant state authority does not necessarily mean that the mark will be protected during the validity period.

8. Tax and customs considerations

The UK and Azerbaijan have signed a double taxation agreement.

Azerbaijan’s tax system consists of 3 taxation regimes:

• statutory tax regime governed by the Tax Code
• Production Sharing Agreements (PSAs)
• Host Government Agreements (HGAs) relating to the main oil and gas export pipeline and the South Caucasus pipeline

8.1 Statutory tax regime

Taxes and payments affecting foreign investors operating under the statutory regime include:

• corporate profit tax
• personal income tax
• Value Added Tax (VAT)
• withholding tax

VAT is charged at 18%. It is imposed on all companies involved in commercial activities and foreign companies importing goods and services into Azerbaijan.

8.2 Profit tax

The general profits tax rate is 20%.

Entities subject to the profits tax include:

• Azerbaijani companies, with or without foreign ownership
• branches of foreign legal entities
• representative offices of foreign enterprises undertaking commercial activities in Azerbaijan

8.3 Customs

The State Customs Committee of the Republic of Azerbaijan has responsibility for customs legislation and guidance.

9. Business behaviour

The official language is Azerbaijani. However, Russian is also still widely used and most people in Baku are bilingual. English is also quite widely spoken and understood in Baku.

It can be difficult to do business with Azerbaijan remotely. Azerbaijani companies will often not respond to emails or phone calls.

Personal relationships are very important in this market. Many local companies will have some form of political patronage to provide protection from the difficult business climate.

Azerbaijan is an Islamic Country, but secular and liberal in comparison to some of its neighbours. When exchanging greetings, men should wait and see if a woman extends her hand. If they do, shake it lightly.

Family is a very important part of Azeri culture so greetings should include a reference to this.

10. Entry requirements

You must obtain a visa in advance of traveling to Azerbaijan. Contact the Visa Centre for more information on visa requirements and place of stay registration.

If you plan to work in Azerbaijan, you must obtain a work permit and a temporary residence permit. Contact the State Migration Service for information on obtaining the required permits.

10.1 Travel advice

If you’re travelling to Azerbaijan for business, check the Foreign, Commonwealth & Development Office (FCDO) travel advice beforehand.

11. Contacts

Contact the DBT team in Azerbaijan at dit.azerbaijan@fcdo.gov.uk for more information and advice on opportunities for doing business in Azerbaijan.