In the past decade Azerbaijan has established itself as an investor-friendly country with necessary legal guarantees being in place. Despite the bureaucratic hurdles foreign investors may encounter setting up and doing business in this emerging market, the legislation in question provides for maximum protection of the assets and property against nationalization, requisition and other political/economic/social risks.
One of the core legal instruments, alongside the Constitution, Civil Code and international agreements Azerbaijan is a signatory of, is the Law on the Protection of Foreign Investments (hereinafter referred to as the Law) dated 1992 with amendments from 2007 in effect.
The Law stipulates the legal and economic basis for the implementation of foreign investment on the territory of Azerbaijan. The foreign investors can be foreign legal entities, foreign citizens, foreign states and international organisations. The Law also allows stateless citizens and citizens of Azerbaijan permanently living abroad to undertake foreign investment in the country provided that they have been registered as participants of economic activity in the country of their permanent residency.
A revolutionary novelty in the legislation has been the fact of it allowing foreign investors to take part in privatization of state and municipal enterprises and incomplete constructions under terms set out by the legislation. Nevertheless, foreign investors cannot own immovable property such as land while exercising all ownership rights over the object located on that land, i.e. owning a factory on the leased land. This legal reservation is common in a number of emerging markets where under conditions of inflation, credit crunch and other economy-disruptive factors, the value of the property can drop low enough to provide large capital foreign investors an opportunity to purchase as much land as possible to the detriment of strategically important industries.
It should be also noted that the legal regime for foreign investors is equal to that for Azerbaijani citizens and cannot be more favorable thereof with the exception of special tax privileges and other concessions that might be established for them in certain spheres of economy or specific territories. That said, the operation of foreign investment can be restricted or prohibited on territories throughout the country which may pose risk to a national security and defense.
Foreign investors enjoy full legal protection for use and transfer of their profits and against termination of their investment activities in the form of compensation of sums and profits due to them at actual cost as opposed to estimated cost at the moment of termination.
There are a few forms of business entities foreign investors can establish in Azerbaijan including joint ventures, fully owned foreign companies and representative entities of foreign legal companies (subsidiary companies) such as branches, offices, and agencies. Incorporating a legal entity has become fairly easy and straightforward with the introduction of the "single window system" that carries out both state and tax registration.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
