dentons.com
Succeeding in Azerbaijan
The Dentons Guide for Businesses 2017 Edition This book is dedicated to the beautiful country and the warm people of Azerbaijan.
THE DENTONS GUIDE FOR BUSINESSES 2017 Edition
Dentons’ Baku Office Hyatt International Center Hyatt Tower 2, 8 Izmir Street Baku AZ1065, Azerbaijan Telephone: +994 12 490 75 65 Telefax: +994 12 497 10 57 [email protected] dentons.com The information given in this Guide is generally accurate as of 1 May 2017.
2 dentons.com Contents
Preface 4 Abbreviations used in this guide 5 Coming to Azerbaijan 7 Setting up and closing down operations 11 Corporate governance 15 Banking and finance 21 Investment funds 31 Secured transactions 35 Taxation and social security (Outside the oil and gas sector) 39 Oil and gas taxation 47 Trade: imports and exports 53 Customs duties and regimes 57 Handling audits 63 Real estate and property ownership 67 Leases 73 Employment 77 Currency regulation 83 Licensing and permits 87 Intellectual property 91 Language: The use of Azerbaijani 95 ASAN Service 99 Legislative system 107 Dispute resolution – the courts and arbitration 111 Contributing authors 117 Global presence 120 What the Press Says 123
dentons.com 3 Preface
Ophelia Abdullayeva Kamal Mammadzada Farhad Hajizade Sabina Orujova James E. Hogan Naida Sadigova Ruhiyya Isayeva Sona Taghiyeva Nargiz Kazimova Ulvia Zeynalova-Bockin
This booklet is the eleventh edition of the Baku-Tbilisi-Ceyhan oil pipeline and property (22nd), protecting minority our business guide, which represents the South Caucasus Pipeline system investors (32nd), paying taxes (40th) and the collective knowledge and experience for gas has led to public spending enforcing contracts (44th). of our Firm after many years advising increases in infrastructure projects and clients in Azerbaijan. Dentons is Azerbaijan’s modernization. At the same The Dentons Guide is general in nature, the world’s first polycentric global time, diversification of the economy intending only to highlight some of law firm. Driven to provide clients and the development of new industries the principal issues of interest to those a competitive edge, and connected to are a national priority, particularly in present in this market. For companies the communities where its clients want light of the recent drop in the price of and financial institutions considering to do business, Dentons knows that hydrocarbons and resulting economic an activity in Azerbaijan, we hope that understanding local cultures is crucial to crisis. Openness to foreign investment it will serve as a good and practical successfully completing a deal, resolving has aided Azerbaijan’s transition to introduction to the legal and business a dispute or solving a business challenge. a market economy, and wide-ranging environment in the country. Now the world’s largest law firm, Dentons’ reforms have improved its overall global team builds agile, tailored macroeconomic environment. This edition is very much a group effort solutions to meet the local, national and on the part of the rapidly growing global needs of private and public clients We have seen many legal developments Dentons team in Baku. of any size, with more than 8,000 lawyers in Azerbaijan during the years since its in more than 150 locations, serving 60- independence, including the enactment We would also like to express our plus countries across Africa, Asia Pacific, of a modern Civil Code, the streamlining special appreciation to Mr. Azad Jafarli, Canada, Central Asia, Europe, Latin of activities requiring licenses and the Director of the International and America, the Middle East, Russia, CIS and permits, the establishment of centralized Public Relations Department at the State the Caucuses, the UK and the US. property and mortgage registries, Agency for Public Service and Social the adoption of international financial Innovations under the President of Active in this jurisdiction since 1990, and reporting standards, the establishment the Republic of Azerbaijan for his opening our permanent Baku office in of special economic zones and industrial valuable contribution to the chapter on 1999, Dentons in Azerbaijan covers a full parks and the introduction of a single ASAN services. range of local and international business window system for company registration, transactions in the private and public immigration/work permit formalities We also appreciate the valuable feedback markets, including related corporate and customs processing, together we have received from clients and friends restructuring and financing. From initial with remarkable advancements in of the firm on the usefulness of the guide strategy through the due diligence e-government. for their activities in Azerbaijan. phase, all the way to post-transaction integration, our professionals deal with all In the World Economic Forum Global corporate, competition, tax, commercial, Competitiveness Index 2016-2017 banking, employment and real estate Azerbaijan was ranked in 37th place (out aspects of corporate and finance of 138 countries). In the Doing Business transactions. 2017 report, published by the World Bank and the IFC, Azerbaijan received The oil-rich economy of Azerbaijan, a respectable ranking of 65th place (out where the international petroleum of 190 countries) in an independent industry began in the mid-19th century, evaluation of the ease of doing business. experienced a prolonged second oil Within the specific categories, Azerbaijan boom following independence in 1991. placed especially well in the areas of The opening of new export routes via starting a business (5th), registering
4 dentons.com Abbreviations used in this guide
EPA – Export Pipeline Agreement
PSA – Exploration, Development and Production Sharing Agreement
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01 Coming to Azerbaijan
Visas, work permits rules on work visas have been adopted Work permits and police registrations to date, and under these circumstances Each foreign employee planning to the legal regime applicable to general work in Azerbaijan must obtain an Work and visitor visas multiple entry visas under the Visa Law individual work permit for such purposes. The law that governs the issuance of work also governs work visas. The decision on issuing a work permit and other types of visas, the Law “On is taken by the State Migration Service Entry, Exit and Passports”, dated 14 June All of the following documents must in accordance with a “single window” or 1994 (the “Visa Law”) does not specifically be filed with the Embassy of Azerbaijan “one stop shop” principle, considering refer to work visas. There are, however, in the employee’s country of residence the opinion of the Ministry of Labor and two types of entry visas provided: single in order to obtain a multiple entry visa: Social Protection of the Population. All entry-exit (valid from three days to three of the documents required to obtain months) and multiple entry (valid from • A letter of invitation on the employer’s a work permit must be filed with the State one to two years, although to date only letterhead Migration Service. The delivery of the work one-year visas have generally been permits is also carried out by this body. granted). Currently, with few exceptions, • A standard application form visitors must obtain visas from the country An employment contract with the foreign of departure prior to arrival in Azerbaijan. • Two color photographs of employee may not be concluded for It is also a good idea to have an invitation the employee a period exceeding the duration of letter from a business in Azerbaijan the work permit, which itself may not available for presentation. • The employee’s passport exceed one year. An application for renewal (extension) of a work permit In order to obtain a multiple-entry visa, • State duty (Normally, US$250 for must be filed with the State Migration an invitation letter from a business in a one-year multiple entry visa; Service at least 22 days prior to Azerbaijan is required by the embassy however, for nationals of countries expiration. The state duty payable for granting the visa. Formalities for submitting which charge higher visa fees to obtaining a work permit for a period of invitation letters differ from one embassy citizens of the Republic of Azerbaijan, one year is AZN 1,000. The fee payable to another—sometimes these may be the amount of the state duty may be for the renewal of a permit for a period of delivered by fax from the enterprise (or higher.) one year is also AZN 1,000. even by hand by the applicant) directly to the embassy, but in other cases A new online procedure exists for A work permit is not needed for the embassy may require that the invitation tourist visas at a number of Azerbaijani the following: letter be sent to the visa-issuing embassy consulates, both for business and via the Azerbaijani Ministry of Foreign tourist visas through special visa service • A person on a business trip for a period Affairs. In still other cases, the Ministry of centers engaged by such consulates. not exceeding 90 days per year carrying Foreign Affairs advises that the applicant It is important to inquire with the relevant out types of activities determined by must arrive in Azerbaijan using a single- Embassy of Azerbaijan as to which the relevant executive authority entry visa and then apply personally to procedure applies. the Consular Department of the Ministry in • A person engaging in independent Baku to be issued with a multiple-entry visa. entrepreneurial activity
According to the Migration Code of • A director and any deputy of a foreign the Republic of Azerbaijan, adopted on legal entity or a representative office 2 July 2013, a foreign national hired by or branch of a foreign legal entity an employer must arrive in Azerbaijan with a work visa. However, no detailed • A director and any deputy director
dentons.com 7 of a legal entity incorporated in • A copy of the foreigner’s identification Registration at place the Republic of Azerbaijan and having document of residence and stay a foreign legal entity or a foreign From 1 April 2013, foreign nationals individual as at least one of its • A medical certificate on the foreigner’s planning to remain in Azerbaijan for more shareholders health condition issued by a medical than 10 days must be registered at their institution approved by the State place of residence and stay in Azerbaijan. The employer must file the following Migration Service documents with the State Migration For this purpose, within 10 days from Service: • Notarized registration documents of the date of the arrival of the foreign the employer national at a hotel, sanatorium, rest • An application for an individual home, boarding house, campground, work permit (stating the name, • Documents confirming tourist base, apartment or other living organizational-legal form and legal the foreigner’s address in space, the administration or owner of address of the employer, as well as Azerbaijan (e.g., notarized consent such living space (the receiving party) the full name, citizenship, mailing of the landlord, notarized copy should submit to the State Migration address of the employee’s permanent of the landlord’s national ID card; Service an application on the registration place of residence, date and place notarized copy of an extract from of the foreign national at the place of birth, sex, specialization, details the Register of Immovable Property of residence and stay, together with of employment within the last five in respect of the premises) a scanned copy of the foreign national’s years and the anticipated position passport. No state duty is payable for and address of the place of work of A work permit becomes void if the registration of foreign nationals at the employee in Azerbaijan) the employment contract concluded their place of residence and stay. between the employer and foreign • Two photos on a red background (3x4) employee is terminated or revoked. In The application must be submitted by cases where an employment contract e-mail ([email protected]), • A notarized copy of the qualifications of has been terminated, the employer and an electronic application form is the foreign employee for the position for must notify the State Migration Service available on the website of the State which he or she is being hired (a copy within five days. Migration Service (www.migration.gov. of a diploma/degree; professional az). After receipt of the application qualifications/certifications) form, the State Migration Service shall register the foreign national at the place • Justification for employment of of residence and stay and shall provide the foreign individual in the particular written notification to receiving party position within one working day.
• A copy of the document authorizing the foreigner’s stay in Azerbaijan if such person is present in Azerbaijan on other grounds (i.e., a copy of the visa); this condition presumably has effect only in respect of employees who are already legally in Azerbaijan but do not have a work permit.
8 dentons.com Foreign nationals are registered for Useful websites: the following periods: • Ministry of Foreign Affairs – How Dentons can help www.mfa.gov.az Dentons has assisted many • Persons arriving under a visa – for (English version available.) companies and individuals in the period indicated in the visa obtaining visas, work permits and • State Migration Service – residence permits in Azerbaijan. • Persons arriving under a visa-free www.migration.gov.az Dentons can also advise on regime – for 90 days (English version available.) employment contracts, work visas and other issues related However, the receiving party or to immigration and residence the foreign national must inform in Azerbaijan. However, the State Migration Service upon the application for obtaining the foreign national’s departure, a work permit must be submitted whereupon the State Migration Service by the employer itself or by an shall cancel the registration. employee of the company. A Power of Attorney for this purpose issued Whenever a foreign national changes to a non-employee of the company his or her place of residence and stay will not be accepted by the State he/she should be registered at the new Migration Service. place of residence and stay according to the procedure above.
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02 Setting up and closing down operations
Choosing a local presence The minimum charter capital forms, it is recommended that activities Azerbaijan currently permits essentially requirements for JSCs have been requiring a license should specifically be three types of corporate entity that are established as follows: conducted through a branch (or a locally of greatest interest to those wishing to incorporated company), rather than through establish a local subsidiary: • JSC-Cs – AZN 2,000 a representative office. The state registration duty for both branches and representative • The limited liability company (LLC) • JSC-Os – AZN 4,000 offices is AZN 220.
• The closed joint stock company In each case the charter capital must The following is a non-exhaustive list of (JSC-C) be paid in full prior to State registration. documents which must be provided to Currently, there is no fixed minimum the Ministry of Taxes for the registration of • The open joint stock company (JSC-O) charter capital that is applicable to LLCs, a branch office (or a representative office): subject to a general requirement that The Civil Code (2000), unlike earlier the charter capital must be sufficient to • A board resolution approving legislation, does not provide for satisfy the claims of creditors. the establishment of the local office the state enterprise as an organizational legal form (nor is there any mention The registration procedures and state • Regulations of the local office of the municipal enterprise). In theory, registration fees, AZN 11, are the same all state and municipal enterprises for both types of entity. All entities • A power of attorney in favor of should be organized in one of (with the exception of non-commercial Dentons’ personnel authorizing them the forms specified by the Code—in organizations) are to be registered with to complete the registration formalities most cases, in the form of limited the Ministry of Taxes as part of a “single on behalf of the founder liability companies or joint-stock window” or “one stop shop” process. companies, but this is not always The Ministry of Taxes subsequently • A power of attorney for the director of the case in practice (see, e.g., SOCAR). informs the State Statistics Committee, the local office Traditionally, JSCs and LLCs have the State Social Protection Fund, the local been considered the most appropriate tax authority and the State Employment • A certificate of incorporation of vehicles for establishing “joint ventures” Center about such registration. the company establishing the local with local partners. Furthermore, in the case of JSCs, shares office must be registered with the Financial The JSC and LLC forms are similar Market Supervisory Authority. (Non- • The charter/bylaws of the company in many respects (e.g., both require commercial organizations continue to be establishing the local office at least one founder; shareholders/ registered by the Ministry of Justice). participants enjoy limited liability; All of the above documents should the same tax treatment applies; pre- Representative offices be notarized and legalized or, where emptive rights exist). However, in certain and branches applicable, apostilled. A list of countries respects the LLC form of legal entity Many foreign companies operate in which are party to The Hague Convention offers more flexibility in structuring Azerbaijan through either representative of 5 October 1961 On Abolishing the internal operations of a company offices or branches. Both of these forms the Requirement of Legalisation for and fewer registration and reporting may engage in some or all of the functions Foreign Public Documents, by which an requirements apply than in the case of of the founder. Technically, representative apostille may be substituted for the more a JSC (e.g., JSCs require the registration offices should be limited to activities of cumbersome legalization procedure, of securities and the publication of a preparatory or auxiliary nature and, can be viewed at http://hcch.e-vision. financial statements). although in practice there is essentially little nl/index_en.php?act=conventions. difference between the treatment of the two status&cid=41. (Public documents
dentons.com 11 originating in certain signatory countries, Tax-only registrations including Germany, also require full In some cases, a tax-only registration legalization; an apostille from such is possible. This is generally permitted countries is not accepted). for companies which do not have permanent establishments in Azerbaijan In addition to the above documents, and are domiciled in countries with which the company must also provide evidence Azerbaijan has a double-tax treaty. of its legal address in Azerbaijan (e.g., a notarized office lease, or a notarized Liquidation and office closures letter of consent from the landlord and Legal entities, branches and a notarized copy of the extract from representative offices must undergo the Register of Immovable Property in a number of steps prior to de- respect of the premises) and a copy registration. of the passport of the director. These requirements apply to both a branch a. Approval of a formal statement (stating office and a representative office. assets and liabilities) on the solvency of the legal entity and indicating Additional formalities a 12-month deadline for the settlement After registration with the Ministry of of claims with the creditors. Taxes, a number of additional steps need (The statement must be approved to be taken before the local presence is at the request of the members of operational. These include: the executive body of the company not earlier than twenty (20) days • Procuring the corporate/ prior to the liquidation resolution. If representative office/branch seal the company’s executive body states the impossibility to adopt a formal • Obtaining permission from declaration of solvency, the company’s the Ministry of Taxes to open bank independent auditor, as then appointed accounts by the General Meeting, may approve its own conclusion on the solvency • Obtaining notarized signature samples of the legal entity. An audit report is on bank account signature cards from considered an appropriate official the selected bank in Azerbaijan statement).
• Opening bank accounts b. Adoption of a resolution on the liquidation and the appointment of One should also budget for local a liquidation commission translation/notarization expenses of at least US$750+ (not including VAT) and c. Not later than 10 days from the date possibly more if the documents are of the adoption of the liquidation voluminous. resolution, the publication of a notice of liquidation in the official press, specifying a period of at least two months for the submission of claims. Such notice must be published in
12 dentons.com the same manner two additional Within five days of completing times: a second publication 15-20 settlements with creditors, the liquidation How Dentons can help days after the first publication and balance and a statement of the plan for Dentons has assisted many a third publication 15-20 days after the allocation of the remaining assets companies in establishing the second publication to the owner of the representative a presence in Azerbaijan, whether office are compiled. These documents as a representative office, branch or d. Sending a notification on liquidation to must be approved by the owner of local legal entity. Dentons provides all known creditors (if any) the representative office within not a full registration service, including later than 45 days. Such property is model documents, instructions e. Submission of the formal statement subject to transfer to the owner of on the procedures, fulfillment (referred to in (a) above), the resolution the representative office within 10 days. of all registration formalities and on liquidation and the seal of the entity practical advice during the process. to the registration department within Submission of the required clearances 15 days from the date of the adoption from the necessary state bodies, Dentons also has considerable of the liquidation resolution the liquidation balance, the asset experience in the suspension of distribution plan, the document confirming activity, closing and reorganization f. Ordering a new seal for the entity the allocation of the remaining assets of local offices and subsidiaries. with the notation “in the process to the owner and other documents of liquidation” for further use by provided by legislation to the registration the liquidation commission (liquidator) department of the Ministry of Taxes within 10 days from the date of the allocation of g. Notifications to the State Social the assets. Protection Fund, the Audit Department of the Ministry of Taxes and the State Receipt of a document from the Ministry Customs Committee with requests for of Taxes confirming deregistration. closing audits The total duration of the process h. Completing various reports and of the liquidation of the legal entity documents requested by the tax shall not exceed one year from authorities the date of submitting the documents to the registration department. i. Preparing a preliminary liquidation Exceeding this period would balance within ten days of entail the recommencement of the expiration of the two-month the liquidation process. period for filing claims j. Settlements with creditors (to be completed within 12 months)
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03 Corporate governance
Introduction is used in various laws, and penalties for In a JSC the power to appoint and The legislation dealing with JSCs and improper or inadequate performance of terminate members of the executive LLCs is found primarily within a few duties are imposed on “officers” though management board may be vested dozen articles of the Civil Code. These not “directors.” The term “officers,” by the charter in the supervisory provisions sometimes lack clarity however, is also not defined. board. Only JSCs are required to have and detail. The mandatory corporate a two-tier board structure (having both governance principles that exist with Good corporate governance ideally a supervisory board and a management respect to entities in these legal forms should involve: board), and then only where they have are subsumed within these sections of more than 50 shareholders. LLCs are the Civil Code. There are other pieces • Independence from the State in not required to have a two-tiered board of legislation which supply additional decision-making structure but may optionally choose corporate governance rules that are to have a supervisory board by so applicable to companies engaged • Transparency of decision-making providing in their charters. in certain types of activities, such as banks, insurance companies, investment • Financial transparency The general meeting companies and investment funds. of shareholders This Chapter is not intended to cover • Responsibility and accountability The Civil Code reserves to the general such entities, even though they may meeting of shareholders certain major occasionally be mentioned. • Good internal controls matters, such as approving changes to the charter, increases in the charter In addition to the mandatory corporate • Good record keeping (minutes of capital, a reorganization or winding-up governance principles, there is also a set meetings, accounts, and the like) of the company, annual statements of Azerbaijani Corporate Governance and the distribution of profits, and Standards prepared by a working • Effective flows of information the election of the supervisory board group consisting of representatives and finance/audit committee. of the Ministry of the Economic Transparency and the avoidance of Development of the Republic of conflicts of interest are fundamental Both LLCs and JSCs must hold Azerbaijan and the International Finance principles of good governance, but a general meeting of participants/ Corporation. These standards were extra care is required where there is shareholders not less than once per prepared based on the 2004 Edition one dominant shareholder. Although annum. LLCs are required to hold an of the OECD Principles of Corporate the law states that the general annual general meeting within four Governance and are of a voluntary meeting of shareholders is the highest months of the end of the year, while nature. body of corporate governance (and a JSC must do so not later than within it is this body which is exclusively six months of the end of the financial One of the difficulties encountered in responsible for making changes to year. An extraordinary general meeting considering the corporate governance the charter, approving the annual of an LLC or a JSC may be convened by of LLCs and JSCs is that the rules are financial statements and similar the directors, the management board not uniform, and the concept of implicit actions of highest importance), it is (where no supervisory board exists), or repeal sometimes leaves it unclear as the board of directors (sometimes the audit committee, or at the request to whether an older provision is still in referred to as the supervisory board) of shareholders representing at least 10 force. Furthermore, in general the law and the executive body (sometimes percent of the votes. restricts the term “director” to members referred to as the management board) of the board of directors (supervisory where the main aspects of governance The annual general meeting is board), which only a JSC-O is required to are exercised. convened by the directors (or, where have in place. The broader term “officer” there is no supervisory board, by
dentons.com 15 the management board). For a JSC-O, The law provides for methods of Directors and management: in addition to sending notices to all counting votes at general meetings in independence and qualifications shareholders, at least 45-days’ notice JSCs with more than 100 shareholders: In general, the laws of Azerbaijan of an annual general meeting must a panel of at least three tellers is do not require directors serving on be given by publication in the mass required. The members of, and the supervisory board or executive officers media. For an extraordinary general candidates to, the supervisory and to possess any special qualification, nor meeting of shareholders, the notice management boards and the audit does a prior criminal record normally period is only 30 calendar days.1 committee may not be appointed disqualify a director or officer from such The notice must provide certain basic as tellers. The tellers must add to a position (unless such JSC is a bank, details, including an agenda and details the minutes of the meeting a record of an insurance company, an investment on how shareholders may familiarize the results of the vote. company or an investment fund.) themselves with background materials to the agenda items. Closed JSCs are In relation to a JSC-O a transaction Supervisory board members, who are only required to notify shareholders which exceeds 25 percent of the net elected by the general meeting of in writing. asset value of the company must be shareholders, are, at least in theory, approved by the general meeting independent from the management and Resolutions of general meetings of JSCs of shareholders, and the method from the audit committee. A supervisory must be notified to the shareholders of disclosing the details of such board director may not also serve as within 15 days. The minutes must be transactions should be specified in a member of the audit committee or signed by the chairman and secretary the charter. a member of the management board. and must be sealed. The minutes must specify: Voting at a general meeting is usually The State has the right to appoint board carried out in person or by proxy, unless members in cases where it continues to The time and place of the general the charter expressly permits votes own at least 25.5 percent of an enterprise meeting to be cast in writing. Resolutions of following privatization. However, a general meeting of shareholders must a shareholder holding more than 20 • The agenda be recorded in the form of minutes (in percent of the shares of a JSC may not duplicate and prepared within three be a member of the management board. • The number of voting shares working days of the meeting), which represented at the meeting must be signed by the chairman and A member of the supervisory board of secretary and sealed. This appears a JSC may be appointed for a period not • The number of shareholders with to be the only reference in the Code exceeding three years, other than for voting rights taking part to the functions of a secretary in banks.2 There appear to be no statutorily the context of company administration. established limits on the reappointment • A summary of the proceedings Generally, there is no requirement of members of the management board to have a formal company secretary (the prior 1998 Law on Limited Liability • The results of the voting in respect of position. Shareholders are entitled to Companies, Art. 34, imposed a four-year each issue put to a vote review the minutes on demand. term limit, but this law has been repealed). The appointment of the management • The precise text of each resolution The right to vote by preferred board is carried out by the participants/ passed shareholders at shareholder meetings shareholders in a general meeting, is strictly limited to issues concerning except that in a JSC this authority may reorganization, liquidation and certain be delegated to the supervisory board. 1 JSCs which are banks may also convene a general meeting charter amendments (unless the charter of shareholders without any notice at all, provided, however, that 100 percent of all shareholders are present in grants them other rights). 2 In a bank, the terms of both supervisory board and person or in proxy. management board members may not exceed four years.
16 dentons.com The head of the executive management entities (previously similar regulations In the event that the value of a related should enter into an agreement with existed only for issuers of investment party transaction is equal to or exceeds the LLC, which would normally be securities and banks.) The regulations five (5) percent of the relevant company’s signed by the chairman of the general apply to any transaction or series of assets, such transaction may be meeting of participants at which the head related transactions between a legal entered into based on the opinion of is appointed. entity and a related party with respect to the independent auditor engaged such legal entity. by the company and a resolution of Management of both LLCs and JSCs may the general meeting of its shareholders be collegial, in the form of an executive In general, the term “related party” is adopted by a simple majority. management board, or it may consist of defined quite broadly and includes A shareholder of the company who is one person, who may be independent of the following: a related party in relation to the transaction the owners or a representative of one or in question may not cast a vote during more owners. 1. The chairmen and members of the general meeting of shareholders. the management and supervisory Audit committee (or Auditor) boards of a company If the value of the related party A JSC-O is required to have an audit transaction is less than five (5) percent of committee that is independent of its 2. Heads of divisions, branches and the company’s assets, such transaction supervisory and management boards, departments of the company must be approved by either the general if it has more than 50 shareholders meeting of shareholders, the supervisory (other companies may provide for audit 3. Relatives of persons listed under items board or the management board of committees in their charters). A shareholder, 1 and 2 above the company, in accordance with or a member of the supervisory or the charter of the company. For this management board, may not be a member 4. Shareholders of the company purpose, a member of the supervisory of the audit committee. Published (whether legal entities or individuals) board or the management board financial statements must be audited by holding (whether directly or of the company or a shareholder of an independent external auditor. Audits indirectly) at least 10% of the shares in the company who is the related party in of a JSC are carried out at the request the company relation to the transaction in question of the audit committee (or by resolution may not cast a vote. of a general meeting, the directors or 5. Legal entities in which persons listed management or at the request of more under items 1, 2 and 4 above (whether If the related party is the chairman of than 10 percent of shareholders.) directly or indirectly) hold shares a management board which consists of one person or persons listed under items An LLC may have an audit committee (or 6. Legal entities in which the company 3 and 5 above, such transaction must be a sole auditor) but is not required to do in question holds at least 20% of approved by the supervisory board of so. A founder may be part of the audit the shares the company, or by the general meeting committee (but not if he or she is also of shareholders if no supervisory board in the management of the company). 7. Persons (whether legal entities or is established. An LLC is required to appoint an individuals) holding (whether directly independent external auditor. or indirectly) at least 20% of the shares The law also establishes liability for in entities listed under items 4 and 6 damage inflicted upon the company Related-party transactions above caused by the latter entering into Following recent amendments to the Civil a related party transaction in violation Code, effective from 24 May 2015, new 8. Chairmen of the management and of relevant approval procedures. Such regulations on related party transactions supervisory boards of legal entities a transaction also can be rescinded by now extend to all Azerbaijani legal listed under items 4 and 6 above the company or any of its shareholders.
dentons.com 17 Finally, the law requires that it is not clear whether the information Criminal liability for legal entities the chairman and members of must be provided to all shareholders Criminal liability—which previously was the supervisory board of a company or, as is the most likely interpretation, applicable only to physical persons, must disclose to the shareholders of only to the shareholder requesting such as members of the management the company in writing the fact that the information. of a legal entity—will extend, once they are related parties in relation to made effective through implementing a transaction with the company, as Fiduciary duties regulations, to legal entities themselves well as the details of their interests in Rudimentary indications of fiduciary as well. Based on amendments to such transaction. A similar requirement duties were introduced into Azerbaijani the Criminal Code adopted in 2012, applies to the chairman and members corporate governance standards legal entities may be subject to criminal of the management board of several years ago. Although not labeled liability for actions of officers of a legal a company and any other related party, as such, the language in the law entity that benefited or were taken for except that the latter must address suggests that the duties include the protection of such a legal entity. the disclosure to the supervisory the duty of good faith, the duty of care board (or to the general meeting of and the duty of loyalty. Criminal liability may arise for legal shareholders if no supervisory board is entities in connection with, inter established). Specifically, a person acting on alia, human trafficking; involuntary behalf of a legal entity, including servitude; the legalization, knowing Directors’ and officers’ duties a member of the supervisory board or possession, use, and disposal of funds The function of a supervisory board is the management board, must discharge and other property obtained illegally; to carry out control over the activity of his/her duties (i) in good faith, (ii) in terrorism and the financing of terrorism; the executive body (the management a professional/reasonable manner and computer hacking; the creation, use, and board). Because the term “director” with due care and (iii) must remain loyal distribution of computer viruses; abuse is not defined in law, it is not possible to the interests of the company and of office; the receiving or giving of bribes; to deduce clearly from the legislation its shareholders/participants and put as well as corruption-related crimes. the nature of a director’s duties. the interests of the company before his/ Essentially, the Civil Code leaves it to her own interests. The following are the punitive measures the charter (the constitutive document) that may be taken against legal entities: of each company to define and establish The law also provides that a fiduciary the duties of the directors. Penalties who fails to discharge his or her • Financial sanctions (administrative and criminal) are levied duties in accordance with the stated on officers who fail to fulfill their duties standards is liable for any damage • Confiscation of illegally obtained or who do so inadequately. In the vast suffered by the company of which he property majority of cases, these penalties are or she is a fiduciary as a result of such applied to the general director or, where breach of duty. • Deprivation of the right to engage in the matter relates to an accounting or certain activities tax offense, the chief accountant. Finally, the law seems to introduce the concept of derivative actions into • Forced liquidation of a legal entity The management board of Azerbaijan corporate law, whereby a JSC must, in theory, provide a shareholder or participant may step While punitive measure in the form of background information relating to into the shoes of a company that the forced liquidation of a legal entity any general meeting agenda item has suffered damage as a result of may only be a primary penalty, financial within a prescribed period prior to the actions or inaction of fiduciaries and sanctions can be both primary and the meeting. However, a shareholder may demand that the latter compensate auxiliary penalties. Measures such as must request the information; and such damages to the company. confiscation and deprivation of the right
18 dentons.com to engage in certain activities can only be in Azerbaijan, which includes a strong auxiliary penalties. state sector, large industrial holdings with How Dentons can help dominant market positions and close ties Dentons has considerable Relevant amendments are also expected to the government, corruption and a rule experience conducting due to be made to the Criminal Procedural of law that is still developing, makes diligence of companies and Code and the Code of Implementation of the establishment of good corporate establishing joint ventures in Criminal Penalties. governance principles all the more Azerbaijan, including through important. Ideally, the shortcomings in the use of complex offshore Conclusion the existing rules should be addressed in structures for investment. As The existing rules of corporate the constitutive documents and internal corporate governance professionals, governance that apply in Azerbaijan regulations of such entities. Dentons can advise on effective are mandatory, and therefore they governance structures and must be followed. However, at present procedures, to provide more reliable they are not fully adequate to ensure corporate governance principles, the protection of minority shareholders compensating by contract or or the efficient operation of JSCs and through internal company rules for LLCs. The current business environment the existing inadequacies under laws of general application.
04 Banking and finance
Overview prescribed by FIMSA and, in general, Regulatory framework, The Azerbaijani banking system is may carry out all types of banking money laundering characterized by a relatively small operations stipulated by the existing number of banks, and a concentrated legislation, while non-banking credit Banking and finance market where the newly-constituted institutions are permitted to conduct The principal laws in the area of Financial Market Supervisory only certain types of such activities the establishment and operation of Authority (“FIMSA”) is now the central (for example, only banks are allowed to banks are the Law “On Banks” and regulatory body. accept deposits). the Law “On Non-Banking Credit Institutions”. The existing system of FIMSA was established in accordance Size legislation also encompasses a large with the Presidential Decree “On With only two banks still partially number of implementing regulations, the Establishment of the Financial Market owned by the state, the remaining dealing, inter alia, with issues of licensing, Supervisory Authority Public Legal Entity banks and two branches of foreign the establishment and acquisition of in Azerbaijan,” dated 3 February 2016, for banks in Azerbaijan are now privately subsidiaries, participation in other legal the purposes of the licensing, regulation owned. According to statistics current entities, corporate governance and and oversight of the securities market, as of January 2017, the total assets of requirements for managerial personnel. investment funds, insurance companies, Azerbaijani banks were about AZN 32.4 credit organizations (banks, non- billion. Money laundering banking organizations and the national According to the Azerbaijani Criminal postal operator) and payment systems, Legislation, supervision Code the following activities are crimes along with strengthening oversight and transparency associated with money laundering and over the prevention of the legalization The banking legislation is fairly well terrorism financing: of criminally obtained funds or other developed in Azerbaijan, both at the level property and the financing of terrorism. of primary laws and at the level of various 1. Financing extremism and implementing regulations. terrorist activity FIMSA has replaced the State Securities Committee, the State Azerbaijani banks provide financial 2. Money laundering or laundering other Insurance Supervision Service under reports in accordance with international unlawfully acquired property the auspices of the Ministry Finance financial reporting standards. Mandatory and the Financial Monitoring Service external audits (i.e., by independent The principal legal acts against money under the auspices of the Central Bank. auditors) have also been introduced, laundering in Azerbaijan are the following: FIMSA was established in the form of making the system more transparent, a “public legal entity,” a quasi-state which has encouraged and reassured • Civil Law Convention on Corruption, entity, for the purposes of engaging domestic and foreign investors’ dated 4 November 1999 in activities of national significance. In confidence. accordance with the latest amendments • Criminal Law Convention on to the Constitutional Law “On Normative In addition, FIMSA is moving towards Corruption, dated 27 January 1999 Legal Acts,” decisions adopted by a broader application of the Basel III the Central Bank of Azerbaijan (the CBA) standards, including the application of • United Nations Convention against and FIMSA have been included in the list leverage norms, the performance of Corruption, dated 31 October 2003 of enactments of a normative character. preparatory work for the management of short term liquidity and the improvement • European Convention on Laundering, Credit institutions are divided into banks of the internal institutional potential for Search, Seizure and Confiscation of and non-banking credit institutions. the purpose of the sustainability of banks the Proceeds from Crime, ratified Banks are subject to the licensing terms in light of financial risks. 1 March 2003
dentons.com 21 • The Criminal Code, dated Compliance supervision Mergers and acquisitions 30 December 1999 Azerbaijani law authorizes FIMSA The existing legislation of the Republic to review the financial statements, of Azerbaijan contains a number of • The Civil Code, dated accounting books, documents and provisions which envisage various 28 December 1999 other records of banks and to demand notices, approvals and permissions explanations on matters relating to that apply in Azerbaijan in connection • The Tax Code, dated the accounts and financial statements of with the proposed acquisition of 7 November 2000 the bank. a shareholding in an Azerbaijani bank.
• The Law On Combating Corruption, Deposit Insurance As a general comment, we note that dated 13 January 2004 According to the law “On Deposit the existing legislation of Azerbaijan, Insurance” (2006) all licensed banks when referring to a major shareholder, • The Law On Banks, dated which accept deposits become implies the ownership of at least 10 16 January 2000 members of the Deposit Insurance percent in the target legal entity, Fund and, as of now, 30 banks and two whether such ownership is direct or • The Law On Credit Unions, dated branches of foreign banks have become indirect. The legislation also provides 2 May 2000 members of this Fund. The Deposit a definition for a “bank holding,” which Insurance Fund insures deposits at each means a direct or indirect holding • The Law On Currency Regulation, member bank for up to 100 percent in an undertaking which represents dated 21 October 1994 of the deposit balance. (A previously 10 percent or more of the capital applicable insurance limit of AZN 30,000 or the voting rights or which makes • The Law On Combating was suspended by presidential decree it possible to exercise significant the Legalization of Illegally Obtained until 4 March 2019). influence over the management Funds and Other Property, dated of the undertaking in which 10 February 2009 According to the latest changes in the holding subsists. the law any matured obligations of The CBA also has adopted guidelines the depositor vis-à-vis the banks in which (1) FIMSA Approval for the Purchase of on “International Cooperation on eligible deposits were made will be set off Shares in a Bank Anti-Money Laundering issues for the purposes of calculating the final In accordance with the law “On and the Financing of Terrorism” payout by the Azerbaijani Deposit Banks”, the prior written consent with the participation of the FATF Insurance Fund. of FIMSA must be obtained in (Financial Action Task Force), an inter- order for any person to become governmental body, which develops Criminal liability a major shareholder of a bank in and promotes policies to combat The conduct of financial operations and Azerbaijan or to create a bank money laundering and terrorist other transactions with monetary funds holding with respect to a bank in financing. or other property which was unlawfully Azerbaijan. The consent of FIMSA acquired, as well as the use of such would also be required each time FIMSA is charged with funds or other property, can lead to any such purchase will cause the implementation of State policy criminal liability, including imprisonment the purchaser’s shareholding to on prevention of the legalization of for a period from three to 12 years, with equal or exceed the thresholds of criminally-obtained funds and other the possibility of the confiscation of 20 percent, 33 percent, 50 percent property and the financing of terrorism, property for any person who has abused and more than 50 percent of creating a system of supervision over, or exceeded the authority of his or the charter capital of a bank. inter alia, financial institutions. her office.
22 dentons.com (2) Consent of the Antimonopoly Furthermore, for the leverage ratio, all the banks may not be less than AZN 50 Authority banks must maintain the aforementioned million. Banks established prior to 1 The consent of the State Service indicator at a level not below 8.0 percent. January 2016 must also comply with for Antimonopoly Policy and The leverage ratio is calculated by the new total capital requirement, while the Protection of Consumers’ Rights dividing Tier I capital minus Tier I capital any new bank must have charter capital under the aegis of the Ministry of deductions by the sum of balance sheet in the amount AZN 50 million. Economy must be obtained, inter alia, assets and off-balance sheet liabilities. for the acquisition of more than 20 Disclosure of information percent of the shares of a bank. The components of Tier I capital are as (1) Financial Disclosure and follows: Transparency (3) Registration with FIMSA and Banks have a duty to disclose all the Ministry of Taxes • Fully paid common stock (except material information, including their In accordance with Azerbaijani law, treasury stock) financial condition, operating results all banks must be organized as open and information about ownership and joint stock companies, and all newly- • Fully paid non-cumulative perpetual management, to the main users of issued shares must be registered preferred stock information in a timely manner. (The main with FIMSA. The registration of users of information are defined as any amendment to the charter of • Capital gains from placement of existing and potential shareholders, a bank with the Ministry of Taxes common or preferred stock market participants and other interested of the Republic of Azerbaijan is persons.) also required. • Retained earnings from previous years Banks in Azerbaijan are subject to several (4) Name • Capital of minority shareholders in financial disclosure requirements set Under Article 4 of the Law “On Banks” companies where a bank is a majority forth by FIMSA, the latter’s regulations the name of a bank must contain shareholder being applicable to banks since they are the word “bank” or derivations of issuers of investment securities (stock). that word. We also note that under The components of Tier II capital are as The FIMSA rules set forth minimum the existing legislation, the name follows: disclosure requirements for banks’ annual of a subsidiary bank should contain reports, while the Central Bank’s rules a reference to the name of its • Retained earnings from current year supplement those requirements, as well parent bank. as establish a more frequent disclosure • Total reserves (up to 1.25 percent of timeline for certain types of information. Prudential norms and disclosure the risk weighted value of balance and off-balance sheet assets (after In particular, a bank must provide Capital requirements deductions), but in an amount not the main users of information with According to the Basel II capital greater than the value of “normal” the consolidated annual report of methodology FIMSA requires reserves) the bank that was prepared based the monthly reporting of capital ratios. on International Financial Reporting Minimum capital ratios are 6.0 percent • Hybrid elements of the capital, Standards and audited by the external for Tier I capital and 12.0 percent for Total except for non-cumulative perpetual auditor, along with its opinion, within capital, which is a sum of the Tier I and preferred stock no later than a five-month period Tier II capital. Tier II capital is allowed to after the end of the respective year. equal, but may not exceed, 100 percent Total capital requirements The annual financial reports of the bank of Tier I capital. As of 1 January 2016, the total capital of must be published in the mass media
dentons.com 23 or on the official website of the bank. in certain countries (territories). This of the strategic responsibilities of Additionally, information related to requirement also applies to transactions the bank on the basis of its strategic the bank’s activities and the risks that with persons included on certain lists outlook (vision), the precise allocation it faces must be disclosed at least based on the relevant UN resolutions, as of responsibilities at all levels of once a year, unless this information has well as the legislation of the Republic of the bank’s management, the suitability of materially changed, in which case such Azerbaijan and international agreements the members of the bank’s management changes must be disclosed no less to which it is a signatory. to the positions that they are holding, frequently than once every six months. the implementation of detailed internal Information about the composition and FIMSA periodically approves and control systems for the purposes of adequacy of the bank’s capital must publishes a list of high risk countries/ effective risk management, as well as be disclosed at least once per quarter jurisdictions likely participating in ensuring the effective use of internal (no later than within the first month of the legalization of illegal proceeds or and external audits for the purposes of the next quarter). other illegal property, financing terrorism, achieving transparent governance. supporting transnational crimes, as Banks may opt to disclose their well as armed separatism, extremism Further, the CBA has identified those unaudited balance sheets, profit and loss and mercenaries, the illegal circulation areas that are necessary to ensure statements and key financial ratios on of narcotic drugs or psychotropic the effective implementation of good a quarterly basis. substances, as well as a list of designated corporate governance, as follows: persons. (2) Disclosure to the Centralized Credit • Implementation of a strategic Registry Corporate Governance planning process Pursuant to the law “On Banks” The Azerbaijani corporate governance a Centralized Credit Registry (the CCR) regime applicable to banks consists • Creating an effective organizational has been established by the CBA. primarily of several provisions in the Civil structure The CCR is charged with collecting Code of the Republic of Azerbaijan the credit histories of borrowers and (the “Civil Code”), the law “On Banks” • Determination of the reporting making them available to banks. and the Rules “On the Implementation system, implementation of Information on any loans to individuals of Corporate Governance Standards in the budget planning process and legal entities must be reported Banks” (the “CBA Corporate Governance to the CCR. This information includes Rules”). The CBA also has promulgated • Ensuring that financial reporting is the amount of the loan, the purpose of a number of standards and instructions in compliance with the International the loan, the maturity date, any delays in intended to guide banks in their Financial Reporting Standards the repayment of the loan or interest and preparation for and implementation of the status of the loan. corporate governance standards. • The availability of an effective system of internal controls and risk (3) Disclosure to the Financial The CBA Corporate Governance Rules management systems Monitoring Service are aimed at the implementation of high Additionally, the law requires that corporate governance standards and • The disclosure of accurate, information about certain transactions set forth the basis for the corporate/ comprehensive and impartial be disclosed to FIMSA, including organizational structure of a local bank, information, reflecting the bank’s transactions with funds or other property its activities and corporate behavior. activities in a timely manner associated with, as well as individuals or legal entities registered in, or having The rules in question define corporate • The availability and development of residency, a permanent business or governance as a method of prudential reliable management information a bank account in, banks registered governance that ensures the identification systems that provide a systematic flow
24 dentons.com
of extensive and clear information discharge his/her duties: (i) in good faith • Cast a vote only based on his/ about the current financial state of and (ii) in a professional, reasonable her personal judgment and beliefs the bank and its operations manner and with due care and (iii) for the purposes of defending must remain loyal to the interests of the bank’s interests. • The creation of an internal auditing the company and its shareholders/ structure that constantly enhances participants and place the interests • When casting their votes or adopting the productivity of and improves and of the company before his/her decisions, not uphold the interests strengthens internal controls own interests. of one shareholder/group of shareholders over the others, nor be • The determination of internal auditing Members of the Management Board influenced by them, as well as not policies and strategies or the Supervisory Board may not adopt any decisions that are contrary delegate their fiduciary duties to to the bank’s interests or undertake • The full and timely disclosure of other administrators. long-term risks for short-term gains. direct and indirect interests that may create conflicts of interest for Additionally, each member of • Defend the legitimate interests the bank for the purposes of avoiding the Supervisory Board must: of the bank, not publicly such conflicts criticize the other members of • Be well informed about the financial the Supervisory Board or members of • Ensuring that administrators place affairs of the bank by regularly and the Management Board. the interests of the bank above their independently analyzing the reports personal interests of the Management Board and other • Not let his/her business activities committees of the bank. affect the bank. • Taking measures to prevent any damage to the reputation of the bank or • Be up-to-date about the developments • Keep confidential any information the deterioration of its financial position and trends in banking and other related to the bank, persons related by virtue of persons related to the bank financial markets. to the bank, bank customers and other people with which the bank has • Ensuring the compliance of bank • Review all official correspondence business dealings that are obtained activities with the relevant legal acts between the internal and external in his/her capacity as a member of auditors of the banks. the Supervisory Board, except where Fiduciary duties disclosure is mandated by the law. Each member of a bank’s Management • Be logical, careful and conservative in Board and Supervisory Board must his/her analysis and voting. • Discuss problems related to
26 dentons.com the internal controls, financial The responsibilities of the members of Disposition of an Insolvent Bank results and the implementation of the Supervisory Board go beyond the mere A new section was introduced to the Law the strategic plan of the bank with acceptance of reports on progress, “On Banks”, entitled “Disposition of an the relevant officers of the bank. opinions and/or recommendations from Insolvent Bank”, which deals with various the members of the Management Board matters related to the appointment of • Ensure the independence of or other administrators of the bank. They a temporary administrator by FIMSA for the Audit Committee. should be ready to question and object an initial period of nine months, which to these for the benefit of the bank and could be extended for a further three • Not interfere with the activities of the depositors, despite positions taken by months. This section sets forth in detail the internal auditors, but rather the shareholders and other members of events that would warrant the appointment provide a recommendation to the Supervisory Board. of a temporary administrator by FIMSA, the Audit Committee in relation to the principles under which the temporary the main directions of the internal Potential liability of bank administrator would manage the insolvent audit plan and make sure that administrators bank and the powers of the administrator, the internal audit department is Further to latest amendments to as well as the possible outcomes for subordinated to the Audit Committee. the Law “On Banks”, the liquidator troubled banks. These include the following: now has the authority to investigate • Ensure that the necessary information the circumstances that led to the bank’s • merger of an insolvent bank into and documents related to the bank and liquidation and to inform the relevant a healthy bank; persons related to the bank are provided authorities of the results of its to the internal auditor to be reviewed investigation, including the names of • transfer of assets and liabilities of an and that the latter has an opportunity to any potential suspects, as well as to insolvent bank (fully or partially) to an meet relevant employees. apply to courts on behalf of the bank, acquiring bank; presumably for the purposes seeking • Assess at least once a year compensation for damages suffered by • establishment of a bridge bank, the professional skills of each member the bank. The language of the relevant the transfer of healthy assets and of the Management Board and their provisions of the law is rather broad liabilities of an insolvent bank (fully contributions toward the profitability and could be interpreted to include or partially) to the bridge bank, and of the bank, that it is in a stable bank administrators (members of the sale of the bridge bank to investors; financial state, the timely achievement the management and supervisory of the strategic goals, as well as boards of the bank, heads of its • sale of an insolvent bank to investors; the suitability of the Management branches, etc.) and possibly even Board members to their positions. shareholders of the bank. • liquidation of an insolvent bank.
dentons.com 27 Voluntary debt restructuring • to suspend the performance of Conflicts of interest of bank obligations sale and purchase agreements, Each member of the Supervisory Another important novelty is a previously exchange and gift agreements, or Board, the Audit Committee and unavailable framework that would any other agreements providing for the Management Board, as well allow banks to force a voluntary debt the disposal of any assets of the bank, as the members of their families, restructuring of the bank’s obligations and to suspend the conclusion of must disclose any significant vis-à-vis its creditors, except for claims agreements creating any risks for commercial interests that they of depositors that are eligible for the bank, including, loan, credit and might have to the Supervisory Board deposit insurance. guarantee agreements or agreements and the Management Board upon providing any kind of financing; becoming a member of a bank’s According to the latest amendments, management body and afterwards the process of voluntary debt • to suspend, in full or in part, in accordance with the internal restructuring begins with a resolution the performance of the obligations procedures of the bank. of the Supervisory Board of the bank if that are subject to restructuring. the bank is unable to comply, or there In cases where a matter related is a risk of the inability on the part of The above-mentioned restrictions would to interests of the members of the bank to comply, with the demands of apply for 180 calendar days, a term that the Supervisory Board, the Audit its creditors due to the absence or lack of could be extended for up to 90 calendar Committee, the Management Board funds or the impossibility to use funds for days upon application of the bank, as or a member of any other committee other reasons. FIMSA will then have up to acknowledged by FIMSA. or working group of the bank, as well 20 calendar days to review the resolution as to employees of the internal audit of the Supervisory Board and to enter The bank would be able to introduce department, is up for discussion, such into a written agreement with the bank. changes to the draft restructuring plan member or employee must disclose in the course of the voluntary debt his/her interests before the discussions The bank then would prepare a draft restructuring of the bank’s obligations, begin, he/she must also withdraw from restructuring plan to be submitted in which case such amendments such discussions and not participate to FIMSA for its approval, after which must be submitted to the Regulator in decision-making. The presence the bank would file an application for approval 30 calendar days prior of such member or employee may with a court asking for approval of to the creditors’ meeting. Once not be counted towards establishing the commencement of the voluntary approved by the Regulator, the final the applicable quorum. restructuring of the bank’s obligations. draft of the restructuring plan would be The bank would be required to publish presented for creditors’ approval during Members of the Supervisory notices in the local and international a creditors’ meeting. The restructuring Board, the Audit Committee, and press about the court decision, as well plan would be approved by creditors the Management Board must disclose as inform its creditors of the obligations holding at least two-thirds of the total any transaction with shares of which are subject to restructuring. bank obligations which are subject the bank to which they are a party in to restructuring, and will be binding the mass media. From the effective date of the court for all creditors, claims of which have decision on the voluntary restructuring been included into the restructuring of the bank’s obligations, the bank plan. Once approved by the creditors, would be entitled: the restructuring plan would be presented to the court for final approval.
28 dentons.com How Dentons can help
In the banking and finance sector, Dentons is an acknowledged leader In addition to our vast knowledge Dentons combines its long experience in Azerbaijan in the provision of and experience in the field of and in-depth knowledge of domestic banking and finance advice. We conventional banking, we are also legislation with international banking have acted as general counsel well situated to advise clients on and financial sector experience for the major foreign banks matters related to Islamic banking in London, Frankfurt, Paris, New operating in Azerbaijan, as well and finance, including a review and York and Hong Kong, among other as micro-finance banks and other comment on contractual documents jurisdictions. This enables the Firm to financial institutions. Our office and advice on specific products. devise appropriate solutions for clients, is experienced in trade finance, selecting from local law financial project finance and lease finance, structures and the most suitable as well as Islamic finance and offshore law mechanisms, in addition capital markets work, including to issuing legal opinions under English, the first successful Eurobond New York, German and French law, listing by an Azerbaijani as well as under Azerbaijani law. financial institution.
dentons.com 29
05 Investment funds
Introduction the scope of this law, contributing to an the Investment Funds and the Investment Except for activities conducted by increasingly confusing status of SOFAZ, Fund Managers maintained by the FIMSA the State Oil Fund of Azerbaijan (SOFAZ), its assets and its activities. (the “Registry”). investment fund activity has been almost non-existent in Azerbaijan, even though The law also provides for (a) JSIF Management: The Investment the pervious Law “On Investment Funds”, the promulgation of a number of rules Funds Law sets forth a number of dated 30 November 1999, had been in and regulations primarily by FIMSA, some deviations from the general provisions force for many years. of which have already been adopted by related to the management of joint the previous regulator, the former State stock companies contained in Investment funds law Securities Committee. the Civil Code. For instance, a JSIF The cornerstone of the legislation on must have a supervisory board regulating the activities of investment Investment funds defined consisting of at least three directors, funds is the current law “On Investment An investment fund is defined as regardless of the number of its Funds”, dated 22 October 2010 a financial institution established in shareholders. Also, the law requires (the “Investment Funds Law”). This law the form of (i) a joint stock investment that at least one of the JSIF directors repealed the previous 1999 law. fund or (ii) a mutual investment fund, be an independent director. created for the purpose of generating The Investment Funds Law is fairly profit by making investments using There is also an additional notification detailed and sets forth provisions the capital it has raised in accordance requirement, to the SSC, regarding regulating a wide array of subjects, with an investment declaration. the convocation of a forthcoming such as the establishment, licensing general meeting of shareholders of and management of investment (i) Joint Stock Investment Fund. the JSIF. funds; the issuance, placement and A Joint Stock Investment Fund (“JSIF”) redemption of shares in investment is an open joint stock company Other matters related to JSIF funds; the composition and value having a license to engage in management are governed by of the assets of investment funds; the activities of a JSIF, and the sole the relevant provisions contained the requirements for fund managers; activity of which consists of investing in the Civil Code, to the extent not the procedure that applies to funds raised by the placement of amended by, or in contradiction to, the acquisition of a major shareholding; its common stock in securities and the Investment Funds Law. marketing activities for investment other property, including real estate, funds; the reorganization, liquidation for the purposes of gaining profit and (b) Issuance of Shares. In addition and bankruptcy of investment funds; in accordance with an investment to adhering to the general list and state supervision over the activities declaration. prescribed by the joint stock company of investment funds. provisions of the Civil Code, any A JSIF must have at least three issuance of shares by a JSIF must The Investment Funds Law does shareholders, and its charter capital must be accompanied by two additional not apply to legal entities created be at least AZN 500,000. categories of documents (i) copies by the State for the purposes of of the agreements with the manager the fulfillment of state investment A JSIF may not engage in any other and the depository of the fund, and policy or to entities created by such business activity or establish any (ii) both full and summary versions of legal entities. It appears from this subsidiaries, nor may it issue any the investment declaration. The JSIF section of the law that SOFAZ, which securities other than common bearer may issue shares of common stock was arguably created for the purposes stock. A JSIF must obtain the relevant only after it has obtained the relevant of the fulfillment of State investment license for such activity from the FIMSA license from FIMSA. The shareholders’ policy, is expressly exempted from and must register with the Registry of registry of the JSIF is maintained
dentons.com 31 by a central depositary, while (c) Closed-ended Mutual Investment for the obligations of their participants, transactions in relation to them are Fund. A Closed-ended Mutual the creditors of which may direct their concluded via investment companies. Investment Fund (“CMIF”) is claims only against the shares actually a mutual investment fund which owned by such participants in the MIF. (ii) Mutual Investment Fund. sells and redeems its shares upon A Mutual Investment Fund (“MIF”) the expiration of the term for which Investment fund manager is a professionally managed such CMIF was created. The assets Only a legal entity organized under pool of funds which is owned by of a CMIF may consist of money, the laws of Azerbaijan with asset the participants in the MIF under securities and real estate. management provided as the sole a right of common property. MIFs do category of activity stated in its charter, not have the status of legal entity; Shares in an MIF are denominated in holding the relevant license and having thus, they avoid the Azerbaijani Azerbaijani Manats (AZN), must be paid at least AZN 125,000 of charter capital corporate profit tax. MIFs are created for in cash and have no nominal value. may be an Investment Fund Manager. by a decision of the investment The calculation of their value must be An investment fund may have only fund manager. An MIF is considered in accordance with the relevant rules. one investment fund manager at formed when it has raised Shares in MIFs may not serve as an asset a time, unless some assets of such an the minimum capital required by base for the issuance of derivatives investment fund are located outside of FIMSA (AZN 500,000) or set forth and they may be offered to potential Azerbaijan. A foreign investment fund in the management rules, whichever participants only after the Management manager may be appointed only with is higher. Rules of the MIF have been duly the consent of FIMSA. registered and published in accordance MIFs must be registered with with the law. Investment fund managers manage the Registry, which takes place upon investment funds (JSIFs and MIFs) the registration of the Management An investment fund manager may issue for the benefit of the shareholders/ Rules of the MIF with FIMSA. an unlimited number of shares in OMIFs participants of such funds, based and IMIFs, while the number of shares in on a management contract and in There can be three forms of MIFs: a CMIF is limited to the figure set forth accordance with the Management (a) open-ended, (b) interval and in its Management Rules. The sale and Rules. There are also a number of (c) closed-ended: redemption of the placed IMIF and CMIF requirements set forth in the law, shares must be concluded through which the officials of investment fund (a) Open-ended Mutual Investment Fund. the stock exchange, while shares in managers must satisfy (e.g., the absence An Open-ended Mutual Investment OMIFs are placed by the investment fund of a conviction involving a crime against Find (“OMIF”) is a mutual investment manager for not less than their value as property, economic crimes or especially fund which sells and redeems its of the date of the sale. grave crimes). shares at least once per week, and the assets of which consist of money All participants in an MIF enjoy equal Licensing and securities. rights, and no single participant The review of an application for the issue may own more than 50 percent of of the applicable license to JSIFs or (b) Interval Mutual Investment Fund. the shares in an MIF. MIF participants MIFs is conducted in two stages – initial An Interval Mutual Investment Fund are not liable for the obligations and final. Upon completion of an initial (“IMIF”) is a mutual investment of the MIF, and losses incurred as review, FIMSA issues a document, which, fund which sells and redeems its a result of a change in the market together with other documents, must shares at least once per year and value of the MIF’s assets are limited be submitted to the Ministry of Taxes for the assets of which consist of money by their respective contributions to the state registration of a JSIF or an MIF. and securities. the MIF. Likewise, MIFs are not liable The licenses are not limited by time.
32 dentons.com Foreign investment funds’ or fund offshore jurisdictions (the list is to be the securities market provide investors managers’ representative offices may determined by FIMSA). with a separate risk statement and conduct their activities upon receipt have them countersign the statement. of the written consent of the SSC. Reporting, disclosure If the investment fund manager or The law defines a representative office and marketing the underwriter fail to do so, they may be as a subdivision of an investment fund or Investment funds must prepare financial liable to the investors for any losses from fund manager located somewhere other reports in accordance with international such investment. than at the location the investment fund financial reporting standards (IFRS), and or fund manager, the activities of which an independent auditor must approve Bankruptcy are limited to representing the interests such reports. Such independent auditor Unlike the law “On Banks”, which sets out of the investment fund or fund manager must comply with the standards set its own bankruptcy rules, the Investment and protecting such interests. forth by the regulator of the auditor’s Funds Law refers to the provisions of profession, as well as those of the FIMSA. the law “On Insolvency and Bankruptcy” JSIF acquisitions for issues pertaining to the bankruptcy of Along with the general requirements JSIFs and MIFs must disclose certain a JSIF to the extent not covered by, or in contained in various other acts of information to investors in the offices contradiction to, those of the law. legislation (e.g., antimonopoly consent), where such JSIF or MIF accepts orders the prior written consent of the SSC for the sale and redemption of their must be obtained for the acquisition shares. The minimum scope of such (whether directly or indirectly) of a major information is set forth in the law. The law shareholding in a JSIF (i.e., 10 percent). also requires that the Management Rules How Dentons can help Further, such consent would also be be posted on the official website of Dentons is well equipped to advise required each time a purchase will cause the investment fund manager. on any transactions related to the purchaser’s shareholding to equal the establishment and marketing or exceed the thresholds of 20 percent, The law requires that the advertising of of investment funds, as well as 33 percent or 50 percent, subject to the investment fund manager and of investments and other operations the condition that that no person may JSIF’s must not be inaccurate, misleading, involving such funds. own more than 50 percent of the charter or in contradiction to the investment capital of a JSIF. declaration. Importantly, the law introduces the concept of “material Unlike the acquisition of a major information,” which is necessary for shareholding in a bank or an insurance making a decision by an investor and company, where the relevant regulator requires the disclosure of such material is deemed to have consented to information together with the risks such acquisition if it fails to object associated with the investment. within a certain period of time, no such provision is provided regarding All advertising and sales materials must the FIMSA consent, which may be submitted to FIMSA, which, upon potentially cause significant delays in discovery of any illegal content, shall closing acquisitions of JSIFs. order that the dissemination of such materials cease. Additionally, there are restrictions related to legal entities and/or their founders, Additionally, the law goes so far as the major shareholders or beneficiaries to require that the investment fund of which are incorporated in certain manager or professional participants in
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06 Secured transactions
Overview In Azerbaijan, any security interest the provisions of the Civil Code prevail. Generally, a secured transaction is must be enforced by means of a public The fact that the Civil Code has an entire a loan or a credit transaction in which auction, except in the event that chapter related to secured transactions, the lender acquires a security interest in the collateral is money or a monetary including mortgages, supports the view collateral owned by the obligor or a third- value. This requirement is arguably that the Law “on Mortgages” contains party security provider, entitling it to premised on the perception that a public civil law provisions. Therefore, in foreclose on the collateral in the event auction is a transparent procedure that the event of a conflict between the two, of the obligor’s default. The terms provides greater assurance of obtaining the Civil Code will prevail with respect of the relationship are governed by the best market price for the collateral, to relations arising on or after 17 January a security agreement. by requiring that the highest bidder win 2011, the effective date of the current Law the auction. However, the fact that, in “On Normative Legal Acts.” Secured transactions in post- practice, auction prices in Azerbaijan independent Azerbaijan have become rarely exceed the established starting The foregoing, coupled with the pace an important part of the law and price supports the view that participation with which new laws, regulations and the economy of the country, as in public auctions is dominated legal structures were introduced, the State housing fund was privatized by interested parties and property created a rather inconsistent and and the overall volume of lending speculators, who are unlikely to bid complex body of the law of secured has dramatically increased. Allowing higher than the total amount of secured transactions in Azerbaijan. This lenders to create a security interest obligations, plus related expenses. deficiency is compounded by the fact in collateral owned by an obligor or that further amendments are expected a third-party security provider, coupled The law of secured transactions to be introduced as the Azerbaijani with a centralized registry of rights The legislation on secured transactions in Cabinet of Ministers is charged with over immovable property and relatively Azerbaijan consists mainly of one chapter suggesting amendments to those pieces effective enforcement mechanisms, have in the Civil Code (2000), the law “On of legislation, the provisions of which provided lenders with greater remedies Mortgages” (2005) and numerous rules conflict with provisions of the Civil Code in case of a default by the obligor. on the perfection of various types of to align them with the latter. security interest. Azerbaijani law regards security Types of security interest agreements as legal devices by which In Azerbaijan, in principle, laws and codes There are five major types of proprietary a pledgor (borrower) pledges to a pledgee are of equal legal force. Previously, in security interests in Azerbaijan: (lender) assets and/or rights that it owns the event of conflicts between two laws (i) the pledge of assets (including in in order to secure the performance of of equal status, the law adopted later a pawnshop); (ii) the pledge of rights; (iii) an obligation. In Azerbaijan, a security in time prevailed. However, the current the pledge of cash; (iv) the pledge over agreement is a written document which Constitutional Law “On Normative Legal assets in circulation (a floating charge); is an accessory to a loan agreement (or Acts”, dated 21 December 2010, has and (v) the mortgage (hypothec). any other agreement, the obligations changed the analysis. The current law under which are secured by such security applies a different test to determine (i) Pledge of assets agreement.) Agreements creating which provision prevails in the event of A pledge of assets is one of the most a security interest over certain assets contradictory enactments and is much widely provided security interests in and/or rights are required to be notarized more complex than the respective Azerbaijan. This may be explained by and/or publicly registered. As a rule, provisions of the old law. It states the fact that the creation of this type the pledgor retains the legal title to, and is that in the event of conflicts between of security requires fewer formalities. entitled to occupy and/or use, the assets the provisions of the Civil Code and Depending on the agreement between and/or rights, unless and until the pledgor the provisions of other codes and laws the parties, a pledge of assets may or fails to perform the secured obligations. which contain civil law provisions, may not be possessory. In Azerbaijan only
dentons.com 35 non-registrable assets can be subject to that the security interest is terminated a notary. Although the pledgor retains a pledge of assets (for registrable assets upon such sale of the pledged asset, the title to the cash, the pledgor is please see below the section related even if the proceeds of the sale are not entitled to use it. Unless agreed to mortgages (hypothec)). This pledge insufficient to satisfy the secured otherwise, any interest accrued on such is perfected by entering into a written obligations. To mitigate this risk, cash deposited with a bank is owned by security agreement signed by both pawnshops usually require a greater loan- the pledgor. Such pledge is perfected parties and the delivery of the pledged to-collateral ratio. by entering into a written pledge of cash asset into the possession of the pledgee, agreement, to which the bank where if so provided by the security agreement. (ii) Pledge of rights the cash is deposited must be a party. A pledge of rights is generally a form of The pledgee must enforce the security non-possessory security. In other words, The pledge of cash is enforced by interest through an open auction of the pledgor retains the title to, and the pledgee’s recovering possession of the pledged assets. The proceeds of may exercise, the rights so pledged. An the collateral. such sale must be distributed as follows: exception is when the pledged rights are (i) costs of the enforcement and auction evidenced by a documented security, (iv) Pledge of assets in circulation sale; (ii) discharge of secured obligations; in which case such security must be (floating charge) and (iii) remaining proceeds, if any, to delivered into the pledgor’s possession or A pledge over assets in circulation the pledgor. The security interest is deposited with a bank or a notary public, (a floating charge) is a non-possessory terminated upon the sale of the pledged unless the parties agree otherwise. security interest over a certain category assets, and—in the event that of the pledgor’s assets without attaching the proceeds of the sale do not satisfy In Azerbaijan only alienable rights to any asset in particular, and, thus, the secured obligations—the pledgor is may be pledged, i.e., rights that are allowing the charge to float until an liable to the pledgee for the difference. attached to the person of the pledgor event of default occurs. This provides may not be pledged (e.g., bodily injury the pledgor the freedom to deal with Pledge of assets in a pawnshop claims, alimony). The pledge of rights or dispose of the assets, and any A pledge of assets in a pawnshop is is perfected by notifying the obligor subsequent holder of such assets takes a form of possessory security, and under the pledged rights. Registration them free of any security interest. Only accordingly, the pledged assets of the pledge of rights is also required non-registrable movable property may (usually personal property) must be in cases where the pledged rights are be the subject of a floating charge (e.g., physically delivered to the custody themselves registrable. goods, raw materials, etc.) of the beneficiary of the pledge (the pledgee). In Azerbaijan, such In the event of a default of the secured The floating charge is perfected by a pledgee must be a licensed obligations, the pledgee must sell entering into a written pledge agreement. organization professionally engaged the pledged rights through an open in this type of business. This pledge auction. The purchaser of the pledged (v) Mortgage (Hypothec) is perfected by the pledgor providing rights takes them free of any security In Azerbaijan, a security interest over the pledgee with the pledge receipt interest and, in the event that immovable property, as well as over (ticket). the proceeds of the sale do not satisfy registrable movable property, is called the secured obligations, the pledgor a mortgage (or hypothec); a mortgage The pledgee has no power of sale in must compensate the difference. is created by entering into a notarized the event of a default on the secured and publicly registered agreement obligations. Instead, the pledgee must (iii) Pledge of cash or by issuing a security (a mortgage enforce the security interest through Under a pledge of cash agreement, certificate). A person mortgaging an an open auction of the pledged asset. a pledgor must deposit cash into asset in favor of the beneficiary of The difference in this type of security is a deposit account with a bank or the mortgage retains the legal title
36 dentons.com to, and is entitled to occupy and use, Extrajudicial enforcement also requires the mortgaged asset. compliance with the prescribed How Dentons can help statutory steps, including a possible Dentons is very experienced in all There are three possible ways to enforce appeal of the extrajudicial enforcement aspects of secured lending and a mortgage – enforcement through by the mortgagor in court. Therefore, the enforcement of pledges and a court proceeding (judicial enforcement), the most important advantage mortgages in Azerbaijan, including by a notary writ (extrajudicial of this method, i.e., avoidance of the drafting and negotiation enforcement) or through an open market the involvement of local courts, can of security documentation, sale. The purchaser of the collateral takes easily be eliminated by such appeal. In the registration of mortgages, it free of the mortgage, and, in the event Azerbaijan, extrajudicial enforcement the enforcement of security there is any unsatisfied secured obligation, requires a sale by public auction interests and court proceedings in the mortgagor must compensate and the statutory distribution of respect of secured transactions. the difference. the proceeds.
Judicial enforcement Open Market Sale Judicial enforcement is available for Azerbaijani law provides for party a mortgagee, irrespective of the specific autonomy with regard to the method method of enforcement that the parties of sale, e.g., in a manner other than have agreed in the mortgage agreement. a sale by public auction. However, in It is also the only manner by which to this case, the mortgagee is allowed enforce a mortgage in cases where to participate in the sale and acquire the residence of a mortgagor is unknown. the collateral only after the initial sale is unsuccessful. Judicial enforcement entails numerous statutory steps and formalities, each An obvious advantage of an open of which has its own content, filing market sale over a forced sale is its and timing requirements. Its main expediency, which allows both parties disadvantages are: (i) it is a lengthy and to save time and money on legal costs, costly process (taking up to two years); auction fees and accrued interest. (ii) it involves a sale by public auction Additionally, a sale through a property under the supervision of bailiffs; and broker and with the cooperation (iii) it requires a statutory distribution of of the mortgagor may potentially the proceeds. Despite the foregoing, yield a higher price for the property, judicial enforcement is the only thereby serving the best interests of approach which ensures completion of both parties. Given that this option the enforcement without interruption. is largely premised on cooperation from the mortgagor, it is reasonable to Extrajudicial enforcement expect that the mortgagor will vacate If the mortgage agreement contains the premises of the foreclosed property an extrajudicial enforcement clause, voluntarily, eliminating the need for or if the mortgage was formalized by a forced eviction. Finally, an open the issuance of a mortgage certificate, market sale avoids the involvement the mortgagee may also proceed of local courts and bailiffs, and, thus, with an extrajudicial enforcement of avoids the costs associated with court the mortgage. proceedings and enforcement.
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07 Taxation and social security (Outside the oil and gas sector)
Introduction – Taxes in Azerbaijan a progressive basis with two tax bands, Loss relief The Tax Code (2000) prohibits 14 percent and 25 percent (the top rate Losses may be carried forward for the imposition of taxes that are not applying to monthly income over AZN five years. specified by the Code. The following 2,500). In addition, the employee is taxes are specified: also subject to a three percent social Depreciation and amortization security contribution (the employer pays Certain categories of assets are not • Personal income tax 22 percent.) Most foreign employees depreciable for tax purposes. These • Corporate (profits) tax working in Azerbaijan in the non-oil include land; fine art; buildings or • Value Added Tax (VAT) sector will be subject to social security structures of historical or architectural • Excise tax payments, but they should check to see value; stud animals; libraries, film stock • Assets tax whether a social security treaty exists and fixed assets kept in a warehouse that • Land tax with their home countries, as such have not been put into operation. • Road tax treaties might provide an exemption. • Mineral resources tax Short-life assets (i.e., assets with a life of • Simplified tax Income taxes are withheld by employers less than one year) are written off and and must be paid by the 20th of not depreciated. Social security contributions are the month following the month not defined as a “tax” but are, for of payment. Depreciable fixed assets (i.e., assets convenience, also dealt with briefly with a useful life of more than one year) below. Corporate profits tax are divided into seven classes or pools, A resident enterprise pays corporate including: Income tax and social security profits tax on worldwide income. A non- Both resident and non-resident physical resident enterprise carrying on business • Buildings and structures – up persons may be payers of income tax. in Azerbaijan through a permanent to 7 percent p.a. on a reducing A person is “resident” in any calendar establishment is liable for tax on profit balance basis year (which is also the tax year) if he or gained from such activity. In addition to she is in Azerbaijan for an aggregate profits tax, the permanent establishment • Machinery and equipment – up of more than 182 days during that year. will pay a 10 percent branch withholding to 20 percent p.a. on a reducing Residents are subject to income tax tax on all remittances of net profit made balance basis on worldwide income, whether or not abroad. The rate of profits tax is 20 received in Azerbaijan (there are certain percent. • Computing devices which is exceptions for foreign workers in the oil a product of high technologies – up industry). Foreign employees working Deductible expenses to 25 percent p.a. on a reducing for non-governmental organizations All expenses connected with the earning balance basis engaged in implementing US assistance of income are deductible for tax programs are generally exempt from purposes unless otherwise specifically • [Motor] vehicles – up to 25 percent Azerbaijani income tax (and social stated. Non-deductible expenses include p.a. on a reducing balance basis security contributions). The taxable business trip expenses exceeding income of a non-resident is limited to the norms established by the Cabinet • Geological exploration costs and income from sources in Azerbaijan. of Ministers, costs (including transport development costs preparatory to costs) incurred in obtaining and installing the extraction of natural resources Certain types of income are not subject fixed assets and other costs of a capital (including the cost of acquiring to income tax, e.g., reimbursement of nature, benefits provided to employees the right to explore, develop or exploit business trip expenses, housing and that are not taxable as income of natural resources) – up to 25 percent food benefits. Income tax is assessed on the employee, etc. p.a. on a reducing balance basis
dentons.com 39 • Intangible assets with a life of more sold and the proceeds are reinvested tax of 14 percent. No tax is withheld from than one year – depreciated over in an asset of the same or similar payments to Azerbaijani companies. the useful life of the asset or, where nature before the end of the second the useful life cannot be determined, year following the year in which Royalties paid to an individual by at up to 10 percent p.a. on a reducing the liquidation or sale took place an Azerbaijan-resident company balance basis or the permanent establishment in Withholding taxes Azerbaijan of a non-resident is subject Depreciation is calculated in respect Dividends paid by an Azerbaijan resident to a withholding tax at source of 14 of each class of assets, although enterprise are subject to a 10 percent percent. A “royalty” is basically defined each building/structure is regarded as withholding tax at the source. This is as a payment received for the right a separate class. However, if the asset a final tax (i.e., individuals and Azerbaijan to use (or assignment of) literary, is sold at a profit over its residual value, legal entities are not subject to further artistic or scientific works, software, the difference is added to taxable income tax on dividend income). cinematographic films and other non- and if sold at less than residual value, material assets, patents, trademarks, the difference is deducted from income Interest paid by an Azerbaijan resident or designs or models, plans, know-how (i.e., the difference does not reduce or the permanent establishment of a non- and processes, information concerning increase the pooled category). Where resident is subject to a withholding tax industrial, commercial or scientific the residual value of a fixed asset at at the source of 10 percent. Withholding experience; or the right to use (or the end of the year is less than 500 AZN tax is not applied to interest paid to assignment of) industrial, commercial or or less than five percent of the initial Azerbaijan banks or financial leasing scientific equipment. value, the residual value is deducted organizations or to the Azerbaijan from income. permanent establishments of non- See the Appendix for the withholding resident banks or financial leasing tax rates on payments to residents The taxpayer may choose not to take all organizations. The withholding tax is and non-residents. the depreciation to which he or she is a final tax for individuals. In the case of entitled. The taxpayer may apply a lower companies, the tax withheld is creditable Profits tax returns rate of depreciation and carry forward against the final profits tax liability. The following businesses must file tax to the next or later years the amount of returns by 31 March following the end of forgone depreciation. A three-year tax holiday (starting from the calendar (i.e., fiscal) year: 1 February 2016) applies to annual Taxes on capital gains interest income of physical persons Resident enterprises No special regime exists for the taxation from deposits in Azerbaijani banks and of capital gains, the gains of enterprises Azerbaijani branches of foreign banks • Non-residents with Azerbaijan source being taxed at the ordinary profits tax operating in Azerbaijan. The same tax income who have not been taxed at rate. No gain or loss arises if: relief applies to dividends payable the source by issuers in respect of investment a) Assets are transferred securities, discounts (differences • Non-resident enterprises with between spouses resulting from the placement of bonds at permanent establishments in prices lower than the nominal amount) Azerbaijan and tax agents appointed b) Assets are transferred between and interest income. by such non-resident entities former spouses as part of a divorce settlement In general, income from the lease of • Private notaries, individuals who movable or immovable property paid by have received income not taxed at c) Assets are unintentionally or an Azerbaijan-resident company to an the source of payment, or resident involuntarily destroyed, liquidated or individual is subject to a final withholding individuals receiving income
40 dentons.com outside the borders of the Republic basis is used throughout the fiscal year. taxpayers without activity in the previous of Azerbaijan, including income Any change of accounting method year are calculated on a cumulative from royalties. must be accompanied by appropriate quarterly basis in accordance with adjustments to accounting entries to the tax rate for the year. Advance The cessation of business or closure ensure no income falls out of tax or is tax payments must not be less than of a permanent establishment of taxed twice. Where the cash basis has 75 percent of the profits tax due. a non-resident, or the liquidation of been chosen, rent and interest expenses The tax authorities must be advised of an Azerbaijan enterprise, requires are, nevertheless, accounted for on an the payment within 15 days of the end of the liquidation commission to file accruals basis. the relevant quarter. a final tax return within 30 days of the date determined for closure, Where accounting records, etc., are Taxpayers must pay over any balance of covering the period from the beginning either not available or not sufficient taxes before the due date for filing the tax of the year up to the date of to permit the tax authorities to return (for legal entities and permanent closure/cessation. establish income, the tax authorities establishments, 31 March of the year may resort to information relating to following the relevant fiscal year). Upon The taxpayer may apply for a three- analogous taxpayers. request, profits tax returns may be deferred month extension of the date for filing by up to three months if taxes due have a profits tax return if the application is In some cases (e.g., certain related- been paid. made before the due date and all taxes party transactions,) market value may due have been paid. If these conditions be substituted by the tax authorities for Profits tax (and other taxes) which has are fulfilled, the extension is automatically the actual price. been overpaid may be netted off against given though, for the purposes of other taxes due. Although in theory taxes calculating late payment interest etc., Payment of corporate profits tax overpaid may be refunded, this is highly the extension will have no effect. Companies must pay in advance, within unlikely in practice. 15 days of the end of each calendar Tax accounting quarter, 25 percent of the tax paid in Value Added Tax The taxpayer is at liberty to choose the previous year. As an alternative, VAT is generally charged on businesses the accounting method appropriate the taxpayer may opt to apply to operating in Azerbaijan. The Tax Code to the form of business, making the current quarter’s gross income refers to three specific categories of adjustments to taxable profit in the ratio of tax to gross income in transaction (or supply): exempt (e.g., accordance with the provisions of the Tax the previous year. financial services), taxable but zero-rated Code. Accounting may be on a cash or (e.g., exports), and taxable at the full accruals basis, provided that the same Advance profits tax payments for rate. For ease, a reference in this chapter
dentons.com 41 to “input” VAT is a reference to VAT on regard to turnover subject to VAT as “purchases” while a reference to “output” a proportion of total turnover. How Dentons can help VAT is a reference to VAT on “sales.” Dentons is an acknowledged leader VAT returns must be filed on a monthly in Azerbaijan in the provision of Imported goods are taxable supplies basis by the 20th of the following month. tax services. Dentons has assisted unless specifically exempted. companies in all aspects relating to The contribution of assets (except for Simplified tax tax matters, including: imported assets) to the share capital of Small businesses and sole traders not an enterprise is an exempt supply. liable for VAT registration and certain • Defending taxpayers in other categories of taxpayers (e.g., the courts – Dentons has Imported services are generally subject persons involved in construction successfully defended taxpayers to a VAT reverse charge. The buyer of activities or persons involved in trading against claims made by the service is treated as a tax agent and and/or catering activity with a turnover the tax authorities. will calculate and pay VAT on the payment over consecutive 12 months exceeding to the non-resident service provider. AZN 200,000) may become payers of • Operating payrolls, filing tax and The payment order confirming the transfer simplified tax. Payers of simplified tax do social security reports of the VAT due to the tax authorities is not pay VAT or profits tax (or, in the case treated as a VAT invoice, giving the tax of sole traders, income tax on income • Planning tax strategies agent the right to a VAT credit. from entrepreneurial activity). • Conducting comprehensive The obligatory VAT registration threshold Certain businesses, e.g., persons involved in tax reviews to ensure taxes are is turnover exceeding AZN 200,000 the transportation of cargo and passengers being properly accounted for in any 12-month period. Output VAT (except for international transportation), is accounted for using the accrual operators and sellers of sports betting • Preparing calendars of tax method, but input VAT is accounted on games, and owners of residential or non- payments due a cash basis. residential areas selling their properties (with certain exceptions) are payers of • Assisting with tax-only Input VAT is generally creditable against simplified tax irrespective of their turnover. registration output VAT. Input VAT is only creditable where payment is made other than Oil and gas industry • Interviewing prospective in cash and tax is paid using a VAT Various exploration, development and accounting staff; choosing ‘deposit’ account. In addition to some production sharing agreements and the right people is important VAT exemptions (e.g., the provision of pipeline agreements provide a special to any organization; however, financial services) the supply of certain tax regime for companies operating in special factors in Azerbaijan services and goods may be VAT zero- the oil and gas sector. These are covered (including the sale of jobs, rated, e.g., the export of goods and in a separate chapter. the forging of certificates services. No input VAT is available for VAT etc.) mean that careful incurred in connection with expenses Useful websites: selection, especially for which are not tax deductible for • Ministry of Taxes – positions of trust, is critical. An corporate profits tax purposes. www.taxes.gov.az independent review can give an (English version available) unbiased assessment. A taxpayer carrying out both transactions subject to VAT and exempt transactions • State Social Protection Fund – will be entitled to take a credit for input www.sspf.gov.az VAT on an apportioned basis having (English version available)
42 dentons.com Tax rates – at a glance Effective at 1 May 2017
Tax Rate Notes Profits tax 20 percent Value added tax 18 percent Exempt and zero-rate categories exist Assets Tax 1 percent For enterprises, different rates will apply to individuals Land Tax Various rates, according to size, E.g., in Baku, the rate is AZN 10 per 100 m2 of land for location and use. commercial, construction or industrial use for a land plot up to 10,000 m2 Road Tax Various rates applicable to non- E.g., US$15 for vehicles in transit with up to 2,000 cm3 engine resident owners of vehicles entering capacity and duration of up to one month. the territory of Azerbaijan and AZN 0.02 added to the wholesale price (including VAT and using the respective territory for excise) of a liter of petrol, diesel fuel or liquid gas produced the transportation of passengers and for local consumption or to the customs value (including VAT cargo, according to the period of and excise) determined in accordance with the Customs Code stay in Azerbaijan, number of seats, not less than market value of the wholesale price of a liter of load, distance etc.; persons involved imported petrol, diesel fuel or liquid gas in Azerbaijan. in the production in or import to Azerbaijan of petrol, diesel fuel and liquid gas. Minerals Resources According to type and volume of E.g. tax on extraction of iodine/bromine waters is AZN 0.04 per Tax mineral extracted m3. Excise Tax Various rates On beer, spirits, tobacco, vehicles, yachts and petroleum products, imported platinum, gold and jewelry made from them, imported fur and leather products, e.g., excise duty rates for vehicles with up to 2,000 cm3 engine capacity is AZN 0.2 per each sm3. Simplified tax 4 percent Different rates apply to persons operating outside Baku and those in transportation, operators and sellers of sports betting games, trading, catering and construction activity.
dentons.com 43 Income tax Non-resident withholding tax
Taxable monthly amount (AZN) Income Tax Azerbaijan source income Withholding of non-residents (not attributable to Tax Rates Up to 2,500 14 percent a permanent establishment) Above 2,500 350 AZN + 25% of the excess Dividends 10 percent Interest 10 percent Lease of movable and immovable 14 percent Taxable annual amount (AZN) Income Tax property (other than that paid by a lessee Up to 30,000 14 percent being a physical person) Above 30,000 4,200 AZN + 25 percent Royalties 14 percent of the excess Insurance or reinsurance premiums 4 percent Payments for international 6 percent communication services Social protection fund contributions Payments for international transportation 6 percent services Contributions Rates Winnings from lotteries and sports games 10 percent Employer’s contributions 22 percent of employee less participation expenses earnings Payments to entities established in 10 percent Employee’s contributions 3 percent of earnings countries with beneficial taxation Payment to electronic money wallets 10 percent belonging to non-residents Other income from an Azerbaijan source 10 percent for the supply of immovable property or performance of works or services (excluding employment income)
44 dentons.com List of countries with which Azerbaijan has concluded a treaty on the avoidance of double taxation
Effective at 1 MAY 2017
Country Date of signing Date of entry into force Country Date of signing Date of entry into force
1 Austria 4 July 2000 23 February 2001 27 Luxembourg 16 June 2006 2 July 2009
2 Belarus 8 August 2001 29 April 2002 28 Macedonia 19 April 2013 12 August 2013
3 Belgium 18 May 2004 12 August 2006 29 Malta 29 April 2016 30 September 2016
4 Bosnia and Herzegovina 18 October 2012 26 December 2013 30 Moldova 27 November 1997 28 January 1999
5 Bulgaria 12 November 2007 25 November 2008 31 Montenegro 12 March 2013 4 November 2013
6 Canada 7 September 2004 23 January 2006 32 Netherlands 22 September 2008 18 December 2009
7 China 17 March 2005 17 August 2005 33 Norway 24 April 1996 19 September 1996
8 Croatia 12 March 2012 18 March 2013 34 Pakistan 10 April 1996 1 July 1997
9 Czech Republic 24 November 2005 16 June 2006 35 Poland 26 August 1997 20 January 2005
10 Estonia 30 October 2007 27 November 2008 36 Qatar 28 August 2007 11 March 2008
11 Finland 29 September 2005 29 November 2006 37 Romania 29 October 2002 29 January 2004
12 France 20 December 2001 1 October 2005 38 Russian Federation 3 July 1997 3 July 1998
13 Georgia 18 February 1997 1 December 1997 39 San Marino 8 September 2015 NOT YET IN FORCE
14 Germany 25 August 2004 28 December 2005 40 Saudi Arabia 13 May 2014 1 May 2015
15 Greece 16 February 2009 11 March 2010 41 Serbia 13 May 2010 1 December 2010
16 Hungary 18 February 2008 15 December 2008 42 Slovenia 9 June 2011 10 September 2012
17 Iran 10 March 2009 25 January 2010 43 Spain 23 April 2014 NOT YET IN FORCE
18 Israel 13 December 2016 NOT YET IN FORCE 44 Sweden 10 February 2016 30 September 2016
19 Italy 21 July 2004 28 April 2010 45 Switzerland 23 February 2006 13 July 2007
20 Japan 30 May 2005 11 April 2008 46 Tajikistan 13 August 2007 11 February 2008
21 Jordan 5 May 2008 NOT YET IN FORCE 47 Turkey 9 February 1994 1 September 1997
22 Kazakhstan 16 September 1996 7 May 1997 48 UAE 20 November 2006 25 July 2007
23 Korea 19 May 2008 25 November 2008 49 UK 23 February 1994 29 September 1995
24 Kuwait 10 February 2009 18 April 2012 50 Ukraine 30 July 1999 3 July 2000
25 Latvia 3 October 2005 19 April 2006 51 Uzbekistan 27 May 1996 2 November 1996
26 Lithuania 2 April 2004 13 November 2004 52 Vietnam 19 May 2014 11 November 2014
dentons.com 45
08 Oil and gas taxation
Introduction However, this will not always be the case, – SOCAR) are taxed in accordance The taxation of oil and gas activities in particular where a taxpayer has with the detailed provisions of those in Azerbaijan is largely regulated by a combination of both PSA (or EPA) and agreements. Those agreements set a series of exploration, development non-PSA (or EPA) income. Indeed, in out less detailed provisions (often and production sharing agreements respect of employees who are Azerbaijani supplemented by separate tax protocols (PSAs) dealing with specific deposits nationals, domestic tax legislation has agreed with the tax authorities) relating (mostly offshore, though some always applied, even to those working to foreign employees, value-added tax, agreements also deal with on-shore within the framework of a PSA or EPA. import/export duties and suppliers of deposits) and inter-governmental goods and services. Although there is pipeline agreements relating to export Furthermore, it may well be that, in much duplication in the agreements, there pipelines (EPAs). some circumstances taxpayers to which are occasionally some very significant the Code alone applies may be in a better differences (e.g., the rate of tax) and it is not Although PSAs originated as ordinary position than those subject to PSA/EPA possible here to detail all the differences. commercial agreements, most have been tax provisions. enacted into law. In addition, the Tax Export pipeline agreements Code (the Code) applies to the extent that PSAs and EPAs – introduction Taking the EPAs first, each participant is, the specific PSAs and EPAs permit. This Azerbaijan has concluded some 30 or so in principle, made liable for profits tax. In chapter gives an overview of the general PSAs with various Contractor Parties (i.e., the BTC agreement, it applies, ostensibly, principles of taxation set out in the two field participants), though not all of them the law in force on 1 January 1999, and types of agreements and looks at some of are fully operational at present. The first the rate of profits tax is set at 27 percent, the difficulties that may arise for taxpayers PSA, and to date the most important by i.e. the rate applicable on 1 January 2000. in operating under more than one such large measure, was entered into on 20 The SCP System agreement also sets agreement. The following summary is September 1994 (Agreement on the Joint 27 percent as the rate of profits tax but a general outline only; no attempt is made Development and Production Sharing for applies the law in force on 1 January 2001. to deal with the details and nuances of the Azeri and Chirag Fields and the Deep specific PSAs/EPAs or the Code. Water Portion of the Gunashli Field in Having stated that the profits tax law the Azerbaijan Sector of the Caspian Sea (albeit the law in effect at differing times) The Code states that, in the event of (the ACG PSA).) is to be applied, in fact the EPAs set out conflict, whether or not adopted prior a detailed regime for the calculation to the entry into force of the Code, There are two host government of taxable income. This regime the provisions, of PSAs, EPAs or agreements with participants which deal essentially makes tax deductible all the oil and gas law,3 take precedence with export pipelines: the first relating expenses relating directly or indirectly over the Code and normative legal to the export of oil (commonly known to the pipeline projects and establishes acts enacted pursuant to the Code. as the Baku-Tbilisi-Ceyhan – or BTC – special depreciation rates. It also sets Leaving aside issues of the legality or pipeline) and the other relating to natural out administrative procedures relating effectiveness of attempting to bind gas (the South Caucasus Pipeline System to filing tax returns, etc. Furthermore, the legislature in this way, it might be – the SCP System.) no taxes (including taxes on interest, expected that persons operating under royalties and dividends) are imposed the umbrella of PSAs, and – in some Both PSAs and EPAs have one thing in with respect to payments made “in respects – EPAs, could function without common: the participants or contractor connection with” main export pipeline reference to the contents of the Code. parties themselves (excluding the State activities to “Entities” (a broadly defined Oil Company of the Azerbaijan Republic term) established outside Azerbaijan. 3 No such law exists at the time of writing.
dentons.com 47 In addition to dealing with and these are presented to suppliers in tax regime for companies operating the participants, the EPAs also deal order to ensure the right VAT treatment. in the oil and gas sector. This, in with suppliers of goods or services relation to Sub-contractors, may be to the pipeline participants or their Imports and exports are free of summarized as follows: affiliates in connection with the pipeline duties and taxes to the extent that projects. In general, no taxes are the supplies are for use in connection • FSCs are normally subject to imposed or withheld with respect with the pipeline project. withholding tax on payments made to payments to suppliers. Suppliers to them with regard to work and also have no tax compliance or filing Production sharing agreements services. With certain exceptions, obligations arising from or related, PSAs have similar but more complex the sale of goods is not subject to directly or indirectly, to the main export tax provisions than those of EPAs. withholding taxes other than on pipeline activities. The differences are largely in any mark-up in respect of sales in the manner in which suppliers and Azerbaijan. The rate of withholding tax Foreign employees involved in the main foreign employees are taxed. varies from 5 percent to 5.5 percent, 6 export pipeline projects are liable for percent, 6.25 percent, 6.75 percent, 7.5 income tax in Azerbaijan but only if In PSAs, basically, each participant percent and 8 percent, depending on present in the country for more than is referred to as a Contractor and the particular PSA. 182 days in a calendar year. Such suppliers are referred to as Sub- foreign employees are taxable only contractors. Suppliers incorporated • In some PSAs, the withholding on that part of their income earned overseas are known as Foreign Sub- tax provisions for FSCs apply only as a direct result of employment contractors (FSCs). The Contractors prior to the commencement of in Azerbaijan. Taxes are payable by are, in principle, made liable for the development and production the employer by withholding. No profit tax. In the ACG PSA, it applies, periods. Once that period has social insurance contributions are ostensibly, the law in force on 1 January commenced, normal profits tax payable in respect of such employees. 1993 and the rate of profit tax is set at provisions may apply (except that Azerbaijani citizens are taxed 25 percent. those provisions and the rate of tax according to Azerbaijani legislation may be historic, fixed at the time of in force from time-to-time, and social However, as with EPAs, PSAs set out entering into the PSA). security contributions are payable in detailed regimes for the calculation respect of them. of taxable income. These regimes • Only tax resident foreign employees essentially make tax deductible all of FSCs are payers of income tax and Basically, the assignment of any rights expenses incurred in carrying out the concept of “residency” is defined or obligations of a pipeline participant Hydrocarbon Activities in Azerbaijan differently from EPAs and non-PSA is free of tax. or elsewhere. Special depreciation related tax legislation. Such foreign rates are applicable. PSAs also set out employees are taxable only on that Goods (works, services, technology) administrative procedures relating part of their income earned as a direct supplied to pipeline participants are to filing tax returns, making advance result of employment in Azerbaijan. subject to value added tax at the rate payments of tax, etc. Although in Taxes are payable by the employer of zero percent, as are the import the ACG PSA, the Contractors are by withholding. Social insurance and export of petroleum/gas through directly liable for their own taxes, in contributions are not payable in the pipelines and the import (export) other PSAs this obligation is often respect of foreign employees under of goods, etc., in connection with borne by SOCAR. certain PSAs (e.g. ACG PSA) but under the pipeline activities. Entitled persons other PSAs the situation may be must obtain certificates from the tax In addition to dealing with different, and the relevant PSA should authorities declaring their special status the Contractors, PSAs provide a special be separately consulted. Residence
48 dentons.com is, basically, defined as being present in force from time-to-time and social Although, as certain PSAs have been in Azerbaijan for more than 182 days security contributions are payable in terminated, the rules applying to some in the year, or being present for respect of them. of those remaining have been brought more than 30 consecutive days or into conformity with one another, some 90 cumulative days in the year (in Multi-PSA/EPA operations differences still exist. which case tax is payable in respect The EPA/PSA regimes have, in general, of income earned after the 30th/90th been beneficial to taxpayers by setting The next contentious issue might be day). However, “rotators” and other out a more or less certain method which rate of withholding tax is to foreign employees who are routinely of calculating, paying and reporting apply to a particular transaction. This in Azerbaijan for more than 90 days taxes. However, in particular for FSCs problem could arise in two situations: in the year, and who perform their operating under more than one PSA, first, where providing general or global primary employment in Azerbaijan, will the benefit of simplicity can transform services to related parties which may be tax resident ab initio. itself into a cumbersome and complex be operating under different PSAs but web of reporting requirements, tax rates which share certain services (e.g., office • Subcontractors are exempt and so on. space). In this situation, the recipient with credit (zero percent rate) of the service will normally provide from VAT in connection with There are currently seven withholding a copy of its VAT certificate entitling it to Hydrocarbon Activities. tax rates in operation: 5 percent zero-rating for VAT purposes and will (applying to Azeri-Chirag and deep determine which rate of withholding to • Subcontractors have the right to water Gunashli fields, Shafag-Asiman); apply. The certificate will normally make import into, and re-export from, 5.5 percent (Kurovdaq, Absheron); clear for whom the service is being the Republic of Azerbaijan free of any 6 percent (Zigh Hovsan), 6.25 provided. The second, and more difficult taxes and restrictions in their own percent (Shah Deniz); 6.75 percent area, is where there is a chain of FSCs, name the following: all equipment, (Pirshaat) 7.5 percent (Mishovdag- one (FSC1) providing general long-term materials, machinery and tools, Kelameddin, Padar); and 8 percent services (e.g. housing, office space) to vehicles, spare parts, goods and (Kursangi-Karabagli and certain other the other, where the service user (FSC2) supplies (excluding foodstuffs, alcohol PSAs). The rates are set by assuming is operating under more than one PSA. and tobacco products). a deemed profit, usually 25 percent,4 In this case FSC2 has to decide which and applying a fixed rate of corporate rate of withholding to apply. One solution • An FSC is not normally obliged to profits tax (varying rates ranging might be to apply the highest rate of file any tax return with the Ministry from 20 percent to 32 percent). withholding tax (currently, 8 percent), of Taxes in respect of any income or The withholding tax rates are fixed (i.e., which may not be technically correct but profit which it earns from its business they are unaffected by any changes in may satisfy the tax authorities. activities in the Republic of Azerbaijan general rate of profits tax.) in connection with Hydrocarbon Any FSC providing non-PSA services Activities, nor does it have any other tax The first issue that an FSC might face will face additional difficulties. It will compliance or filing obligation (other when operating under more than have expenses but part of its income than filing returns for withholding tax one PSA, either simultaneously or will already have been taxed. The tax and VAT and providing information, sequentially, will be that of reporting. authorities will expect a portion of which may be required, relating to Each of the PSAs has its own reporting the expenses, therefore, to be disallowed the FSC’s employees) in connection regime. In principle, these are very in computing tax on the non-PSA with Hydrocarbon Activities. similar but there are differences in detail, income. The simplest method of doing a variety of formats for tax returns, etc. this is to apportion the expenses Azerbaijani citizens are taxed amongst PSA and non-PSA income in according to Azerbaijan legislation 4 However, under the ACG PSA, the profitability rate is 20 the same ratio. percent.
dentons.com 49 Example
FSC has PSA income of 500 (before tax at 5 percent under the Azeri-Chirag PSA) and non-PSA income of 400 (before tax). FSC’s expenses are 600. FSC’s non-PSA taxable income after expenses will be calculated as follows:
Non-PSA income Allowable X Expenses = expenses Total income
400 X 600 = 266 900
Taxable income will be 400-266 = 134
However, where it is possible to establish is that the PSA may provide that, with some accuracy which expenses even after the commencement of relate to PSA income, only those the development and production expenses should be disallowed. period, for short-term contracts or contracts below a certain value, Some other PSA issues the withholding tax regime will continue to apply.5 • Under most PSAs, the supply of goods by an FSC for Hydrocarbon Activities • Under the tax protocols of some PSAs, is exempt from tax altogether. a sub-contractor is under an obligation The FSC must ensure that it can to inform its sub-contractors, in clearly document the cost of goods the prescribed way that services are or it risks being subject to profits tax being provided under that particular (though not necessarily at the current PSA.6 This is often overlooked. rate) on the full amount received. • VAT: The PSAs and tax protocols • In some PSAs, the withholding apply a zero-rate of VAT to goods and tax provisions for FSCs apply only services provided in connection with prior to the commencement of Hydrocarbon Activities. Sometimes, development and production periods.
Once that period has commenced, 5 See, for example, the Agreement on the Exploration, normal profits tax provisions apply Development and Production Sharing for the Araz, Alov and Sharg Prospective Areas in the Azerbaijan Sector of (except that those provisions and the Caspian Sea, 20 July 1998. the rate of tax may be historic, fixed 6 See, for instance, the Protocol Concerning Taxation of Foreign Sub-contractors, Art. 2.5, made under at the time of entering into the PSA). the Agreement on the Exploration, Development and Production Sharing for the Shah Deniz Prospective Area However, a further complication in the Azerbaijan Sector of the Caspian Sea, 4 June 1996 (the “Shah Deniz PSA”).
50 dentons.com however, a taxpayer may have to Foreign subcontractors will pay profits bear the VAT and apply for a refund tax only by the withholding mechanism. How Dentons can help or make an offset against other taxes. Among other noticeable tax advantages Dentons has represented clients in Under the Code, as VAT is payable on under the Export Activity Law are the oil and gas sector of Azerbaijan an accruals basis, it may be that more the following: for many years. Our services situations will arise of VAT suffered and have included: re-claims/offsets made as suppliers • No dividend or interest tax for will no longer be able to delay issuing contractors and foreign subcontractors • Defending taxpayers in invoices until the client has obtained the courts its certificate showing that it is entitled • No net profit remittance tax for to VAT zero-rating. foreign subcontractors • Operating payrolls, filing tax and social security reports Export Law • Exemption from the assets and The law On the Implementation of land taxes • Analyzing tax protocols a Special Economic Regime for Oil and Gas Activity for Export Purposes, Conclusion • Planning tax strategies 2009 (the Export Activity Law) provides Dealing with oil and gas taxation in for a special taxation, customs, and Azerbaijan is a complex affair. There is • Conducting comprehensive currency regime which is very similar to no one set of rules which is applicable tax reviews to ensure taxes are PSA and EPA regimes (though the law to all such activities. This chapter has being properly accounted for explicitly states that it does not apply touched briefly upon some of the issues to PSA or EPA operations or to other which foreign investors might meet in • Interviewing prospective staff oil and gas operations carried out in dealing with upstream and mid-stream – choosing the right people is the territory of Azerbaijan). operations, but each PSA/EPA must be important to any organization, reviewed independently. Special care but special factors in Azerbaijan The Export Activity Law applies to local must be taken when working under (including the sale of jobs and contractors (with or without foreign more than one such regime. While these qualifications, the forging of investment) and to their local or foreign agreements are generally designed to lift educational certificates etc.) mean sub-contractors involved in oil and gas some of the tax burden from participants that careful selection, especially activities (including the exploration for and their suppliers, the traps can be all for positions of trust, is critical. An and the sale and purchase of oil and the more unexpected. independent review can give an natural gas) oriented towards exports unbiased assessment. (e.g., the supply of goods, works and Useful website: services in connection with oil and • Ministry of Taxes – gas operations conducted outside of www.taxes.gov.az Azerbaijan). The Export Activity Law (English version available) will be in force for 15 years, unless further extended.
The taxation regime under the Export Activity Law allows the contractor to choose between taxation under the Tax Code and the payment of profits tax by the withholding mechanism at the rate of five percent of the total payment due.
dentons.com 51
09 Trade: imports and exports
Introduction • Goods and technologies subject to 2. The export or import of the following Since the break-up of the Soviet Union, export controls in accordance with goods is carried out exclusively on Azerbaijan has significantly liberalized the international treaties to which the basis of a decree of the Cabinet its trade regulations. Resolutions and the Republic of Azerbaijan is a party of Ministers: decrees on the liberalization of trade were issued as far back as 1992. • Military goods, including weapons • Weapons, military equipment of mass destruction and their means (including spare parts required Nonetheless, significant restrictions on of delivery for their production) the export of “strategic goods” or “goods of strategic importance” existed until 1994. • Dual purpose goods which can be • Explosives The list of strategic goods used to be quite used in the creation and preparation extensive and included, inter alia, oil and of the weapons of mass destruction, • Nuclear and radioactive materials oil products, electricity, ferrous metals and weapons, military equipment and and technologies (including products made of ferrous metals, non- supplies radioactive wastes), special non- ferrous metals, aluminum and products nuclear materials and sources of made of aluminum, cotton, glass, tobacco, • Explosives and radioactive radioactive radiation handmade carpets, etc. Since that time, substances, materials and equipment the restrictions in respect of strategic having radioactive origin, sources • Narcotic and psychotropic elements goods have largely been lifted. Presently, and installations of ionizable rays and materials restricted for free with some exceptions (see below), circulation physical persons and legal entities are • Other goods determined by theoretically free to conduct their export- the President of the Republic • Special types of scientific or import business as they see fit. However, of Azerbaijan, including those technical information and licensing or certification requirements in subject to export controls due to technology necessary for a number of cases continue to impose the ultimate purpose for utilization or the production of weapons obstacles and impede trade. Furthermore, the ultimate user statutory contradictions and uncertainties • Blood and blood components and remain in relation to the procedures for Control is carried out by the relevant preparations made from them the licensing and certification of import- State authorities through the examination export transactions. of export transactions and the issuance • The export of unprocessed of special permits. Exporting legal diamonds Restricted export-import business entities or individual entrepreneurs A limited group of products requiring must obtain a special permit from these some form of approval, certification, authorities for the export of Controlled licensing or positive opinion for Goods. Before the issuance of a special the purpose of export or import permit, these authorities must examine activity remains. the export transaction in order to verify the information provided concerning 1. For different purposes, the following the exporter, the exported goods, their group of goods, work, services ultimate users and the final destination. and products of intellectual Export transactions with certain activities (“Controlled Goods”) Controlled Goods are also subject to are subject to export controls by post-export examination for compliance the Azerbaijani authorities: with the terms and conditions stipulated in the issued special permit.
dentons.com 53 Such goods may not be exported on credit or on consignment.
3. The export or import of the following goods and services is carried out based upon the issuance of an opinion by certain state authorities.
Export: State Authority Import: State Authority Wild animals and plants The Ministry of Ecology Insecticides The Ministry of Agriculture and Natural Resources Raw materials extracted from The Ministry of Ecology Medicines and medical The Ministry of Health wild animals and plants for and Natural Resources; equipment, including the production of medicines The Ministry of Health controlled psychotropic (including snake and substances scorpion venom) Information on the location of The Ministry of Ecology Veterinary drugs and The State Veterinary Control natural resources and thermal and Natural Resources substances energy fields Works of art and antiques The Ministry of Culture Construction activity The State Municipal Planning and Tourism (engineering-survey, design, and Architectural Committee, construction and betterment the Ministry of Emergency works) Situations, the Ministry of Ecology and Natural Resources Inventions, ‘know-how’ and The State Committee Freight and passenger The “Azerbaijan Railways” results of scientific-research work for Standardization, transportation, forwarding CJSC, the State Maritime (subject to export controls is Metrology and Patents; services Administration, the State excluded) Academy of Sciences Civil Aviation Administration, the Ministry of Transport Controlled psychotropic The Ministry of Health Communication services The Ministry of Transport, substances (international, intercity, city, Communications and village, cellular, trunk radio, Information Technologies cable TV installation and use, speeded post services) Cultural wealth included The Ministry of Culture Legal services The Ministry of Justice in the State List of national and Tourism cultural property in relation to exhibitions, guest performances, presentations, international cultural events and restoration work
These goods may not be exported on credit or consignment (Rules of Regulation of Import-Export Transactions in the Republic of Azerbaijan, approved by Presidential Decree No. 609, dated 24 June 1997.)
54 dentons.com Prohibition of the export PSA contractors and their sub- of Azerbaijan envisage a number of of scrap metal contractors working under a PSA are sanctions for such violations. The export of ferrous and non- typically exempt from the provisions ferrous scrap metal has been of Azerbaijan foreign trade regulations Useful websites temporarily suspended (since 2001) by concerning the prohibition, limitation and Ministry of Economy and Industry – presidential decree. restriction of the import and export and www.economy.gov.az country of origin restrictions on those (English version available); Restriction on the export and items indicated in the paragraph above. import of ozone-depleting State Agency for Standardization, substances Goods imported into free Metrology and Patents – The import from and export of ozone- economic zones www.azstand.gov.az depleting substances to countries which The Resolution of the Cabinet of (English version available) are not signatories to the Montreal Ministers No 29 dated 27 February 2013 Protocol of the Vienna Convention on “On approving the Rules for the customs Substances that Deplete the Ozone Layer bodies to approve the internal-goods is prohibited. status of goods imported into a free economic zone, processed in a free Export of foodstuffs to economic zone and in free turnover the EU countries within a free economic zone,” provides The export of foodstuffs from that goods imported into a free the Republic of Azerbaijan to EU economic zone shall be granted internal- countries is possible only based upon goods status. In this connection, the issuance of a quality certificate by the importer is entitled to obtain a special the Ministry of Economy and Industry. certificate issued by the customs authorities based on the relevant paper Export-import of goods or electronic application of the importer. by PSA contractors Such certificate is valid for 12 months. Under certain PSAs (for example, the ACG PSA), contractors, their agents Goods imported by and sub-contractors, have the right the holders of an investment to import into, and re-export from, promotion certificate the Republic of Azerbaijan in their own The Decree of the President of name, free of any taxes and restrictions, the Republic of Azerbaijan, “On Additional How Dentons can help the following: all equipment, materials, Measures to Promote Investment” dated Dentons has provided clients machinery and tools, vehicles, spare 18 January 2016, provides that holders with trade-related advice over parts, foodstuffs (subject to compliance of an investment certificate will be able many years. Dentons has assisted with applicable regulations pertaining to obtain tax and customs privileges for companies in all aspects relating to the import of foodstuffs), goods and export of certain goods. to the import and export of supplies necessary in the Contractor’s goods, including customs duties, reasonable opinion for the proper Sanctions for the violation of labeling, compliance with local conduct and achievement of petroleum import-export regulations and international standards, operations as defined under the specific The violation of import-export regulations certification, changes of customs PSA. It should be noted that a number is punishable according to Azerbaijani regimes, pre-payment for goods of PSAs exclude foodstuffs, alcohol and laws. The Criminal Code and the Code of and customs disputes. tobacco from this list. Administrative Violations of the Republic
dentons.com 55
10 Customs duties and regimes
Introduction – Export Duties Rates [and] Fees The rates of import and export duties Almost everyone doing business in for Customs Clearance Operations are currently regulated by the provisions Azerbaijan will have encountered (the “2001 Resolution”) as amended of the 2001 Resolution, as subsequently difficulties from time to time with amended. The 2001 Resolution is based the customs authorities. Most of these Following the accession of Azerbaijan on the Nomenclature governed by are resolved without recourse to law, but to the International Convention on the Convention on the Harmonized the occasional lack of transparency and the Simplification and Harmonization of Commodity Description and Coding inconsistent application of the customs Customs Procedures, as revised in 1999 System. Ad valorem import duties are legislation by customs officers sometimes (the “Kyoto Convention”), a new Customs set at rates ranging from 0 to 15 percent. demands the involvement of lawyers. Code was adopted, which was intended Some examples follow: 0 percent – Even the oil industry, which has special to take into consideration the main certain types oil products, natural gas privileges in respect of the importation principles of the Kyoto Convention, such condensate, 0.5 percent – airplanes, of goods, encounters regular problems. as transparency, the use of information helicopters, 0.5 percent – certain However, there are also instances when technologies, the standardization chemical fibers, US$15 per 1,000kg – non- the cooperation of customs officers is and simplification of documentation, processed aluminum, 5 percent – various required (e.g., in the seizure of counterfeit the minimization of customs control, etc. types of stainless steel, 10 percent – oil goods), and customs officials can be and gas pipes with external diameter of accommodating and very helpful. More The Customs Code distinguishes among up to 406.4 mm, 15 percent – cement, than with most government agencies, the following types of payments to and 15 percent – certain types of potato. the relationship with the customs the customs authorities: In 2013, Chapter 27 of the 2001 Resolution authorities is a difficult one. has been amended to reduce the customs • Customs duties duty rates for petroleum coke, petroleum Customs legislation • VAT bitumen and other residues of petroleum The principal laws and regulations • Excise tax oils or of oils obtained from bituminous governing the payment of customs • Road tax minerals from 15 to 0 (applicable as duties in Azerbaijan are as follows: • Customs dues a percentage of declared value or in US$ • Fees (auction) per unit of measurement). • Customs Code, which took effect on • State duties7 1 January 2012 For certain types of goods, the 2001 Customs duties Resolution prescribes variable rates • Law On Customs Tariffs of Customs duties are divided into three of duty depending upon, for example, 13 June 2013 (the “Tariffs Law”) classes: the season of the year.
• Law On the Implementation of • Ad valorem duties (i.e., duties Under the Tariffs Law, certain imports are a Special Economic Regime for Oil calculated in percentage terms upon exempt from customs duties, some of and Gas Activity for Export Purposes the declared value of goods). which are:9 of 2 February 2009 • Specific duties (i.e., duties based on Goods carried across the border for • Resolution of the Cabinet of Ministers a specific number of units of goods). representative offices of foreign states No. 91 of 22 April 1998, On Import and their employees – Export Duty Rates (the “1998 • Composite duties (i.e., duties Resolution”) calculated through a combination of • Food products and transportation the other two methods).8 means, as well as personal equipment, • Resolution of the Cabinet of Ministers, spare parts, personal items intended No. 80 of 12 April 2001, On Import 7 Article 224 of the Customs Code 8 Article 226 of the Customs Code 9 Article 20, the Tariffs Law
dentons.com 57 for traveling personnel imported as park resident involved in activities • Equipment, data, accessories aid and distributed as such in zones of defined by the relevant executive and materials for the creation natural disaster authority in the industrial park and operation of systems of established according to the decision passport control, equipment, data, • Goods which are in transit and of the executive authority – for a period accessories and materials imported intended for third countries of 5 years from 1 May 2016. for the purposes of police services, goods imported (in the absence of • Personal and household items, as well Under the 1998 Resolution, certain local provisions) for the purposes as items necessary for employment imports are exempt from import duties of the implementation of tourism activity of foreign migrant workers in and these include: investment projects in mountainous Azerbaijan areas, 1,300 meters above sea level • Goods imported for petroleum • Certain instances of goods imported operations in connection with certain • Certain movable property which is in, produced or processed in and exploration, development and the subject of a leasing agreement exported from special economic zones production-sharing agreements and transportation agreements relating to • Equipment in connection with oil • Imports of technological equipment hydrocarbons and gas operations for the purpose and structures based on a so called of exports (based on the list “investment promotion certificate” • Goods imported on the basis of approved by SOCAR) including for the infrastructure of financial aid, loans and technical industrial parks. grants of international organizations, • Technologies, equipment and accessory foreign governments and foreign parts imported by the Ministry of • imports of machinery, technological persons in accordance with inter- the Defense Industry and its subsidiaries equipment and plants by legal governmental and international for the purpose of the creation and entities and individuals engaged in treaties of Azerbaijan production of defense products entrepreneurial activities without forming a legal entity that are residents • Goods imported by individuals for • Goods imported into a special of industrial and technological parks distribution free of charge economic zone (excluding established according to a decision of excise goods) the relevant executive authorities, on • Goods imported on the basis of the basis of a confirming document a document reflecting equipment • Sports equipment, technology of the relevant executive authority used in the prevention of force and goods imported for training of for the construction of production majeure situations and the mitigation a national team facilities of industrial or technological of its consequences, confirmed by parks, research and development the Ministry of Emergency Situations • Grain and grain products imported work, established in accordance with for the purpose of supplying the State the decision of the relevant executive • Operations relating to the transfer Grain Reserve authority, – within 7 years from of fixed assets, movable or other the date of registration of the resident property to the State Oil Fund • Certain scientific devices in the industrial or technological park. pursuant to agreements of the May and equipment imported on and legal entities representing it, in the basis of confirming document of • Imports of all kinds of goods for accordance with the exploration, the Azerbaijani National Academy the purposes of those activities on development and production sharing the basis of the approval of the relevant of hydrocarbons, export pipelines and • Registration certificates, driving executive authority by an industrial other agreements resulting therefrom licenses, registration plates and certain
58 dentons.com equipment imported at the expense of the Republic of Azerbaijan, as well the date of registration of the resident budget funds the import of currency valuables of in the industrial or technological parks. the Central Bank of the Republic • Gold imported for placing as assets of of Azerbaijan, monetary resources, • Imports of technical equipment and the State Oil Fund commemorative coins and other tools of all types, spare parts, weapons similar valuables of the Republic of and ammunition used for military • When supported by the relevant Azerbaijan manufactured abroad; purposes by the relevant executive documentation issued by the State authority, imports of technology, Agency for Alternative and Renewable • Imports of goods, the provision of equipment and component parts Energy, structures used for works and services by the Central for the purpose of defense-oriented the purpose of renewable energy, Bank of the Republic of Azerbaijan and development and production; as well as equipment, parts and the State Oil Fund of the Republic of accessories necessary to manufacture Azerbaijan, connected with obligations Commodities imported by humanitarian such structures stipulated by the legislation; organizations duly registered in the Republic of Azerbaijan, as well • The list of structures, parts and • Imports of machinery, technological as imports by other legal entities equipment which can be imported equipment and plants by managing and individuals, subject to receipt free of customs dues on the basis organizations or operators of of a consent from the organization, of a confirming document from industrial and technological parks on established by the relevant executive the Ministry of Communications and the basis of a confirming document authority, for humanitarian aid purposes; High Technologies by legal entities of the relevant executive authority for and individual entrepreneurs which the establishment and construction Commodities imported in connection are residents and of Mingechevir of infrastructure, production areas with grant assistance, including Technological Park has been approved. of industrial or technological parks, technical assistance, and for charitable established in accordance with purposes of countries, governments and • Mazut imported for the production the decision of the relevant executive international organizations; of electrical energy by Azerenerji authority, as well as for research and Joint Stock Company on the basis development activities; Commodities imported by individuals not of documents issued by the Ministry for production or commercial purposes, of Energy. • Imports of machinery, technological through the customs border in cases and equipment and plants by legal in the manner prescribed by the relevant VAT on imports and exports entities and individuals engaged in executive authority; Currently, the standard rate of entrepreneurial activities without value-added tax (VAT) in Azerbaijan forming a legal entity that are residents Equipment and materials imported in is 18 percent. Under the Tax Code of industrial and technological parks connection with export-oriented oil and the following imports are among those established according to the decision gas activities (subject to provision of the list exempt from VAT: of the relevant executive authorities, of equipment and materials, imported into on the basis of a confirming document the Republic of Azerbaijan in connection • Imports of the national and foreign of the relevant executive authority with export-oriented oil and gas activities, currency, as well as securities (except for the construction of production approved by the relevant executive for numismatic purposes); facilities of industrial or technological authority to the customs authorities); parks, the research and development • Imports of gold to be deposited with work, established in accordance with • Goods (except for excisable the Central Bank of the Republic of the decision of the relevant executive goods), imported into a special Azerbaijan and the State Oil Fund of authority, – within 7 years from economic zone;
dentons.com 59 • Imports of technology, technical Azerbaijan, as well as for the needs Clearance fees at double the basic rate equipment and facilities by legal of diplomatic, administrative and are applied where clearance is performed entities and individual entrepreneurs technical staff and their family outside of normal working hours or at on the basis of an approval document members having relevant status and locations other than those specified for given by the relevant executive who are not nationals of the Republic carrying out customs clearance operations. authority – for 7 years from the date of Azerbaijan. However, other services of receipt of an investment promotion obtained from overseas will generally Excise tax certificate; be subject to a VAT reverse charge. Under the Tax Code 2000 only consumable alcohol, beer and other • Imports of all kinds of goods for • The sending of gold and other alcoholic beverages, tobacco products, the purposes of those activities on valuables to the Central Bank of automobiles (with the exception of special the basis of the approval of the relevant Azerbaijan. purpose vehicles equipped with special executive authority by an industrial park marks and equipment), yachts for sport resident that is involved in activities Customs clearance payments and recreation, and other floating vessels defined by the relevant executive The general rates for customs clearance for these purposes, petroleum products, authority in the industrial park depending on the cost of goods are imported platinum, gold, jewelry and other established according to the decision the following (per declaration or customs household goods prepared therefrom, of the executive authority – for a period credit order): processed, sorted, framed and mounted of 5 years from 1 May 2016 diamonds and imported fur products are • Goods with a value up to AZN 1,000 – subject to excise tax in Azerbaijan.11 Additionally, under the Tax Code, the fee is AZN 10. the provision of financial and other The rates of excise tax applicable on services is exempt from VAT. • Goods with a value from AZN 1,001 to imports (with exception of automobiles, AZN 10,000 – the fee is AZN 50. leisure and sports yachts and other The Tax Code also treats certain imports floating transport designated for such and exports as subject to VAT but at • Goods with a value from AZN 10,001 to purposes, as well as platinum, gold, a zero percent rate.10 These include: AZN 100,000 – the fee is AZN 100. jewelry and other domestic items made therefrom, processed, sorted, framed • The export of goods and • Goods with a value more than AZN and fixed diamonds) are regulated by certain services 100,001 – the fee is AZN 275. the Resolution of the Cabinet of Ministers No. 20 of 19 January 2001 (as amended • With the exception of international However, certain exclusions apply and by Cabinet of Ministers’ Resolution No postal services, international and these are as follows: 17, dated 29 January 2015), On Approval transit carriage of passengers and of the Rates of Excise Tax Applicable to freight; services and work directly • No customs clearance fees are Goods Imported into the Republic of related to international and transit payable for the goods exempted Azerbaijan. Some examples include: flights. from custom duties according to the Resolution of the Cabinet of • Malt beer – AZN 1 per liter. • The import of goods, works or services Ministers No. 305 of 14 October 2013. on the basis of overseas grants. • Wines – AZN 2 per liter. • No customs clearance fees are • Goods and services designed for payable for imports under grant aid • Cigars, cut-end cigars and the official use by diplomatic and agreements, humanitarian aid and cigarillos containing tobacco – similar establishments accredited in technical assistance. AZN 10 per 1000.
10 Tax Code, Article 165 11 Tax Code, Article 190.1
60 dentons.com • Cigarettes containing tobacco – a “Single Window” in the Inspection of percent per month of the total which AZN 4 per 1000. Goods and Transportation Means Passing would be payable for goods imported through the State Border Check-Points for free circulation) or full exemption Production sharing and of the Republic of Azerbaijan, provides from payment until the expiration of transportation agreements that the inspection of veterinary, sanitary, the temporary importation period. Under various exploration, development phytosanitary, hygienic and other and production sharing agreements and certification is carried out by the customs Useful website export pipeline agreements in relation authorities at the border. State Customs Committee – to hydrocarbons, the importation of www.customs.gov.az goods is free of import duties and VAT Warehouses (English version available), (though it is subject to a customs service/ Warehouses are used for the temporary www.rusum.az documentation fee), as long as the goods storage of imported goods where, during (and services) are used in connection with the term of storage, no customs duties petroleum operations. This exemption also or relevant taxes are paid. In general, applies to the sale of goods by contractors customs warehouses may be of an and subcontractors to related parties open type or of a closed type (the latter imported into the Republic of Azerbaijan being restricted in use to specified for export purposes under various persons). The warehouse procedure exploration, development and production includes temporary storage and the use sharing agreements and export pipeline of a customs (bonded) warehouse. agreements in relation to hydrocarbons. The maximum term for temporary storage is four months and, for Customs procedures a customs warehouse, it is three years. At There are five types of customs the expiration of the temporary storage procedures:12 period, goods should either be declared under a different customs procedure or • Transit (international and national) placed in a customs warehouse. Upon expiration of the customs warehouse • Warehouse (temporary storage and period, the goods must be placed under customs warehouse) a different customs procedure.13
• Free zone Temporary imports Goods may be imported into Azerbaijan • Special use (temporary import and for temporary purposes. In general, How Dentons can help end use) a temporary import period for goods Dentons is an acknowledged leader should not exceed 24 months. Where in Azerbaijan in the provision of • Processing (internally and abroad) the purpose of the temporary import customs advice. We have assisted has not been achieved, the temporary companies and individuals Care should be taken to ensure that import period can be extended to 12 in defending demands for the correct procedure has been applied months.14 A temporary importation of excessive duties and dealing to the relevant import. goods generally involves the payment on with the customs authorities in importation of only part of the applicable enforcing prohibitions against Presidential Decree No 12, dated 11 customs duties and taxes (three the importation of counterfeit and November 2008, On the Application of gray market goods. 13 Customs Code, Chapter 30 12 Customs Code 2012, Article 166 14 Customs Code, Article 193
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11 Handling audits
Introduction Tax audits Other audits In many ways, the strategy for handling The tax authorities have broad powers Other bodies also have the rights of audit tax and other audits by official bodies in in the conduct of an on-site audit. or the right to perform statutory checks. Azerbaijan is the same as in any other They are, however, required to give For instance, these include the health country. However, Azerbaijan, in this as at least 15 days’ written notice before authorities (in respect of restaurants, in many areas, has its own peculiarities the commencement of a routine audit. hotels, etc.), environmental control (use which need to be taken into account. A routine on-site tax audit may not be of water, waste disposal, etc.), the fire carried out more than once a year and department (compliance with fire safety Audits should not be seen as something should not exceed 30 days in length. regulations), migration authorities of which to be afraid. They are a normal Exceptionally, an extension by up to (compliance with migration issues), etc. part of doing business, and it is important 90 days is possible. The audit may also In such circumstances, the company that everyone is aware of this. And, of be suspended for up to nine months in should ensure that the auditors sign course, it is important to stress that certain cases, including, inter alia, where the enterprise’s audit control book. no attempt should be made to hide documents required for “conducting documents or provide misleading objective and complete” off-site tax information to an auditor. audits are to be received from abroad.
To verify that the audit is a legitimate A routine on-site tax audit, in respect one, the company should check whether of corporate profits tax, income tax, the audit is included in the Register property, road and land taxes, cannot of audits of entrepreneurial activity exceed the last three calendar years (i.e., maintained by the Ministry of Justice. three years, excluding the year in which the audit is carried out). In respect of At the same time, any audit can be other taxes (e.g., VAT), it cannot exceed time-consuming and disruptive to the latest three years (i.e., three years, business and, as such, it is important that including the year in which this audit is the auditors are directed towards what is carried out.) relevant. An extraordinary tax audit is possible in certain circumstances, including where an application is made for a refund of taxes.
A taxpayer who is asked by the tax authorities to submit documents must submit certified copies within five days of the request.
dentons.com 63 Some do’s and don’ts Audit holidays In order to ensure that the audit Starting from 1 November 2015 for two How Dentons can help progresses smoothly, a few simple rules years, a temporary moratorium on audits Dentons is an acknowledged leader should be followed: has become effective. The moratorium in Azerbaijan in the provision of does not apply to tax audits and, in tax services. We have assisted • Ensure a room is provided for accordance with a list approved by companies in all aspects relating to the auditors to carry out their work. the President, it also does not apply tax matters, including: The room should ideally be near to audits related to cases which may facilities e.g. washroom, photocopier create significant danger to the lives • Preparing for, dealing with etc. and away from others’ work areas. and health of the public, state security and responding to audits, and economic interests, as well as to including employment and • Ensure that one person is designated as audits of the General Prosecutor’s Office environmental audits the principal contact with the auditors. in connection with the investigation This person will normally be someone of corruption-related crimes. The list • Advising taxpayers and other with direct knowledge of the matters of permitted audits includes audits by clients of their rights being audited. Consideration should the Ministry of Health of the quality be given to the person acting as liaison of medicine, compliance with safety • Defending taxpayers in with the auditors. and sanitary-hygienic rules; and audits the courts – Dentons has by the Financial Market Supervisory successfully defended taxpayers • Be cooperative but businesslike. Authority of insurers and re-insurers. against claims made by the tax authorities. • Before releasing documents, ensure that they are relevant to the audit and that • Planning audit strategies the auditors are entitled to request them.
• Keep copies or a record of all documents released.
• If the auditors wish to interview any person, ensure that a management representative is also present and that notes of the meeting are taken.
• Although, outside of criminal proceedings, there are no formal rules of legal privilege, nevertheless, some documents may be subject to protection on the grounds of confidentiality.
• Don’t panic – to minimize the potential for staff to spread rumors, ensure that everyone is aware that an audit is underway, and that it is a normal part of business.
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12 Real estate and property ownership
Ownership rights to the property of state/municipal “Use” in general may be permanent or An owner of property has the right enterprises remains somewhat unclear. temporary, the latter being short-term (up to possess, use and dispose of such The State Committee of the Republic of to 15 years) or long-term, which is divided property freely. Azerbaijan on Property Issues is in charge into two categories: private (from 15 to 99 of the disposition of state property and years), and land owned by the state and Persons other than owners may also have exercises control over the management municipality (from 15 to 49 years), and the right to possess, use and dispose of and efficient use of such state property in such cases only land tax is payable. property belonging to another person. by State enterprises. Under a “lease” of land, rent is payable For example, a lessee of an apartment has (land tax being paid by the owner.) the right to possess and use the apartment The Law “On Public Legal Entities,” dated for residential purposes and, where 29 December 2015 regulates issues Certain land falls within the exclusive the lease agreement permits, to sublet it. on the establishment, operation and jurisdiction of the State (e.g., land situated However, the difference between the rights organization of public legal entities. from 20 to 50 meters from the shore of of the owner and the rights of the lessee is The charter capital of public legal the Caspian Sea or land granted to state that the lessee’s rights can be limited by an entities is formed on the basis of assets enterprises, institutions and organizations agreement with the owner. contributed to by its founder(s). State for permanent use, etc.). and municipal property granted to This being said, the rights of an owner public legal entities shall be used only in Furthermore, as a general rule, to possess, use and dispose of property accordance with the purposes reflected subsurface and mineral resources are freely may also be limited by legislation in its charters. owned by the state. However, land and “other means,” e.g., by agreement. owners may extract certain mineral Types of property resources – e.g., the extraction of “widely Furthermore, the exercise by an owner The Code provides for tangible and available mineral resources” (including, of ownership rights should not violate intangible property and for movable and in general, drilling for and exploitation the rights of neighbors and third immovable property. of underground water) for their own parties and, as such, the owner should needs, where the extraction is carried out not abuse its rights. Immovable property includes plots of land, without the use of explosives and from sub-surface areas, forests, plantations, a depth of not more than five meters. The Civil Code allows for a transfer buildings, structures and other objects of property to “trust management.” firmly associated with the land, i.e., objects Historical and cultural monuments16 A trustee must manage the property which cannot be removed without causing under private ownership are subject for the benefit of the owner or third significant damage (presumably, this also to registration, and the Ministry of parties indicated by the owner. includes pipelines, cables, etc.). Movable Culture and Tourism must be notified The Code does not provide any property is defined as anything that is of a proposed sale, as the State has details on such trust relationships. not immovable. a pre-emptive right to purchase such The Statute “On the Management of monuments. State Enterprises (Facilities) under Ownership Agreements”15 elaborates upon the rules The Land Code 1999 provides that foreign Acquisition of ownership rights for the management of property by non- persons, (including physical persons, legal over immovable property owners (outside the personal sphere.) entities, international organizations and Ownership and other rights with regard foreign states) cannot own land, though to immovable property must be State Presently, the situation with regard they do have the right to lease land. registered. A right to possess and use to the nature of the ownership rights Azerbaijani persons and entities, including immovable property arises as soon entities with foreign participation, can 16 According to the Law “On the Protection of Historical 15 Approved by Presidential Decree No. 437, dated 9 February freely own, use or lease land. and Cultural Monuments,” dated 10 April 1998, the list of 1996 monuments is approved by the Cabinet of Ministers.
dentons.com 67 as its sale and purchase agreement is and they were often inefficient in sets out the rules on the transfer of State notarized. A right of disposal, however, registering rights. The rapid change of or municipal owned land into ownership does not arise until the property is state the bodies in charge of land allocation or lease on the basis of land auctions registered. Currently, the registration is decrees and land tenure documents or tenders. carried out by the State Registry Service has further aggravated the problem – of Immovable Property attached to there have been at least four regimes All rights in respect of land owned by the State Committee on Property Matters established since independence: the first private persons are transferred to other (the “Registry Service.”) The Registry was established under the old Land Code persons on the basis of a notarized Service is charged with recording 1991; a new regime was established in agreement. In practice, typically, a notary the ownership and other rights to a package of legislative acts passed in Azerbaijan will insist on the use of his immovable property in the state register after the adoption of the law “On Land or her template land sale and purchase and the compilation and maintenance of Reform,” 1996 and the privatization agreement, although negotiated terms a unified register of immovable property. legislation; the third regime arose under between the parties can often be the Land Code 1999, which is currently in inserted into such template agreements. Some of the services provided force; finally, there were a few additional by the Registry Service are also provisions introduced on property rights Movable property performed by the State Agency for following the introduction of the Civil The Civil Code requires that the sale and Public Service and Social Innovations Code 2000. purchase of certain movable property under the President of the Republic of be recorded in official registers and that Azerbaijan (ASAN), which was established The Cabinet of Ministers, the Ministry of the transfer of such movable property by the Decree of the President of Ecology and Natural Resources or local must follow the rules for the sale and the Republic of Azerbaijan, No.685, dated executive authorities act as lessors in purchase of immovable property (Article 13 July 2012. According to this decree respect of leases of state-owned land. 650, Civil Code), i.e., sale and purchase ASAN service centers will perform, inter The same State authorities are authorized agreements must be notarized and alia, the following services: to make decisions on the allocation of registered with the State. state-owned land for use. • Primary state registration and On 11 April 2007, a Presidential Decree re-registration of ownership of Pursuant to Article 9 of the Law “On approved the Rules “On the Official apartments and the issuance of the Management of Municipal Land”, Registers of Movable Property, statements and technical certificates No. 160-IIIQD, dated 29 June 2001, the Compilation and Maintenance the ownership and lease rights over of such Registers.” According to • State re-registration of ownership of municipal land must be obtained only these Rules, the following are among individual houses and the issuance of through land auctions or tenders. Further the registrable items of movable statements and technical certificates amendments to the Land Code and to property: weapons, motor vehicles, ships, the Law “On the Land Market”, which aircraft, trains, films, rare publications, • Reference note of state registration on came into force on 12 December 2008, documents of the national archive restrictions (encumbrances) on rights accorded a priority right in the course of and moveable historic and cultural over immovable property land auctions/tenders for municipal land monuments. to certain categories of individuals. Land The Code confirms the rights of a bona The situation with respect to land is Presidential Decree No.972, dated 23 fide purchaser to movable property. complicated by the fact that, before October 2003, which approved the Rules However, (other than in relation to the Civil Code came into force in 2000, “On the Holding of Land Tenders and money, securities or items acquired several bodies were responsible for Auctions for the Transfer of State and at auction) a person is not considered issuing various land tenure documents, Municipal Land into Ownership or Lease,” a bona fide purchaser if the true owner
68 dentons.com of the property has lost such property, a compulsory manner; the ownership over Owners of apartments must bear certain through theft or otherwise, contrary to the constructions and installations which common management and other his will, or if the acquirer has given no are located on the land plot and owned by expenses, e.g., expenses incurred with valuable consideration. the owner of such land plot is transferred regard to a commonly held piece of land to other individual or legal entity; the land or for the maintenance of common parts. Termination of ownership rights is not used for the granted purpose; Ownership rights in immovable without a valid reason, the land is not Where the owner of an apartment fails to property terminate upon cancellation put to use where granted for agricultural pay his/her share of common expenses of the registration by the Registry purposes within two years (or within one for three years, the meeting of owners Service or the complete destruction of year where the land has been given for will have the following rights: the immovable property. non-agricultural purposes). • To register a charge over his share in Ownership of movable property will be Ownership jointly with others the common parts terminated where the owner surrenders Property may be under common his ownership right, the property is ownership of two or more persons, i.e., • To take a pledge over moveable destroyed or another person acquires the share of each owner can be held property located in the apartment of ownership rights in the property. severally (an independent share of each the defaulting owner being determined) or jointly (i.e. without The Constitution declares that no person determining a separate share for each). In practice, these steps are rarely, if ever, may be dispossessed of property without The former is the more usual case. taken and would be almost impossible a decision of the court. to achieve. The Civil Code deals ambiguously The law does, however, provide with ownership rights in residential It is noteworthy that a separate code, for compulsory state purchase or apartment blocks and enclosed areas the Apartment Code, which has been confiscation in certain circumstances, with separate entrances. The ownership in force since 1 October 2009, also for example, for State needs. If such right to an apartment, as an integral part contains provisions in respect of rights a decision is made by the relevant of an apartment block, is declared in in residential apartments. The Apartment State authorities and is registered in the Code to be in common (though this Code provides for special rules on relation to the acquisition of land plot is probably not what was intended) with the acquisition of residential buildings in where a residential building is located, the registered owner of the apartment emergency situations. the owners of apartments in such having the right of possession, use and residential building must be notified disposal in respect of the apartment Mandatory insurance of property about the decision in written form. belonging to him or her. On 18 September 2011, the Law “On The relevant compensation to the owners Compulsory Insurance” (the Compulsory of apartments shall be made based on an Furthermore, apartment-owners have Insurance Law) was adopted by the Milli agreement between the State authority shared ownership of common structures Majlis of the Republic of Azerbaijan. and the owner of the apartment or on outside or inside their apartments which The Compulsory Insurance Law sets forth a decision of the court. service more than one apartment in the general principles of four compulsory a residential building, as well as the main types of insurance – (i) compulsory Rights over land (other than ownership (load-bearing) constructions, mechanical, insurance of immovable property, (ii) rights) maybe terminated, inter alia, electrical, sanitary and technical and other compulsory insurance of civil liability in if: land tax payable by users of land, equipment and adjacent land. Owners of connection with the use of immovable or rent payable by lessees, is not paid apartments cannot independently alienate property, (iii) compulsory civil liability for one year without a valid reason; their shares in the ownership rights over insurance of owners of motor vehicles the land is purchased by the State in such common property. and (iv) passengers’ personal accident
dentons.com 69 insurance. The Compulsory Insurance Compulsory Insurance Bureau Law is said to be aimed at protecting The Compulsory Insurance Law How Dentons can help the property interests of individuals and mandates creation of a Compulsory Dentons has acted for owners, legal entities by ensuring that the losses Insurance Bureau and its registration vendors and purchasers, financial they suffer are compensated, while as a public association for the non- institutions, investment funds, real it expressly excludes the loss of profit. commercial purpose of, inter alia, estate developers and construction protecting the interests of insured and companies, as well as individual Two types of compulsory insurance other injured third parties and ensuring and institutional mortgagees. related to the immovable property are the stability and development of Dentons has assisted companies, defined as follows: the compulsory insurance system. In financial institutions and diplomatic order to obtain permission to underwrite missions in all aspects relating to • Compulsory insurance of immovable compulsory insurance, an insurer must the sale, purchase and mortgage of property – The Compulsory Insurance become a member of the Bureau and property, including: Law makes it obligatory for the owners pay a security deposit. or holders of immovable property, • Structuring commercial and whether individuals or legal entities, Useful website residential real estate projects, to obtain loss or damage insurance • Registry Service: including the preparation of coverage, with the exception of http://www.emdkdedrx.gov.az/ project and financial documents certain types of immovable property. Among covered insurance events are: • State Committee on Property Matters: • Reviewing title documents and fire, lightning strikes, natural disasters, http://www.stateproperty.gov.az/ performing title searches natural gas explosions, floods, third party actions, etc. • Advising on real property law, construction licenses and • Compulsory insurance of civil permits, taxation issues liability in connection with the use of immovable property has been • Drafting or reviewing sale and introduced to insure against damage purchase agreements to health and property of third parties in connection with the use • Successful defense of the rights of immovable property, as well as of property owners in the courts with construction, renovation, and other similar works being carried • Carrying out comprehensive out within the boundaries of such conveyance services immovable property. The use of immovable property is limited to • Advising banks and lenders on that by legal entities or individual taking and registering security entrepreneurs for the purposes of their respective entrepreneurial activities. The introduction of this type of insurance is, in our view, particularly important in the light of the high level of construction activity that is going on in the country.
70 dentons.com Frequently asked questions with respect to land and immovable property
1. Can a non-Azerbaijani citizen on which the building is situated, agreement with the owner of the land, or foreign legal entity (e.g., i.e., it is important to ensure proper the right of ownership to buildings, a registered branch of a foreign access to rights of way to and from structures and other immovable legal entity) own land in Azerbaijan? the property and rights to the laying property constructed on the land will on of services. transfer to the landowner. However, No. the Land Code 1999 provides that, 6. What rights does a purchaser of unless otherwise envisioned by an 2. Can a non-Azerbaijani citizen own a building get to the land beneath agreement with the owner of the land, real estate property other than land it? any temporary constructions must in Azerbaijan? be demolished at the expense of The purchaser of a building usually the land user or lessee. The rule Yes. acquires the right to use the relevant under the Law “On Leases” is that any part of land under the same building constructed by the lessee 3. Can I build on someone else’s land? conditions and to the same extent as without the permission of the lessor the seller. (i.e., the landowner) is the property of An owner of land may, subject to the lessor. observing the applicable construction 7. If I own a building on another standards and regulations, but also person’s land, what happens if 10. If I buy an apartment, who owns in compliance with the conditions in the land is sold? the yard and other ancillary land respect of the designation of the land, adjoining the apartment block? construct or demolish buildings on The transfer of ownership of land to its land or allow other persons to another person is not in itself a ground Plots of land adjoining residential construct upon it. for the termination or change in buildings owned by the State or the right to use the land by the owner a municipality (or which are partly 4. If I build on someone else’s land, of a building constructed on it. privatized) will remain under who owns the building? the ownership of the state and 8. Can a building owner dispose of municipality but will be given for You will own the building, as long or demolish a building situated on permanent use to the relevant as all necessary permissions were land owned by another person? organizations managing such blocks. obtained from the land owner prior to However, plots of land of completely construction. Yes. privatized residential buildings and non-residential buildings attached 5. If I own a building on someone 9. What happens to buildings to them should in theory be given to else’s land, can I use the land? constructed on another’s land when permanent use of the independent the right to use the land ceases? management organizations An owner of a building situated on established by the residents. land which belongs to another person According to the Civil Code, has the right to use that part of land unless otherwise specified by an
dentons.com 71
13 Leases
In Azerbaijan, the lease of land and Notarization and before the notarization of the relevant other immovable property is primarily registration of leases agreement. governed by the following laws: The Civil Code requires that a lease agreement involving immovable property 4. The foregoing documents would also • The Law “On Leases”, dated must be notarized. However, notarization routinely be requested for inspection 30 April 1992 (the Law on Leases) is not required for an agreement to lease by a notary engaged to notarize land from the state or a municipality. a lease agreement. • The Law “On Land Leases”, dated 11 December 1998 The Law “On the State Register of Contents of lease agreements Immovable Property” requires that any The law requires that a land lease • The Land Code, effective as of lease of immovable property for a term agreement contain at least a description 8 August 1999 exceeding eleven (11) months must be of the land (including its size, registered. The state does not guarantee designation, boundaries and use), • The Civil Code, effective as of the protection and immunity of land the term of the lease, a statement 1 September 2000 rights which have not been registered. of condition, the rent and payment terms, conditions of use and terms In addition to the concept of “lease” there Title documents relating to the exploitation, protection also exists in Azerbaijani law the concept Normally, the availability of the following and improvement of the land. of “use,” which is most commonly documents confirms the right of The agreement should also contain encountered where State land is a lessor to grant a lease of land or other the names and legal addresses of granted for a particular purpose (e.g. for immovable property: the parties and provisions on renewal construction purposes). The Civil Code (or amendment), early termination, force provisions for the rental of property also 1. An extract issued by the Registry majeure, consequences of breach and apply to lease agreements, unless the law Service (or other documents issued dispute settlement. stipulates otherwise. by the predecessors of the Registry Service). The extract should The law also binds the parties to the lease Parties to lease agreements confirm the right of use, lease or agreement to requirements which may Since foreign nationals/companies ownership (as the case may be) of not be mentioned in the lease. For cannot own land under Azerbaijani the leased property. example, a lessee is not responsible law, they cannot be lessors of land. for wear and tear on a leased property The Azerbaijani State, municipalities and 2. A technical passport which used for its designated contractual Azerbaijani persons (physical persons contains information about purposes. Also, the costs of maintaining and legal entities—including legal entities the technical parameters of and cleaning leased property are not with foreign participation) can act as the immovable property. recoverable from the lessor. lessors as well as lessees of land. 3. The so-called “Form No.1,” confirming Moreover, the leased property must be Foreign nationals/companies can, that the property is not encumbered. suitable for the uses outlined in the lease however, be owners and lessors of This document can be obtained from agreement and the lessor must continue immovable property other than land, the Registry Service or requested to maintain the property in that condition such as apartments. to be checked at the notary office throughout the entire term of the lease.
dentons.com 73 The lessor is also responsible for ensuring can terminate with immediate effect if that the property has the characteristics the lessee fails to pay rent or a substantial How Dentons can help specified in the lease agreement. It is portion thereof for two consecutive Dentons has acted for both lessors an implied term of a lease agreement of months or if the lessee uses the property and lessees and has assisted residential property that it is safe, with in such a way which substantially violates many companies, international no evident danger to life or health of the rights of the lessor. finance institutions and diplomatic the lessee. missions in all aspects relating to Under the Civil Code (Article 691), an leasing, including: A lease agreement which is not agreement to rent premises, for which in conformity with the mandatory the rent is paid on a monthly basis, can • Drafting or reviewing leases requirements of the law is void. be terminated by three months’ notice, provided the notice to terminate is • Reviewing title documents and Subleases and assignment submitted on the first day of the first performing title searches of leases month (e.g., the notice is submitted on 1 Under the Civil Code, the lessee of August to terminate a lease agreement • Advising on real property law, premises cannot sublet such property as of 1 November). However, Article 704 construction permits and without the consent of the lessor. of the Civil Code only gives this right to taxation issues The Civil Code suggests that consent the lessor. to sublet to a third party may be • Providing model lease withheld on objective grounds relating The Law on Leases appears to allow agreements to the identity of the third party. In any a lease agreement to be terminated case, it is advisable to include in a lease in accordance with the agreement of • Successfully defending owners, agreement a provision obliging the lessor the parties concerned. However, given lessors or lessees in the courts not to “unreasonably withhold” consent the content of Article 2.5 of the new Law to sublet. Alternatively, the lease can on Normative and Legal Acts (2010), be negotiated to include the specific the Civil Code should take precedence conditions for sub-letting. over the Law on Leases in the event of any conflict between the two legal In general, the Civil Code suggests that acts. It appears, as a consequence, the assignment of leases of land or other that the lessee could terminate upon immovable property is only possible with three months’ notice only if this was the consent of the owner or lessor of acceptable to the lessor, but not such land. otherwise.
Termination of lease agreements According to the Civil Code, a fixed- term lease agreement terminates upon the expiration of its term. But under certain conditions a fixed-term lease agreement can be terminated prior to the expiration of its term. For example, a lessee can terminate a lease agreement with immediate effect if the property substantially deteriorates and the lessor fails to remedy such breach. A lessor
74 dentons.com
14 Employment
Introduction would justify the conclusion of a fixed- the commencement of employment, The Labor Code (1999) (as amended) term contract. The Labor Code lists the employee’s position and the grounds is the principal legal act regulating various instances where a fixed-term for and date of employment termination. employment relations in Azerbaijan. employment contract is permitted. The employer also signs an entry in The Code prescribes minimum rights and the labor book on the termination obligations which must be observed in Content of employment contracts of employment. employment relationships. Although the parties to an individual employment contract may determine its Probationary periods Employment Relations structure and content, certain mandatory An individual may be employed Entry into employment contracts, provisions must be included. These subject to a probationary or trial period. amendments to employment contracts include terms and conditions relating The probationary period cannot exceed and information on the termination of to an employee’s position, employment three months and, for certain protected employment contracts become effective functions (i.e., job description) and categories of employees (those aged upon registration with the electronic the duration of employment. under 18; persons hired by competition, database maintained by the Ministry pregnant women and women having of Labor and Social Protection of The Labor Code does provide a model children under three years of age, as well the Population. form of employment contract. Although as men raising children under age three originally intended to be mandatory, later alone; persons hired in accordance with The State authority should issue drafts of the Labor Code were amended their profession (specialization) for the first to the employer an electronic to permit freedom of contract. time in the year of the graduation from an confirmation of the registration of educational organization for the profession, the employment contract (amendments, Hiring a new employee persons elected for paid elected positions, termination) within one business The Labor Code requires that an persons with whom the labor contract day following the submission of employer collect and keep at the work was concluded up to two months), the relevant notification. place certain documents which evidence it cannot be applied at all. Either party may the existence of employment terminate the employment contract during The employer may be subject to relationships. Such documents include the probationary period by giving three administrative liability and, subject to the employee’s labor book, copies of days’ notice but, if the termination is to be certain conditions, criminal liability, for the employee’s identification documents, carried out at the initiative of the employer, engaging individuals for any work without state social insurance certificate, the contract must specify the grounds an effective employment contract. certificates evidencing his/her education on which it may be terminated during and training and medical certificates in the probationary period. Fixed-term contracts special cases. The employer, in practice, An individual employment contract may usually issues an internal order on hiring Compensation be concluded for either an indefinite new staff. Contracts must be recorded in Employees must be paid in Azerbaijani period or a fixed period of up to five a special book or computer record. Manats. An employee may be years. If the term of the fixed-term compensated in cash or, if he or she contract lasts continuously for more With the exception of certain specifically requests, by way of wire transfer to than five years, it will be deemed to be exempted categories, an employee a bank account. an indefinite term contract. However, entering into an individual employment generally, if the employment functions contract must produce a labor book. Under the Labor Code, salaries should, to be fulfilled are permanent in nature, As the document confirming length as a rule, be paid in two installments an employment contract must be of service of the employee for specific per month. However, where salaries are concluded for an indefinite period. purposes, the labor book should calculated on an annual basis, payment is Temporary work, on the other hand, contain information on the date of permitted once a month.
dentons.com 77 Working Hours the employee and the possibility to the employer for at least six months but Under a normal work regime, an return home every day is impractical. certain categories of employees, e.g., employee must not work more than The recording unit under the regime employees under 18, are not subject to eight hours per day or more than 40 of cumulative recording of working this restriction. At least one period of hours per week. time can be any calendar unit (e.g., leave in each year should be for not less one month, three months, etc.) but than two calendar weeks. Depending on the category of the job, it may not be longer than one year. the age of the employee, working The duration of daily work during During the second and subsequent conditions, etc. the legislation also such regime may not exceed 12 hours. years, leave is given at a time agreed provides for a reduced working week for The number of working hours during in accordance with the order of certain groups of employees: the recording unit should not exceed priority approved by the local trade the number of normal working hours union, if any, or in its absence, by • Those up to the age of 16: not more prescribed by the authorities for the employer after discussion with than 24 hours per week the same period. the employee. In order not to upset the normal production and working • Those between the ages of 16 and 18, Overtime is permissible only in exceptional process, a schedule of priority in giving as well as category I and II invalids, circumstances, for very limited periods leave may be drawn up for the year by pregnant employees and employees and subject to strict compliance with, and the end of January. having a child under the age of 18 additional compensation prescribed by, months: not more than 36 hours the Labor Code. Statutory references to An employee may be required to work on per week “overtime” do not include work at weekends a holiday only in prescribed exceptional or on holidays, as these are provided for circumstances. As a rule, a five-day working week is separately. Overtime may not be required the norm. At companies where a five- of certain categories of employees, e.g., Safety at Work day working week is not convenient for those who work in extremely hazardous An employee has the right to work production purposes, a six-day working work conditions. under safe and healthy work conditions. week may be applied. In a six-day The safety rules applicable to work working week, the normal working day Vacation and holidays places are aimed at improving should not exceed seven hours where An employee is entitled to four employment conditions and preventing the working week is 40 hours. Working different types of leave: employment- industrial accidents, injuries and hours on the eve of holidays are related leave/vacation (basic and occupational hazards at the work place. reduced by one hour in both five-day supplementary), social leave (which For example, an employer must ensure and six-day regimes. includes maternity leave), study leave that buildings, equipment and facilities and unpaid leave. While the duration are safe and that sanitary and hygienic Part-time work may be agreed between of basic employment-related leave requirements are observed at the work the employer and the employee; is 21 calendar days, certain positions place. Each enterprise must have fire however, the employee will be entitled (e.g., specialists, managerial staff) are extinguishers and fire safety guidelines to the full protection of Azerbaijani entitled to 30 calendar days. Depending which, among other things, allocate labor laws. on work conditions, experience and smoking areas, describe evacuation other prescribed factors, an employee rules and set forth duties regarding Work may, if desired, be based on may be entitled to one or more inspection of premises at the end of a regime of the cumulative recording supplementary vacations. the work day. There are also detailed of working time. This method is usually safety rules in respect of the use of adopted when work is carried out An employee may, in general, take computers and other equipment far from the place of residence of leave only after having worked for emitting electromagnetic rays.
78 dentons.com Employment termination • Failure to pass the probationary period of moral damage which may be An employment contract may claimed by the employee—this is at be terminated on the following • Reaching pensionable age (applies the discretion of the court hearing general grounds: to employees of enterprises financed the case as long as the quantum of from the state budget). moral damage has been pleaded by • Termination by one of the parties to an the employee in his or her claim. employment relationship The termination of an employment relationship must be appropriately Oil industry • Expiration of an employment documented. A large number of PSAs have been contract’s fixed term entered into by the various oil Redundancies consortia with the Government of • Change of employment conditions Certain types of employees (e.g., Azerbaijan, and most of these have mothers with children under the age been passed into law. Consequently, • Change of owner (applies to certain of three) cannot be made redundant they are important in determining senior managerial personnel only) and certain other categories (e.g., war the law applicable to employment veterans) can be terminated only if contracts of employees engaged • Circumstances beyond the control of certain strict conditions apply. in the oil industry. The PSAs,17 in the parties summary, state that the employer is In any event, an employee whose free to implement practices relating to: • Other additional grounds stipulated in job is redundant must be given two an employment contract months’ notice (or be paid in lieu of • Recruitment notice, at the employee’s option) and • Termination of an employment contract one month’s severance. The employee • Dismissal must be justified on one of the grounds will also be entitled to be paid for two available for employment termination further months if he or she has not • Performance review under the Labor Code. The Labor Code found another job and is registered as prohibits reference to more than one unemployed. • Incentives. ground or reference to grounds other than those specified in the Labor Code. Any termination of employment needs These are customary in international to be carefully, lawfully and sensitively petroleum operations and — in The Labor Code also provides six specific handled. Failure to do so can lead to the experience and judgment of grounds under which an employer may expensive and disruptive litigation. the employer — are best able to promote terminate an employment contract: An employer who has breached an efficient and motivated workforce. the employment rights of an employee • Employer’s liquidation or closure is liable to compensate the employee
for the damage done or loss caused. 17 19 E.g., the Agreement On the Joint Development and • Staff reduction or downsizing An employee who has a grievance may Production Sharing for the Azeri and Chirag Fields and the Deep-Water Portion of the Gunashli Field, dated 20 file a case in the district court. September 1994. Cf. Art. 6.7(c) which states that “All Azerbaijani citizens hired by any Sub-contractors shall be • Decision of a special commission hired pursuant to a written employment contract which of the employer that the employee “Damage” can extend to what is known shall specify the hours of work required of the employee, the compensation or benefits to be paid or furnished by is unqualified or incompetent for as “moral” damage—defamation the employer and all other terms of employment. Such employees may be located wherever the Sub-contractors the position of character, insult (verbally or by deem appropriate in connection with the Petroleum action), humiliation of the employee, Operations Sub-contractors shall be free to implement recruitment, dismissal, performance review and incentive • Employee’s failure to fulfill etc. The Labor Code, 1999, does compensation programs and practices that are customary in international Petroleum operations and in Sub- employment obligations not impose any limit on the amount contractor’s experience and judgment are best able to promote an efficient and motivated workforce.”
dentons.com 79 This appears to give great scope to remuneration. The contribution is accordance with its provisions without the employer (though what is customary paid to the Social Protection Fund other statutory obligations being in international petroleum operations is (SPF). The employer’s social security imposed.) In addition, clients may rather vague) but it makes no reference contributions are 22 percent of total have certain tax and social security to common and important provisions remuneration. In general, the base for advantages in establishing this form of contained in most contracts, e.g., leave calculating income taxes is the same for relationship. entitlement, maternity benefits, etc. calculating social security contributions, It can be concluded, therefore, that an but there are some important differences. Employment contracts are governed employer falling under the umbrella For instance, sick leave allowances are by the Labor Code (as amended). of a PSA is reasonably free (within subject to tax but are not subject to Contractor arrangements are governed the confines of what is customary in social security contributions. by the Civil Code (as amended), by international petroleum operations) to set provisions which apply to what are such policies as it sees fit in respect of Employment of foreigners generally known as civil-law agreements. the matters listed above, but that other With the exception of certain categories The latter might include the provision of matters will fall under the consideration of foreign employees (including one-off services such as translating or of the general labor law of Azerbaijan in permanent residents of Azerbaijan, interpreting or more regular work (e.g., the normal way. individual entrepreneurs, heads driving, cleaning.) and deputy heads of branches or Social insurance and taxation representative offices of foreign legal Employers worldwide have often Employees are taxed through entities operating in Azerbaijan and sought to avoid the sometimes a withholding mechanism. The employer the heads and deputy heads of legal onerous consequences of entering is required to withhold income tax entities established in Azerbaijan where into employment relationships by and the employee’s social security at least one of the shareholders is re-defining the relationship as one for obligations from the employee’s salary a foreign individual or a foreign legal the provision of services. Whether such and to pay over the withheld amount to entity), a foreign national may not work in re-definition is successful in avoiding the appropriate authorities. Azerbaijan without a work permit. the potential burdens imposed by an employer-employee relationship Unless there has been an arithmetical Employee or contractor? is very often a question of fact and error or the employee consents to this, In many countries, employees are given intention, which sometimes must be excess payments made to an employee a special status, governed by special laws proved to the satisfaction of the court. as a result of failure to enforce the law aimed to protect them and provide them Dentons is experienced in drafting both (e.g., failure to withhold taxes) cannot be with benefits that are considered socially employment contracts and contracts recovered by the employer by deduction desirable (e.g., maternity leave, sick leave, for services. from later payments. The top rate of paid vacations, job security, etc.). In this income tax is 25 percent on monthly respect, Azerbaijan is no different. income over AZN 2,500. Individuals providing services other Taxable income will generally include all than as employees (referred to here as bonuses, non-arms’ length transactions “contractors” to differentiate them from and benefits-in-kind other than those the recipients of services, which we of a social nature. There are, however, shall refer to as “clients”), do not receive certain exceptions. the protection offered to employees other than through the normal Employee’s social security contributions contractual relationship (i.e., the contract are three percent of employee may, in general, be terminated in
80 dentons.com How Dentons can help
Dentons is the acknowledged leader • Providing a model agreement that in Azerbaijan in the provision of is specifically designed to assist employment services. Dentons has the employer in understanding assisted companies in all aspects employment legislation in relating to employment matters, Azerbaijan. including: • Defending employers in the courts • Providing advice regarding in unfair dismissal cases prospective staff – choosing the right people is important to any • Assisting with obtaining work organization but special factors permits and employee work books in Azerbaijan mean that careful selection, especially for positions of • Operating payrolls, file tax and trust, is critical. social security reports
• Carrying out employment • Undertaking income tax and audits – to ensure that contracts, social security reviews to ensure internal procedures, records and the correct amounts are being regulations conform to the law, paid and the right documentation Dentons can carry out employment available audits. • Planning redundancy strategies • Drafting employment and contractor agreements. Dentons • Drafting grievance procedures, does not normally recommend staff manuals and disciplinary rules the use of the model employment contract provided in the Labor Code, other than in very rare instances. Dentons is able to draft employment contracts in accordance with Azerbaijani law, but which give much greater protection to the employer than those provided for in the model.
dentons.com 81
15 Currency regulation
Introduction A special regime applies to Resident and non-resident individuals Currency operations are regulated mainly the remittance of funds that were may make transfers freely from their by the Financial Market Supervisory previously brought into Azerbaijan in Azerbaijani accounts to overseas bank Authority, the Central Bank of Azerbaijan cash form or transferred from overseas accounts of up to US$1,000 per banking and the State Customs Committee to a local bank account, including those day, but not exceeding US$10,000 per of Azerbaijan. Separate rules are transferred from overseas via a payment month, by indicating the purpose of specified for residents (generally, legal system without opening a bank account. the transfer. Resident individuals may entities registered in Azerbaijan and The regime includes the submission make transfers, but not exceeding Azerbaijani citizens) and non-residents of relevant documents (e.g. an original US$10,000 per month, to their immediate (generally, legal entities registered customs declaration, a document family members living or temporarily outside Azerbaijan, their branches and evidencing the transfer of funds from residing abroad. representative offices in Azerbaijan). overseas to a local bank account or a bank document confirming the transfer Both resident and non-resident Remittances of finds via a payment system without individuals may also transfer foreign Residents and non-residents may, on opening a bank account). currency in the amount of up to the provision of evidence of an import US$1,000 overseas per banking day, but or inward remittance, remit outside of Non-resident individuals may repatriate not exceeding US$10,000 per month, Azerbaijan whatever funds have been salaries, dividends and interest after without opening bank accounts via local previously brought into or remitted providing evidence for the payment licensed banks. to the country. The repatriation of of taxes in respect of such income/ income earned by non-residents from payments. In the case of dividends or Customs control of cross- investment activity is allowed after interest, such evidence will normally border movements of cash providing a certificate of payment of be the order to the bank making The following customs rules apply to “relevant taxes and duties” or providing the remittance to pay the appropriate foreign currency brought into/taken out the relevant tax exemption documents. withholding taxes to the tax authorities. of Azerbaijan in cash: Similarly, the payment of dividends to shareholders is generally permitted. The banking system is responsible for Cross-border transfers in cash Documents and conditions of transfer ensuring compliance with these rules, and investors should be careful to obtain Bringing in foreign currency in any No restriction, subject to complying with and keep certificates from their banks amount the relevant customs formalities concerning inward remittances. Taking out foreign currency not Verbal declaration to customs exceeding the equivalent of US$10,000 authorities Taking out foreign currency exceeding Presenting documents confirming that the equivalent of US$10,000, but less funds have been previously brought into than the equivalent of US$50,000 Azerbaijan in cash form and completion of a written customs declaration Taking out foreign currency exceeding Prohibited the equivalent of US$50,000
dentons.com 83 Foreign currency bank accounts Finance of trade and investments Basically, all banking or cash transactions Advance payments are made subject made within Azerbaijan must be in to the presentation of supporting Azerbaijani Manats; but, subject to legal documents for a particular transaction entities and entrepreneurs obtaining (i.e., contract, invoice, order, etc.). Only a “duplicate certificate” from the tax the importer/purchaser of goods, works and social insurance authorities, there and services may pay to the seller, unless is no restriction on maintaining foreign the import agreement was concluded currency accounts in Azerbaijan. Such in favor of a third person, in which case accounts may, however, generally only the importer/purchaser of goods, works be used to receive foreign currency from and services and/or the person that is overseas. a party to the import agreement would pay for the imported goods, works An Azerbaijani entity may generally open or services. A new deadline has been bank accounts in banks located abroad, introduced requiring the submission to though new rules are expected for the bank of a customs declaration or entities that are subject to regulation in a document confirming the provision financial markets (e.g., entities engaged of imported services within 180 days in licensable activities in the securities from the date of the advance payment. market, credit organizations, professional The failure to provide the relevant participants in the insurance market, documents within the established investment funds and investment funds deadline may lead to administrative managers). As from 1 January 2008, liability and the relevant bank shall report all Azerbaijan taxpayers must obtain such failure to the Financial Market a “duplicate certificate” and submit Supervision Authority. a reporting form for the opening of accounts in non-resident banks for business purposes. Failure to do so could result in a financial sanction of 100 percent of the amount deposited into the account.
84 dentons.com
16 Licensing and permits
Before lawfully engaging in business The Law on Licenses and Permits The Law on Licenses and Permits also in Azerbaijan, physical persons and sets out criteria for types of activities refers to an Electronic Licenses and legal entities having certain activities requiring licenses and permits (except Permits Portal, as well as to a Single must satisfy applicable administrative within the financial markets) and an Register for Licenses and Permits. requirements, including the obtaining of exhaustive list of licenses and permits, It contains a list of information which licenses or authorizations/permits. While different ministries or state shall be included on the portal and in agencies are involved in the licensing the register. Licenses and permits are The licensing regime in Azerbaijan is sector, the Ministry the of Economy to be issued for limited and unlimited regulated by several legal acts, the most and ASAN provide general control and periods of time depending on significant of which are the following: administration over licensing procedures, requirements of relevant legislation. including the preparation of the main • Law “On Licenses and Permits”, No regulatory directions and draft legislation, The specific procedure for the issuance 176-VQ, dated 15 March 2016, which the supervision of implementation of licenses is set out in the 2002 Decree is in force form 1 June 2016 (“Law on by other government agencies and of the Cabinet of Ministers No. 174, which Licenses and Permits”) the maintenance of a unified register. defines the list of documents required to obtain a license, depending on the type • Decree of the Cabinet of Ministers According to the Law on Licenses and of licensable activity. No. 174, dated 7 November 2002, “On Permits, the issuance of licenses and Additional Conditions for Granting permits, duplicates of such licenses and Licenses are divided into general and Special Permissions (Licenses) for permits and amendments thereto, and special licenses. A general license Certain Types of Activities” (with the re-issuance, suspension, resumption is a license granting the right to be further amendments, the latest of and cancellation of licenses and permits engaged in a licensable activity for each which were introduced 15 January shall be made through an Electronic of the listed sub-groups of licensable 2016) Licenses and Permits Portal. Licenses activities without a special license. now will be issued within 10 days from A special license is a license granting • Decree of the President No. 713, the date of application (the previous the right to be engaged in one or more dated 21 December 2015, “On Certain regulations provided for a 15-day period), sub-groups of licensable activities. Actions in the Area of Licensing” and permits will be issued within seven The license holder alone shall be entitled days. The Law on Licenses and Permits to use the license granted, which cannot • Decree of the Cabinet of Ministers sets out a procedure for the notification be transferred to another person. No. 347, dated 16 September 2016 of the applicant by the relevant authority approving Rules on the Maintenance within five days of the need to eliminate The Law on Licenses and Permits has of a Single Register for Licenses defects in the application and attached three annexes: 1) a List of activities and Permits documents, as well as the right of which require a license (except for cases the applicant to eliminate such defects related to national security); 2) a List of In an effort to improve the investment within 10 days. activities related to cases of national climate, the Government of Azerbaijan security which require a license; and has implemented a number of positive The Law is applicable to all legal entities, 3) a List of permits to be issued for actions, among the most important including branches and representative entrepreneurial activity. of which was Law on Licenses offices of foreign legal entities, and to and Permits, which has reduced private entrepreneurs (except in financial We have provided below the list of the number of licensable activities markets), as well as to the authorities licensable activities reflected in the Law to 24 (plus five activities related to granting license and permits. on Licenses and Permits): national security).
dentons.com 87 List of activities which requires license (except for cases related to national security)
1. Toxic industrial waste: transport facilities 19. Veterinary medications: 1.1 Utilization 9. Liquid and natural gas plants: 19.1 Production 1.2 Neutralization 9.1 Installation 19.2 Sale 2. Private medical activities 9.2 Exploitation 20. Plant protection means and 3. Pharmaceutical activities: 10. Mining-extractive works, mining and agrochemical substances: 3.1 Production of drugs well excavation works 20.1 production 3.2 Gross sale of drugs 11. Installation and repair of elevators 20.2 import 3.3 Retail sale of drugs 12. Exploitation of side-shows 21. Establishment of private hunting 4. Precursors: 13. Installation and repair of lifting plants 4.1 Production facilities, metallurgical equipment, 22. Procurement of wild raw plant drugs 4.2 Import boilers, vessels, operating under for production 4.3 Export pressure 23. Preparation of different types of 4.4 Transit transportation 14. Diagnostics and other maintenance stamps and seals 5. Educational activities: inspection of equipment and 5.1 Pre-school education technical facilities exploited in organizations the potentially hazardous facilities 5.2 General educational 15. Fire protection activity: organizations (including lyceums 15.1 Fire protection on the basis of and gymnasiums) an agreement with entities and 5.3 Elementary vocation educational settlements organizations (vocational schools 15.2 Production and purchase of and vocational lyceums) fire extinguishing equipment, 5.4 Mid-vocational educational conducting of tests organizations 15.3 Installation of fire protection 5.5 Higher education institutions systems and facilities, technical 5.6 Additional educational service and repair organizations 15.4 Repair and servicing of fire 5.7 Mid-vocational religious protection equipment, primary education institutions firefighting equipment, quality 5.8 High school religious education of restoration of firefighting 6. Communication services: equipment 6.1 Telephone (wire) 15.5 Engineering-survey works 6.2 Radio-trunk and wireless concerning buildings and 6.3 IP-telephony (internet-telephony) structures which require 6.4 Arranging of internal construction permit telecommunication channels 16. Construction-assembly works 6.5 Arranging of international concerning buildings and structures telecommunication channels which require construction permit 6.6 Transfer of information (data) 17. Designing of buildings and structures 6.7 Express postal service which require construction license 7. Storage of radioactive and ionized subject to applicability of information radiation waste execution 8. Transportation of hazardous cargo by 18. Private veterinary medical activity
88 dentons.com List of activities related to The Law “On the State Duty”, Presidential Decree No. 509 also ordered cases of national security dated 4 December 2001, specifies the establishment of a web portal which requires license. the appropriate state duty for each that would collect data provided by 1. Private security activity category of activity granted by relevant the central and local executive bodies 2. Activity in the sphere of designing license or permit. with respect to the name of the permit, and producing information protection the legal basis, the list of required means List of permits to be issued for documents, the issuing body, etc. 3. Establishment of biometric entrepreneurial activity The web portal www.icazeler.gov.az was technologies and provision of According to the Law on Licenses and created and officially launched on 15 services to such technologies Permits a “permit” is an official document March 2012. 4. Formation of personal data (permit, approval, certification, certificate, information resources and accreditation) granted by the authority establishment of information systems responsible for issuing the permit and provision of services for such for the purpose of the fulfillment of systems and resources the relevant entrepreneurial activities 4.1 Cellular (mobile) communication or certain actions in connection with services (with reference to the implementation of entrepreneurial the name of technological activities. The list of permits includes 86 standard) types of commercial activities. 5. Television and Radio Broadcasting activity: Interestingly, in the Doing Business 2017 How Dentons can help 5.1 Television broadcasting to Report published by the World Bank, Dentons has advised the entire Republic Azerbaijan ranked 65 out of 190 countries many companies and 5.2 Television broadcasting to Baku in the overall ease of doing business, financial institutions on city including a ranking of 5th in the category the legal requirements for licensed 5.3 Regional television broadcasting of starting a business. There is still room activities and has assisted in 5.4 Radio broadcasting to the entire for improvement, however, as the country the procurement and renewal of Republic was ranked 127th in the category of the relevant licenses and permits 5.5 Radio broadcasting to Baku city “dealing with construction permits.” necessary for our clients’ activities 5.6 Regional radio broadcasting in many sectors of the economy. 5.7 Additional information However, Azerbaijani legislation in broadcasting the field of licensing is constantly 5.8 Cable network broadcasting with evolving. Presidential Decree No 509, the number of subscribers up to dated 26 October 2011, emphasized 5000 the notion of the purposes of licensing, 5.9 Cable network broadcasting with which might serve as a means of the number of subscribers over liberalizing the licensing legislation. 5000 These purposes can be divided into two 5.10 Satellite broadcasting categories: those aimed at the protection 5.11 Activity on ensuring the satellite of state interests and those aimed at broadcasting of foreign radio and the protection of the personal rights and television channels by means of interests of individuals and legal entities. encoding devices
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17 Intellectual property
Introduction • The Madrid Agreement Concerning the Purposes of Patent Procedure, 1977 Along with most newly-independent the International Registration of Marks, states, the infringement of intellectual 1892 (which essentially allows an Azerbaijan has the status of observer property rights is not uncommon in international registration to extend in respect of the WTO Agreement on Azerbaijan. Nevertheless, Azerbaijan has to all countries that are parties to Trade-Related Aspects of Intellectual acceded to a number of conventions the Agreement.) Property Rights signed in Marrakech on designed to protect intellectual property 15 April 1994, which establishes minimum rights, and the successful enforcement • The Protocol to the Madrid Agreement standards for the protection of various of rights is often possible. Concerning the International objects of intellectual property rights. Registration of Marks, 1989 (which Legislation contains basically the same provisions Registration of intellectual The basic laws regulating intellectual as the Madrid Agreement itself, but with property rights property in Azerbaijan are: some important differences, e.g. under Before independence in 1991, there the Protocol one can ask for international was a centralized system of registration • On Copyright and Related Rights, 1996 registration based on only of intellectual property rights based in Moscow. Subsequently, however, • On Patents, 1997 • the application of a trademark, rather Azerbaijan established its own than the registration.) registration center. The State authorities • On Trademarks and Geographical responsible for registering intellectual Indicators, 1998 • The Patent Cooperation Treaty, 1970 property rights are the State Copyright (which makes it possible to seek Agency and the State Committee for • On the Legal Protection of the Layout patent protection for an invention Standardization, Metrology and Patents of Integrated Circuits, 2002 simultaneously in each of a large (the Patent Committee, established at number of countries by filing a single the end of 2001). • On Protection of Expressions of “international” patent application.) Folklore, 2003 Disputes related to industrial property • The Eurasian Patent Convention, 1995 rights are considered by the Appellate • On the Legal Protection of (which allows the filing of a single Board of the Patent Committee. Compilations, 2004 patent application in the Russian Decisions of the Appellate Board can be language with an automatic extension challenged in Azerbaijani courts. • On Ensuring Intellectual Property to member states.) Rights and Combatting Piracy, 2012 Enforcement mechanisms • A number of classification-related Presidential Decree No 195, Azerbaijan has ratified a number of treaties – the Locarno Agreement dated 7 December 2011, ordered important international conventions in Establishing an International the establishment of an Intellectual this area, including: Classification for Industrial Designs, Property Enforcement Center under 1968; the Nice Agreement Concerning the National Copyright Agency. • The Berne Convention for the International Classification of The Enforcement Center is expected to the Protection of Literary and Artistic Goods and Services for the Purposes deal with the enforcement of copyright Works, 1886 of the Registration of Marks, 1957; protection and the training of specialists the Strasbourg Convention on in the field. • The Paris Convention for the Protection the International Classification of of Industrial Property, 1883 (the Paris Patents, 1971; and the Budapest Treaty The Law “On Ensuring Intellectual Property Convention, which, inter alia, provides on the International Recognition of Rights and Combatting Piracy” (2012) is priority for a local registration.) the Deposit of Microorganisms for designed to complement the existing
dentons.com 91 laws with the mandate to achieve better the efficient search of trademarks Well-known marks protection objectives. This controversial impossible. This sometimes results in By reference to Article 6bis of the Paris piece of legislation spurred debate the double registration of the same Convention, protection is accorded to over its lack of clarity. Initially intended trademark in the name of different marks which have been recognized as for copyright protection, its scope was trademark claimants, with the natural well-known by the competent authority extended shortly before adoption. Though consequences being disputes over of the country of registration or use. the law was expected to offer more ownership. It appears that, as searches In Azerbaijani recognition as a well- effective measures of legal protection, have to be performed manually, known mark will prevent the use of it has introduced a number of far-reaching the Patent Committee has temporarily the mark in respect of any types of judicial and other mechanisms for halted official searches of trademarks. goods and services where such use addressing the infringement of intellectual Searches are performed on an unofficial causes damage to the holder. When property rights. basis. recognizing a mark as well-known the Patent Committee will take into For instance, the Law elaborated on The Law “On State Duties” (2001) account such factors as the extent temporary judicial measures that are has been revised recently to remove to which the goods and services in available. The law makes it possible to the State duties for registering connection with which the trademark require—through a court action—that a trademark. The respective fees is used, are known in Azerbaijan; a person allowing an infringement for trademark registration are now the distribution channels of such of intellectual property rights determined by the Patent Committee and goods/services, the distinctiveness provide information on the directly various actions related to the registration of the trademark, including those or indirectly infringing third party of trademarks range from AZN 48 to AZN obtained through use; the territory and that the respondent provide 248. State duties for other actions, such within which trademark is used, information on the distribution as filing opposition, registering a license the length and scope of use, etc. To channels for the infringing goods. agreement, trademark renewal, etc., date there appear to be no marks that It also makes possible a judicial remain unchanged. have been formally recognized as award of damages from the person well-known. that allowed the infringement, even As a general rule, foreign legal entities where such person was not aware of must file a trademark application through Known marks the unlawfulness of such actions with a recognized patent attorney. However, The concept of use-based protection regard to the use of the intellectual the registration of a mark with the Patent is slowly expanding. The most recent property object, or where there were Committee does not necessarily mean legislative changes have expanded insufficient grounds for such person that the mark will be protected during the grounds based on which a trademark to know. The law has also introduced the validity period: there are a number application can be refused, by a number of non-judicial protection of circumstances where a registration introducing the notion of marks that have mechanisms, such as the use of unique may be cancelled or annulled. One such earlier acquired distinctiveness among digital codes to enable identification instance is the non-use of the mark in consumers and manufacturers through and the use of ISBN, ISMN, ISSN, ISAN Azerbaijan for five consecutive years. use (known marks). and ISRC to be assigned to objects of Where there is a license agreement copyright and related rights. for the use of a mark by a person in Parallel imports Azerbaijan, the agreement must be Though the Law on Trademarks and Registration of trademarks registered with the Patent Committee. Geographical Indicators provides for – some pitfalls Otherwise, if a registered mark has not the national exhaustion of trademark A major problem with the registration been used for five years by the owner or holders’ exclusive rights, the theoretical of trademarks is the absence of a registered licensee, the registration of and practical debate on the issue computerization, which makes the mark in Azerbaijan may be cancelled. of parallel imports remains far from
92 dentons.com settled. However, as the prevention of • Requesting the arrest of goods parallel imports becomes important imported into Azerbaijan bearing How Dentons can help for businesses – and with gradual an infringing mark (except for Dentons is a leader in Azerbaijan improvements in enforcement legislation transit goods and goods acquired in aiding companies to protect – the issue should soon find solid ground. abroad from sale by owner or upon their intellectual property rights. the owner’s consent). These goods We have assisted companies in all Customs register can be impounded for 10 business aspects, including: Azerbaijani law allows for the possibility days (with the possibility of extension) to record an object of intellectual based on a court order. • Enforcement – Dentons has property, such as a registered trademark successfully assisted companies right, with a register maintained by • Applying to the customs authorities, in persuading infringers to the customs authorities. However, upon reasonable grounds, to seize cease their infringing acts both the register is not yet operational due goods bearing a mark infringing before and after application to to a number of reasons, including the owner’s or the licensee’s rights government agencies. the amount and nature of the warranty and obtaining information about to be provided by the applicant in case the sender and quantity of goods. • Defending trademarks in goods the entry of which is suspended the courts and before the Patent upon the applicant’s request turn out to • Recording registered trademarks with Committee – Dentons has be legally imported. the Customs Committee Register of successfully prosecuted cases Intellectual Property for the purpose against infringers. Legal protection of of preventing the importation of registered marks illegal goods. • Advising on, and giving legal The following measures for legal opinions on, whether a particular protection are available to owners of • Protecting holders of exclusive slogan or name will contravene registered marks: trademark rights against the law or the intellectual parallel import. property rights of others. • Applying to the Ministry of Economic Development, which is charged Legal protection of copyrights • Advising on measures to protect with enforcing the legislation on When considering the infringement against parallel imports. the protection of trademark rights, of copyrights and related rights, along as well as on unfair competition, with the general means of defending • Organizing official raids by including the unauthorized use of a right, the court may also apply one of the Ministry of Economic trademarks. the following: (a) withhold the income Development on markets trading obtained by the infringer as a result of in suspected counterfeit goods. • Obtaining an injunction and claiming: the infringement, in lieu of compensation termination of the use of an infringing for damages, (b) decide on trademark; compensation for damage compensation in the amount from 100 caused by the illegal use of a mark or to 50,000 times the minimum monthly compensation for damage caused salary, in lieu of the payment of damages by counterfeit goods (from AZN or the withholding of income. The current 1,000 to AZN 50,000); confiscation amount of minimum monthly salary or destruction of the goods infringing is AZN 105, and the potential penalty a trademark (as well as materials and therefore ranges from AZN 10,500 to AZN equipment used in the production of 5,250,000.18 counterfeit goods). 18 Article 45 of the Law on Copyrights.
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18 Language: The use of Azerbaijani
Introduction State language Penalty for Resisting Since independence, the use of The Constitution states that the Use of Azerbaijani the Azerbaijani language has become the state language of Azerbaijan shall An administrative penalty in the amount more and more common. Inevitably, be “Azerbaijani.” of AZN 1,000-1,500 for individuals, AZN this has given rise to issues concerning 2,500 – 4000 for officials and AZN the use of foreign languages (in It appears that, in certain areas, the use 12,000 – 16,000 for legal entities may be particular, Russian) and the Cyrillic of the Azerbaijani is obligatory. These imposed for the following: alphabet. Laws have been in place include the following: from an early date regarding the state • Propaganda against the use of language, but since the late 1990s • Court and notary proceedings Azerbaijani pressure has been growing to enforce the universal use of Azerbaijani written • Replies by state authorities to • Resisting the use and development of in the Latin script. A presidential proposals, applications and Azerbaijani decree issued in June 2001 created complaints of Azerbaijani citizens a great deal of confusion, but • Attempts to limit the sphere of use of essentially it instructed the drafting • Clerical work at enterprises, Azerbaijani of a new law and the introduction institutions and organizations of certain other actions. Even today, • Obstructing the use of the Latin finding fluent speakers and translators • Letterhead, seals, stamps and alphabet for Azerbaijani of both Azerbaijani and English is nameplates of enterprises, institutions, not easy. The laws themselves are organizations, etc. Failure to provide information to often imperfectly drafted, because of consumers (which may include the drafters’ inadequate grasp of legal • Accounting ledgers the absence of a translation into Azerbaijani terminology. This chapter Azerbaijani) may result in a penalty in examines some of the issues involved. • Labels and instructions for use on all the amount of AZN 200. goods sold on the domestic market Failure to translate labels and instructions In registration proceedings, the Ministry for use into Azerbaijani may result in of Taxes is now regularly requiring the temporary withholding of the goods corporate names to be transliterated from circulation until the non-compliance into Azerbaijani. is rectified.
dentons.com 95 Use of other languages • If a taxpayer’s bookkeeping records In accordance with the Constitution, have been drawn up in a foreign How Dentons can help Azerbaijan provides for the free use language, the State tax authorities Dentons has advised several and development of other languages may require the translation of such major multinational corporations spoken by the people of Azerbaijan. documents into Azerbaijani. in respect of advertising, labeling, The Constitution also guarantees accounting and record-keeping the equality of rights and liberties of Despite the fact that provisions of with regard to the proper use each person irrespective of language the Law “On Public Television and of Azerbaijani. and prohibits discrimination between Radio Broadcasting and Special Rules people based on language. Similar On Ensuring the Use of the Azerbaijani provisions are contained in other Language in the Field of Television legislative acts. Broadcasting in the Territory of the Republic of Azerbaijan” have required The use of other languages, in addition for some time that all media outlets to the state language of Azerbaijan, is broadcast their programs and films in allowed, inter alia, in the following cases: the State language, universal compliance with this requirement has occurred only • Service enterprises (trade, health care, since 1 January 2008. transportation, consumer services, intercity communication, etc.) which A Presidential Order of 9 April 2013 provide services to foreigners may use approved a State Program on the Use of Azerbaijani and a foreign language. the Azerbaijani Language in Accordance with the Needs of the Times and • Written announcements, the Development of Linguistics. Some information, advertisements and of the measures of the State program other visual information must be in include the improvement of current laws Azerbaijani and, where necessary, regulating the use and application of may also be accompanied by other the state language in educational and appropriate international languages. scientific institutions. However, the foreign language should follow the Azerbaijani text and should not occupy a larger area.
• Labels, names of industrial products and foodstuffs produced in Azerbaijan, and instructions applicable to them, must be in Azerbaijani but may, where necessary, also be accompanied by an appropriate foreign language.
• Legends on tobacco products exported from Azerbaijan may, subject to agreement, also be in another language.
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19 ASAN Service
Introduction to “ASAN Service” in the capital city of Baku, and Key principles of “ASAN Service” The Azerbaijani Service and the other six are in the regional cities The “ASAN Service” centers operate on Assessment Network (“ASAN Service”) of Ganja, Sumgait, Sabirabad, Barda, the basis of efficiency, transparency, was established by a Presidential Gabala and Masally. Three more ““ASAN accessibility, courtesy and comfort. Decree in 2012. As the holder of Service”” centers in Sheki, Guba, Before the establishment of the “ASAN the United Nations Public Service Mingachevir and Imishli are planned to Service” Centers, citizens had to apply Award for the best public service be opened soon. to various ministries/departments for delivery mechanism worldwide, one or more services, which created “ASAN Service” establishes a user- Public services offered in the “ASAN a significant loss of time and money. friendly, citizen-centric, responsive Service” Centers include the issuance “ASAN Service” has succeeded in and digitally advanced public service of identity documents, passports, establishing a totally new, qualitatively delivery system for efficient and residence permits, notarized documents, exemplary relationship between transparent access to key public and registration of civil status, renewal of service providers and citizens whilst private services for citizens and foreign driving licenses, etc. increasing the level of confidence and residents of Azerbaijan. “ASAN Service” trust towards state entities and their has been described by the President In accordance with a Presidential Decree activities. Together with the application of Azerbaijan Ilham Aliyev as “a unique dated 21 December 2015, the Ministry of the most advanced information product and brand of Azerbaijan” of the Economy of Azerbaijan was technology, the use of services is and is part of the President’s public designated as the state authority bearing now simpler, time-effective and more administration reforms. the sole responsibility for the issuance, transparent. suspension, resumption and cancellation “ASAN Service” is run by the State of business licenses (except for licenses “The citizen is always right” approach Agency for Public Service and Social issued for types of activities related to is applied throughout the “ASAN Innovations under the President of national security) through “ASAN Service” Service” system. Its primary objective the Republic of Azerbaijan. Centers or the Electronic License Portal. is the convenience and satisfaction of customers. No cash payments “ASAN Service” has created an innovative Private companies offer various services of service fees are handled by civil model of public service delivery, where including banking, insurance, translation, servants, and payments are made more than 250 services are rendered by legal assistance, tourism, mobile directly to bank branches that are 10 government agencies, together with communication, utilities, etc. located in the centers. To ensure private companies from single physical transparency, all contact points are locations called “ASAN Service” Centers. The innovative centers offer top quality video-recorded, and an automatic Each “ASAN Service” Center serves more conditions which are well-organized, queuing system ensures efficiency. To than 2,500 users daily, while mobile accessible, and citizen friendly and show enhance the customer experience in “ASAN Service” Centers have served a genuine commitment to public service. each center, citizens can use Internet more than 1,050,000 citizens. More Each center includes waiting halls which cafés and self-service areas, children’s than 15 million citizen applications have contain space for children, internet areas, playgrounds, medical services and been processed through “ASAN Service” baby-care rooms and self-service areas. photo booths. All centers also provide Centers in 2013-2017. Satisfaction handicapped access, as well as Braille with “ASAN Service” stands at a rate of The working regime of “ASAN Service” texts, wheelchairs and wheelchair lifts. 98 percent. Centers is tailored to the needs of citizens. They operate seven days a week Citizens can find information on At present, eleven “ASAN Service” from 10 a.m. until 8 p.m. and weekends the centers and available services from Centers have been opened in from 10 a.m. until 5 p.m., including during the official web site (www.asan.gov.az), the country. Five of them are situated lunch hours. the 108 Call Center, and social networks
dentons.com 99 (Facebook, Twitter and Instagram). • Electronic application booths: in May 2013, state services have been Appointments can be made before Electronic application booths have provided to more than 1.050.000 coming to the centers, via the website been installed in the “ASAN Service” citizens in almost all the regions of or 108 Call Center. This is aimed to centers. Citizens can use these booths Azerbaijan. enhance citizens’ access and comfort. to contact the Call Center via live video connection and express their • By paying an additional fee, intra- Key innovative features satisfaction, make suggestions and city mobile services enable citizens of “ASAN Service” Centers register complaints. to receive services at work or home The provision of new technologies to address, or any other location they support service access and delivery • Electronic Information Center: wish. An extra payment for service-in- increases both efficiency and quality. All Through this device, persons can place and/or document-handover is “ASAN Service” Centers are equipped obtain detailed information about complementary to state fees. with advanced technology. the rendered services, required documents and state fees. Moreover, • In order to promote social cohesion Modern technologies and innovations they can benefit from the services of and solidarity, intra-city mobile applied in “ASAN Service” are intended to electronic completion of application services are available free of charge meet citizens’ best expectations. Some forms and printing services. to all persons with disabilities and to of these are as follows: children with limited health conditions. • Exit poll monitors: These devices • Electronic queue machines: Queue are intended to collect citizens’ New projects machines and monitors have a direct feedback on the services rendered • “ASAN Radio” 100 FM: The State supportive function in ensuring in the “ASAN Service” Centers. This Agency has also launched a ground- fairness and minimizing the number innovation helps measure the quality breaking project – “ASAN Radio” of complaints. They are used with of services. Survey results allow taking 100 FM – that began broadcasting the aim of observing the queue the necessary steps on certain issues. on 24 December 2015. The first- culture and preventing unfairness ever FM radio station dedicated to and complaints in the service delivery • “ASAN Pay” terminals: Citizens public service delivery issues aims to process. can use these terminals to pay delivery true, useful and immediate administrative fines and those information to a wider audience, • E-signature: The ASAN Certificate imposed by court decisions. Payments strengthen the public confidence to Service Center, established in through “ASAN Pay” terminals can be state structures. cooperation with the Ministry of made by cash or bank cards. Taxes, has introduced a service for • ASAN Train – The concept of the certification of e-signatures. • Mobile “ASAN Service”: The State Mobile “ASAN Train” equipped with The “ASAN Imza” makes it possible Agency has developed a mobile modern technologies and intended to verify identification when service which involves well-equipped for delivering public service to accessing e-services and provides large buses that travel to the regions residents of the regions, which do not digital signatures for all the available to deliver services in rural and remote host ““ASAN Service”” centers, has e-services. The ASAN mobile signature areas that do not host “ASAN Service” been realized upon President Ilham – ASAN Imza – has been developed Centers. This type of service is unique Aliyev’s instruction. for use within Azerbaijan and in Azerbaijan and beyond. The main internationally. ASAN Imza” enables objectives of this service are to ensure • ASAN Communal (Utility) centers citizens of all age groups to attain easy the universal accessibility of state – By the Decree of the President of access to electronic public services services for all and to increase public the Republic of Azerbaijan, “ASAN through the use of mobile phones. satisfaction. Since its establishment Communal” centers have been created to optimize the unified
100 dentons.com management and transparency of public services. “ASAN Communal” centers will provide services to individuals and legal entities on the basis of existing standards of “ASAN Service”.
The total area of the center is 2.800 square meters, where 45 types of services are rendered by three entities – “Azersu” and “Azerishiq” Open Stock Companies and “Azerigas” Production Union. In addition, the center provides bank and insurance services as well. 85 employees and 20 volunteers serve the citizens in the center.
The building is equipped with modern information and communication technologies and also has relaxation and anti-stress rooms, a café, a baby care room and a kids’ playground. Special monitors for regulating the queue system, self-service computers with permanent internet access, an “electronic information board” providing access to information on fees, services and application forms, “ASAN Pay” terminals, a booth for calls to “108 Call Center” are installed in the center.
• Electronic Registry of Public Services – The Electronic Registry of Public Services was created and commissioned according to the Decree of the President of the Republic of Azerbaijan “ On Measures for the Establishment of an Electronic Registry of Public Services” for the collection and systematization of information on public services, elimination of repetition in service delivery and provision of flexibility management in this area through the creation of new types of services,
dentons.com 101 in order to increase the capacity of foreigners and stateless persons arriving analysis and forecasting for services. in Azerbaijan, as well as creation of an At present, all information on 673 e-visa system ensuring transparency public services, provided by 113 public and efficiency by means of use of bodies, is reflected in the registry. modern information technologies A person applying through the portal ASAN support to Family Businesses for a single-entry visa with a period of ABAD – The President of the Republic of stay in the country for up to 30 days, Azerbaijan Ilham Aliyev on 23 September after making payment will receive a visa 2016 signed a decree on establishment with three working days to his/her email of “ABAD” public legal entity run by address. the State Agency for Public Service and Social Innovations under the President of ASAN’s strategic human resources the Republic of Azerbaijan. This project management and training ensures the sustainability and creates Training the transparent and efficient mechanism The State Agency adopted its Training in small and medium entrepreneurship. Strategy, according to which staff members are intensively trained in The “ABAD” center is intended to areas such as business ethics and support family business, help its communications, time management, formation, household production, as ethical behavior and service culture, well as for the provision of services and citizen satisfaction, work in conflict branding, promotion of production and situations, psychological training and consumption of high-quality products; all stress management. with the use of innovative methods. Training courses are also organized This project will lay the foundation of for Call Center employees in order family businesses able to compete on to develop their understanding of a global level. It is no accident that for the various services provided by “ASAN the families selected for various industrial Service”, relevant ethical codes, and sectors initial training is provided on general level of professionalism. the use of equipment and industrial hygiene, preparation of documents, Volunteers packaging and design, delivery of goods Volunteering in “ASAN Service” is a great to market. opportunity for young and enthusiastic people between 17–25 years who are e-Visa to Azerbaijan just eager to have their first work experience. in 3 easy steps To date more than 11,000 volunteers have ASAN Visa – The President of been involved in the work of the “ASAN the Republic of Azerbaijan on June 1, Service” Centers, and close to 1000 have 2016 signed a decree on simplification been subsequently employed by “ASAN of e-visa issuance and the creation of Service” and relevant ministries. the “ASAN Visa” system. The “ASAN Visa” system envisages simplification Once volunteers complete their of the procedure of issuing visas to service, they are awarded with
102 dentons.com a certificate and a reference. In order to increase transparency in In the competition that lasted from Volunteers’ performance is evaluated the public sphere, the State Agency November 2014 until May 2015 and twice a month. posts information about its activities, applied by several hundred initiatives innovations and international and from around the world, the United In order to enhance employment local visits by external partners Nations, through its Committee of opportunities for its volunteers and and the Delegation of the State Experts on Public Administration, supply the labor market with qualified Agency’s on its official websites selected “ASAN Service” for its and experienced young professionals, (www.asan.gov.az; www.vxsida.gov. outstanding achievements as the First in March 2015 “ASAN Service” launched az). Information desks have also Place Winner of the 2015 United “ASAN Kadr” Career Center – a web been placed inside and outside of Nations Public Service Award in portal (www.asankadr.az), where CVs the administrative building to ensure the category of “Improving the Delivery of all ASAN Volunteers are uploaded. consistent availability of information of Public Services”. Partners of “ASAN Service” in the public on the services and state fees. and private sector can easily access this The United Nations Public Service database and find proper candidates to In order to raise public awareness, Award is the most prestigious fill their vacancies. Meanwhile, they can mass media outlets regularly broadcast international recognition of excellence also post vacancy notices on the portal. information on events organized in public service. Through an This mechanism creates a bridge by the State Agency. Joint projects annual competition, the UN Public between youth with distinctive work with civil society institutions, public Service Awards promotes the role, experience seeking to start a successful awareness initiatives as well as public professionalism and visibility of career and their potential employers. discussions are held via online chat public service. surveys in order to expand public Approximately 3.024 CV’s have been participation in decision-making on The overall purpose of the UNPSA is uploaded to the portal, and 744 public issues of social interest overseen by to reward the creative achievements and private entities have registered the State Agency. and contributions of public therewith. Around 1000 ASAN volunteers service institutions towards a more have been employed so far. In addition, the official “ASAN Service” effective and responsive public Facebook page – which currently administration in countries worldwide. Communications and has approximately 420,000 “likes” – It aims to discover new innovations in public outreach hosts discussions and engages with governance, motivate public servants Educational materials, booklets and the public via specially designed to further promote innovation, raise brochures are available at the “ASAN interactive questionnaires on issues of the image of public service, enhance Service” Centers, which provide public interest. Twitter, Instagram and trust in government, and collect information about the purpose of YouTube are also widely used. and share successful practices for the establishment of “ASAN Service”, possible replication between and its operational principles, and the list Awards and standards within countries. of available services. These materials “ASAN Service” has achieved numerous are regularly updated and distributed awards and international standard “ASAN Service” is a holder of the quality free of charge. Constant promotional certificates in recognition of its high- management system certificate work is carried out to increase public quality work and achievements in ISO 9001:2008, the international confidence in civil servants and to ensure the delivery of public services. certificate on occupational health and transparency in the work of state entities. safety management system OHSAS Photo and video materials reflecting First and foremost, “ASAN Service” is 18001:2007, as well as the International the activity of “ASAN Service” and citizen the winner of the 2015 United Nations Safety Award by the British satisfaction are regularly shared. Public Service Award. Safety Council.
dentons.com 103 Promoting international establishing advanced public service cooperation delivery mechanism was signed between The State Agency has been actively the State Agency for Public Service and engaged in practical cooperation and Social Innovations under the President of partnerships and has been developing the Republic of Azerbaijan and Ministry of relations with international agencies and Finance of the Republic of Afghanistan. other similar entities. The spectrum of The aim of the Memorandum is to international partners of “ASAN Service” establish a public service delivery is growing day by day. High-level foreign mechanism in Afghanistan based on dignitaries visiting Azerbaijan have Azerbaijani model ““ASAN Service””. been using the opportunity to visit the “ASAN Service” Centers to personally International Agreements get acquainted with the unique Memorandum of Understanding with Azerbaijani model of public service Italy – Memorandum of Understanding delivery mechanism. was signed between the State Agency for Public Service and Social Innovations As a holder of the United Nations Public under the President of the Republic Service Award, “ASAN Service’s best of Azerbaijan and the Department practice of Azerbaijan in transforming its for Public Administration at the Prime public service delivery system has been Minister’s Office of the Italian Republic on recognized and lauded internationally. cooperation in the field of public service The Government of Azerbaijan has delivery on 9 December, 2015 in Rome, on numerous occasions declared its İtaly. readiness to share its experience with other countries at regional and global Memorandum of Understanding with levels through bilateral and multilateral Korea – Memorandum of Understanding cooperation formats. The State Agency was signed between the State Agency has received a number of assistance for Public Service and Social Innovations requests from—and is presently under the President of the Republic of interacting with—countries wishing Azerbaijan and the Ministry of the Interior to modernize their public service of the Republic of Korea on cooperation delivery systems based on the “ASAN in the area of e-Government and Public Service” model. Service Delivery on 19 August 2016 in Baku, Azerbaijan. “ASAN Service” and a number of its projects (ASAN Pay, ASAN Mektub, Memorandum of Understanding ASAN Kadr) have been included as best with France – Memorandum of practices on the United Nations South- Understanding was signed between South Cooperation Mechanisms and the State Agency for Public Service and Solutions portal (http://southsouthworld. Social Innovations under the President of org/solution/view?id=273). the Republic of Azerbaijan and the State Secretariat for State Reform and Afghanistan applies “ASAN Service” Simplification under the Prime Minister of model – On July 12, 2016 Memorandum France on 14 March 2017 in Paris, France. of Understanding on cooperation in
104 dentons.com Quotes about “ASAN Service” Mr. Babatunde Osotimehin, Visits of High officials Mrs. Helen Clark, Under Secretary-General of to “ASAN Service” Administrator of the United Nations the United Nations: The First Lady of the Republic of Rwanda Development Program: – Mrs. Jeannette Kagame, the Vice- “ASAN Service” is Azerbaijan’s gift to president of Bulgaria – Ms. Margarita “UNDP has welcomed the establishment the world. “ASAN Service” has set up Popova, the Deputy Prime Minister of of the “ASAN Service” Center – a one-stop a stress-free environment for the citizens. the Republic of Uzbekistan – Ms.Tanzila shop for access to public documentation. Indeed, “ASAN Service” is a perfect model.” Narbayeva, the Minister of Interior of Since its establishment, the service the Republic of Korea – Mr. Hong Yun-Sik, provided by ASAN has significantly Mr. Efkan Ala, the Minister of the Interior of the Islamic reduced waiting times and costs for Minister of Interior of Turkey: Republic of Iran – Mr. Abdulrza Rahmani people wanting to obtain documents Fazli, the Minister of Foreign Affairs and like birth certificates, permits and public “I am very pleased that the brotherly International Cooperation of the Republic services. This increases the efficiency and friendly Azerbaijan has such of Djibouti – Mr. Mahamoud Ali Youssouf, of the public service, and reduces a magnificent State Agency, and it is the Minister of Health of the Republic opportunities for corruption. This a great honor for me to see the way of Djibouti – Dr. Djama Elmi Okieh, approach has been a great success here the Agency serves its citizens.” the Minister of Public Administration of in Azerbaijan, and will be of interest to the Republic of Estonia – Mr. Mihhail Korb, other countries seeking to modernize Mr. Jorg Frieden, and the Deputy Minister of Administrative their public services.” Executive Director of the World Bank: and Bureaucratic Reform of the Republic of Indonesia – Dr. Diah Natalisa, got Mr. Thorbjorn Jagland, “The application of “ASAN Service” acquainted with the activity of ““ASAN Secretary General of the Council experience in other countries would be Service”” center between 2016-2017. of Europe: very beneficial.” Links: “This is a unique model. I think many Ms. Margaret Saner, www.vxsida.gov.az European countries could benefit from Chairperson of the UN Committee of Azerbaijan’s experience. Furthermore, I Experts on Public Administration: www.asan.gov.az would like to note, citizens in the majority of the member states of the Council “...One of the principles of the “ASAN www.facebook.com/asanxidmat/ of Europe are not satisfied with public Service” centers is that they should be service delivery, and concern for this issue citizen-centric, and I note the examples of increases. From this perspective “ASAN” the flexibility of opening hours, the mobile is the best project for the public service service and so on...” delivery.” Mr. Halil Yurdakul Yigitguden, Ms. Laura Tuck, Co-ordinator of OSCE Economic Vice-president of the World Bank on and Environmental Activities: Europe and Central Asia: “The successful development “ASAN Service” is Azerbaijan’s best and implementation of an practice one-stop-shop for public services effective e-governance policy and to citizens and businesses.” the establishment of the ASAN “one-stop- shop” Public Service Centers throughout the country are examples where Azerbaijan as a country can take pride in.”
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20 Legislative system
Introduction In the event of a conflict between • Orders of the Cabinet of Ministers of To be legally enforceable, legislation different types of normative legal acts, the Republic of Azerbaijan in Azerbaijan must be adopted in acts of higher stature shall prevail. accordance with certain procedures and A normative legal act adopted by • Acts of bodies implementing thereafter published. Legal acts can be a state body concerning a public civil registration adopted in the form of normative legal relationship on which this relevant body acts, non-normative legal acts or acts of has the specific authority to regulate • Other acts which fall under a normative nature. has superior legal force over normative the definition of non-normative legal acts adopted by another State legal acts Normative legal acts are official written body of the same level. documents: In addition, there are acts of a normative In the event of conflicts between nature which are also enforceable. These • Adopted on issues the regulation of the provisions of the Civil Code and are decisions of the Constitutional Court; which is within the competence of the provisions of other codes and laws decisions, regulations and explanations an authorized state body, as provided which contain civil law provisions, of the Central Election Commission; by the Constitution of the Republic of the provisions of the Civil Code prevail. decisions of financial market regulator; Azerbaijan, laws and decrees or acts In relation to all other spheres of law, in decisions of local executive authorities passed by referendum the event that two legal acts of equal and municipalities; decisions of force contain conflicting provisions, the National Television and Radio • Containing a compulsory code of then the specific legal act shall apply Council, and decisions of the Judicial conduct to the particular relations, provided Legal Council. Acts of a normative that the relations are in the same nature, with the exception of decisions • Are for general applicability and field as the legal acts applied. If there of the Constitutional Court, must not multiple use is a conflict between general and contradict normative legal acts. specific norms set out within the same Normative legal acts include local normative normative legal act, the specific The Ministry of Justice is the State legal acts, the force of which is limited to norms shall apply. A new normative registration body entrusted with entering one or more specific State bodies, and legal act has a higher legal force all normative legal acts, acts of normative technical normative legal acts, which are over a normative legal act adopted character, decisions of Milli Majlis, Orders approved in the manner established by previously by the same State authority of the President and the Cabinet of the legislation of the Republic of Azerbaijan, regarding the same issue. Ministers, as well as acts of the Central such as technical bylaws, state standards, Bank of Azerbaijan, the Financial Markets technical requirements, aviation rules, Legal acts that are adopted for Supervision Authority of the Republic sanitary norms, fire safety rules, norms the implementation of specific (one-time) of Azerbaijan and municipalities, into for the safe transportation of dangerous organizational, supervisory or directive the State Registry of Legal Acts of shipments, etc. matters or considered for other one- the Republic of Azerbaijan . All normative time implementation are considered legal acts shall be officially published in There is a hierarchy of normative legal acts: non-normative legal acts. They include the state language. The official publication 1. The Constitution the following: of normative legal acts means bringing 2. Acts passed by referendum them to the attention of the general public 3. Laws • Decisions of the Milli Majlis of by means of publishing their texts in 4. Decrees of the President the Republic of Azerbaijan official periodicals and by reporting them 5. Resolutions of the Cabinet of Ministers on public television and radio channels; 6. Normative acts of central executive • Orders of the President of the Republic however, the latter is not a substitute for authorities of Azerbaijan their publication in official periodicals.
dentons.com 107 If a normative legal act is published in sources shall be considered as official No. 80, dated 11 April 2012, on “Approval several official sources at various times, periodicals, there is a Presidential Decree of the Rule on the Official Publication of the date of the official publication of No.384, dated 16 February 2011, on Acts of the Cabinet of Ministers”, which the legal act and its entry into force shall the “Application of the Constitutional Law provides slightly different periodicals be determined according to the date of its on ‘Normative Legal Acts’,” which provides where the acts of the Cabinet of first publication. Normative legal acts shall a list of periodicals where normative legal Ministers shall be officially published, be published in a manner which indicates acts, shall be officially published as follows: including the newspaper “Azerbaijan”, as certain compulsory details: the type well as the “Collection of Legislation of of the act, the date of its adoption, its • The Constitution, Acts passed by the Republic of Azerbaijan. In addition, number and its title. Laws and decrees Referendum, Constitutional Laws, after the acts of the Cabinet of Ministers shall be officially published within 72 as well as Presidential Decrees and are officially published they shall also hours of the moment of their signing Orders related to their application be published in the electronic version by the President. Similarly, resolutions – - in the newspaper “Azerbaijan” of the State Registry of the Legal Acts of the Cabinet of Ministers must be and “Khalg” available at www.huquqiaktlar.gov.az. published within 72 hours from their adoption. Other normative legal acts, after • Laws and the Presidential Decrees and Other legal acts are published as follows: being entered into the State Registry of Orders related to their application – Legal Acts, are published as a collection in the newspaper “Azerbaijan” • Decisions of the Milli Majlis – in every three months. Pursuant to Article the newspaper Azerbaijan and 149 of the Constitution, no one may be • Other Presidential Decrees and Orders the Bulletin of the Milli Majlis forced to abide by a regulation that was not considered above, as well as not published or held liable for failing to Resolutions of the Cabinet of Ministers • Normative legal acts of central executive abide by such a regulation. – in the newspaper “Khalg” authorities, acts of a normative nature of local executive authorities, the Central Although the Constitutional Law on However, there is also a separate Bank of Azerbaijan and the National Normative Legal Acts is silent on which Resolution of the Cabinet of Ministers, Television and Radio Council – in
108 dentons.com the Bulletin of Normative Acts of Acts, unless a later date is specified in the Republic of Azerbaijan such acts. How Dentons can help Dentons can, and has, advised • Acts of a normative nature of If there is not a different period stipulated companies and has provided legal municipalities – in the Bulletin of Acts in an intergovernmental agreement to opinions on the legal enforceability of Local Municipalities which the Republic of Azerbaijan is a party, of provisions of Azerbaijani law a normative legal act regulating foreign and other legal acts, helping • Decisions of the Constitutional Court trade activity shall state in its implementing our clients navigate the maze of – in the newspaper Azerbaijan and act that it shall enter into legal force 30 complex, sometimes contradictory the Bulletin of the Constitutional Court days from the date of its publication. provisions comprising the current state of the legislation • Acts of the Central Election Commission In the event of uncertainties and of Azerbaijan. – in the newspaper Azerbaijan differences, as well as obvious contradictions, in the practical application The date on which legislation comes of a normative legal act, the legislative into force depends upon the nature of body which adopted such act, or the act. The following rules apply: the Constitutional Court, shall provide an official interpretation thereof. The law, • Laws, presidential decrees and however, is silent as to which body may resolutions of the Cabinet of Ministers officially interpret legal acts which are – from the date of publication, unless not normative legal acts (e.g., rules of a later date is specified in such acts the Central Bank of Azerbaijan, etc.).
• Other normative legal acts – from the date of publication in electronic form in the State Registry of Legal
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21 Dispute resolution – the courts and arbitration
Introduction technologies by the courts, the work and become possible to submit applications, Few people enjoy having to resort structure of administrative body of courts complaints and other documents to the courts to enforce their rights. also has improved, with the construction electronically; to lead proceedings in civil, In addition to the usual problems and renovation of court facilities. economic, administrative and criminal associated with this process (legal costs, cases and to carry out exchanges of time, difficulties in enforcement, etc.), In 2011, as part of a judicial reform, documents electronically; to receive the judiciary and the legal system in the Local Economic Courts were notifications on court proceedings and general have a reputation for variable abolished and seven Administrative- relevant procedural deadlines through standards, leading to unpredictable Economic Courts were established, e-mail, SMS and other electronic means; results. However, in some cases initiating of which two are located in Baku and and to follow up on court proceedings, legal proceedings to defend one’s rights the others in Ganja, Sumgait, Shirvan, decisions issued and their enforcement is unavoidable or important for various Sheki and the Nakhchivan Autonomous and complaints or protests of the parties reasons, for instance, to avoid setting Republic, as well as six appellate courts in via a “private cabinet,” essentially precedents (e.g., in employee dismissal the same regions as well as in Baku. Now a restricted online web space. In this cases) or damage to reputation (e.g., the appellate courts have the following regard relevant amendments to the Civil charges of causing environmental four (4) Court Boards – the Civil Board, Procedure Code were recently made damage) or to recover debts. the Criminal Board, the Military Board and allowing the submission of documents the Administrative-Economic Board, which (statements of claim, applications, It also should be noted that during operate further to territorial jurisdiction. complaints and other documents), as the past few years, certain reforms were The judicial reform has also entailed well as the receipt of court summons in introduced for the modernization of the decentralization of the Serious Crimes cases related to economic disputes, to the judicial system. New courts have Court of the Republic of Azerbaijan by be carried out electronically. Additionally, been established, including regional establishing regional Serious Crimes further to recent amendments the court appellate courts. The method for Courts in Baku, Ganja, Sheki, Lankaran and hearings on economic disputes shall selecting judges has been revised, the Nakhchivan Autonomous Republic. be subject to continuously video and through the introduction of requiring This development has released judges audio recording. multi-phase exams for new judges and from the district/city courts from their long-term training courses. Moreover, review of multiple administrative cases During the past several years, several the number of judges has increased and has led to a further reduction in changes were made to the Law “On twice with the addition of 235 new judges the time required to resolve a case. Courts and Judges” and the Law “On during the last several years (according the Judicial Legal Council”, which to http://www.judicialcouncil.gov.az/ A crucial reform in judicial system included an increase in the powers mehkeme_ve_huquq.php) and more is expected following the Order of of the Judicial Legal Council, certain judges are expected to join in the coming the President of the Republic of incentives for judges in recognition of years, as currently 124 candidates are Azerbaijan “On the Establishment of an efficiency in promoting justice (e.g., pursuing long-term training courses; “Electronic Court” Information System gifts, honorary diplomas or honorary new positions for judges’ assistants in Azerbaijan”, dated 13 February 2014, badges), some measures for improving have been created; the number of court which aims to ensure transparency safeguards for judges, as professional administration staff has increased by up in the justice system, to increase as well as financial and social (for to 60 percent; and the access of parties the effectiveness of the protection of example, now the law prohibits judges’ to the courts has significantly improved. human rights and freedoms and to speed salaries from being decreased during up the process for the application of their tenure; in addition certain age Under the auspices of a World Bank modern information technologies. Within limits were established for judges of project for the modernization of the judicial the framework of the new Electronic the Supreme Court (68 years) and infrastructure and the use of up-to-date Court Information System, it will other courts (66 years)).
dentons.com 111 According to the Doing Business the supremacy of the Constitution 2017 Report of the IFC/World Bank, of the Republic of Azerbaijan and Azerbaijan stands at 44 in the ranking the protection of the individual’s of 190 economies on the ease of fundamental rights and freedoms. enforcing contracts. The Constitutional Court is an The recently implemented and independent state body, and it does not expected judicial reforms could depend in its organizational, financial improve the reputation of the courts, or any other form of activity on any the transparency of court hearings, legislative, executive and other judicial the effectiveness of justice and bodies, local self-government bodies or the access of physical persons and legal on legal entities and physical persons. entities to the courts for the protection of their rights, freedoms and interests. Decisions of the Constitutional Court are final and cannot be cancelled, changed The Courts or officially interpreted by any person The court system consists of or official. It may consider, inter alia, the following: the following matters:
First instance courts • Contradictions between the laws of • District (City) Courts Azerbaijan, decrees and instructions • The Serious Crimes Courts of the President, resolutions of • The Serious Crimes Court of the Milli Majlis, resolutions and the Nakhchivan Autonomous Republic instructions of the Cabinet of • Military Courts Ministers, and the normative legal • Administrative-Economic Courts acts of central executive authorities to the Constitution Appellate instance courts: • Courts of Appeal • Contradictions between subordinate • Supreme Court of the Nakhchivan legislation and legislation of higher Autonomous Republic authority
Cassational instance court: • Contradictions between judgments • Supreme Court of the Republic of of the Supreme Court and Azerbaijan. the Constitution and the laws of Azerbaijan Proceedings on additional cassational review and newly revealed circumstances: • Contradictions between interstate • The Plenary Board of the Supreme treaties of the Republic of Azerbaijan Court of the Republic of Azerbaijan. which have not yet come into force and the Constitution The Constitutional Court The Constitutional Court is the highest • Disputes relating to the respective judicial body in the country, the basic authorities of the legislature, executive objectives of which are ensuring and judiciary
112 dentons.com Any person may apply to the Constitutional Court for the restoration of his/her rights and freedoms breached by acts of the legislature, executive bodies, municipalities or courts.
In recent years, the Constitutional Court has played a tremendous role in establishing the case law of Azerbaijan with its authority to issue decisions providing official interpretations of the Constitution and the Laws of the Republic of Azerbaijan further to Article 130 (VI) of the Constitution. The Constitutional Court issued 24 decisions in 2016 related to the interpretation of certain norms and articles of Laws and Codes, whereby the Constitutional Court creates new rules or norms which are binding throughout the entire territory of the Republic of Azerbaijan and may be considered as an additional source of law.
Jurisdiction The District (City) Courts, being courts of general jurisdiction, may hear civil, criminal, administrative offenses and other matters where at least one of the parties to the dispute is a physical person not having the status of an entrepreneur or, if he has such status, the dispute has not arisen in connection with his entrepreneurial activity.
The Administrative-Economic Courts have jurisdiction to resolve administrative and economic disputes where the parties involved are legal entities or physical persons engaged in entrepreneurial activities.
Further to most recent changes in the authorities of the district (city) courts administrative matters, which may arise out
dentons.com 113 of relations with any administrative body a single judge. Appeals are considered State duty is calculated based on regarding tax, real property related matters, by a panel of three judges, with one of the amount of the claim. In general, state the use of natural resources, protection them acting as presiding judge, though duties vary from AZN 10 to approx. AZN 40. of environment, etc. are now heard by cassational appeals may be considered the Administrative-Economic Courts. by a panel of more than three judges. When lodging appeals and cassational complaints, the amount of state duty Initiating proceedings Evidence payable is up to 50 percent of the State In general, an action may be commenced In practice the submission and duty established for the application to in the appropriate court for the district consideration by the courts of evidence the court of first instance. in which the defendant has his or her is, at best, a haphazard affair. In theory, registered residential address or, if each party must provide evidence Enforcement the defendant is a legal entity, the district to support its claims and objections, The enforcement of judgments and in which such legal entity has its and the following may be accepted as other orders is generally carried out by registered address. evidence in civil proceedings if received enforcement officers. in accordance with the Law: The court before which proceedings As a general rule, in contested matters, are brought may also be determined • Written and material evidence the court must issue an execution writ by written agreement of the parties. before the enforcement may proceed. However, certain claims must be brought • Expert opinions before specific courts: Banks are required to enforce attachment • On-site examinations orders issued by courts and other • Claims concerning the recognition of authorities (e.g., tax authorities, social the ownership of, or the repossession • Audio and video recordings protection fund). A bank has seven days of, a building, structure or land. within which to execute a bailiff’s order. Such claims must be brought before • Testimony of witnesses the relevant court where the building, Execution may be suspended in certain structure or land is located. • Explanations of persons participating cases, for example, where the bailiff has in the case asked the court to explain its decision, • Claims of creditors of persons the debtor has a valid reason for being inheriting certain property filed prior Costs absent when the execution is to take to acceptance of the legacy by heirs. Court costs include a state duty for place, or where a complaint has been Such claims must be brought in courts various matters, including filing an filed in respect of the bailiff’s actions. located at the place of the location action with the court. Subject to certain of the inherited property or a main exceptions, State duty is paid when: An execution order that cannot be wholly portion thereof. or partly satisfied, because, among other • Filing an application reasons, it has not been possible to trace • Claims against common carriers the debtor or his/her assets, must be arising out of agreements for • Filing an application for joinder of third returned to the court (or other body) the carriage of passengers or freight. parties that issued it. Such claims must be brought before the relevant court for the place of • Filing an application to determine A legal successor (for example, the location of the carrier. legally significant facts a successor of a legal entity following a corporate reorganization) In the courts of first instance, a civil case • Lodging an appeal (to the appellate or continues to be liable for the debts of or an economic dispute is considered by cassational courts) the original debtor.
114 dentons.com Failure by a debtor to voluntarily to arbitrate abroad (for example, for execute an execution order in respect reasons of cost, language or law) and How Dentons can help of a property claim may give rise to so the prospect of arbitration in Baku is Dentons is a recognized leader a penalty of seven percent of the amount a welcome alternative to the Azerbaijani in Eastern Europe and the former claimed. In respect of non-property courts. However, as no procedural Soviet Union in the practice of claims (e.g. reinstatement at work), mechanism has been established in international arbitration, both in the penalty is AZN 11 for physical persons Azerbaijan for the enforcement of a local representing clients and acting as and AZN 55 for legal entities. arbitral award, arbitration proceedings arbitrators or mediators. Also, as inside Azerbaijan are fraught with one of the few foreign firms with Arbitration difficulties. experience of litigation as well as A dispute under the jurisdiction of arbitration in Azerbaijan (including a court of law may, by written consent Furthermore, though both the Law “On commercial, contract, banking, of the parties, be referred to an arbitral International Arbitration” and the New tax, employment, real property, tribunal. However, the Azerbaijani courts York Convention have been in force product liability, debt recovery have exclusive jurisdiction in certain in Azerbaijan for several years, foreign and intellectual property matters), matters which cannot, therefore, be arbitration is not necessarily effective Dentons can prepare claims/ arbitrated. These include: and attempts to enforce foreign arbitral defenses and represent clients in awards have been largely untested. court and arbitration proceedings. • Actions concerning property rights over immovable property, including There are two local arbitration bodies the lease or pledge of such property, in existence “The Baku International if the property in question is located in Arbitration Court” under the aegis of Azerbaijan. the Azerbaijan Chamber of Commerce and Industry and “The International • Actions regarding the recognition of Commercial Arbitration Court of a patent, trademark or other right, if Azerbaijan” (though neither body has such right is registered, or application yet been tested in a significant way), for registration has been filed, in but both local and foreign arbitrations Azerbaijan. suffer from their dependence on normal domestic enforcement procedures. • Actions against carriers arising out of contracts for the carriage of goods. Because of the cost of international arbitrations and associated enforcement, In 1999 Azerbaijan acceded to the New international arbitration involving York Convention on the enforcement Azerbaijani parties is generally only of foreign arbitral awards. Azerbaijan recommended where the potential also passed a Law “On International sums involved are great and where both Arbitration.” Accession to the New parties have overseas assets that can be York Convention has greatly increased attached. the utility of overseas arbitrations, while the Law “On International Arbitration” Mediation provides for international arbitrations For smaller disputes, such as basic with the place of arbitration in Baku. landlord and tenant matters, companies It is essentially useful in those instances may wish to consider mediation where it is impractical or inadvisable mechanisms.
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Contributing authors
Ophelia Abdullayeva Farhad Hajizade His experience also includes advising Of Counsel, Dentons’ Baku office. Of Counsel, Dentons’ Baku office. major international companies on investment strategies, the establishment Ophelia graduated from the Azerbaijan Farhad graduated from Baku State of joint ventures and cooperation Teacher Training Institute of Foreign University (Baku State University, LLB in structures, banking and finance, project Languages (Dipl., 1985), Bilkent law, Commercial law in 1997), Università finance, infrastructure development, University, Turkey (MA, 1993), Moscow degli Studi di Torino (LLM, IP law 2001) privatization, licensing and related tax, Academy of Economy & Law (BA, and Baku State University (PhD, conflict currency, customs, environmental, 1998), and the London School of of laws 2014). His experience primarily governance and other matters. He also Economics, UK (LLM, with merit, 2001). covers corporate and commercial law frequently advises financial institutions, She is experienced in tax, employment, matters in such areas as FMCG, hospitality, development banks and investment funds corporate, and property matters and fashion/luxury goods, as well as oil and on investment and secured lending. has also advised extensively on foreign gas, telecoms, infrastructure and aviation. investment and intellectual property Throughout his legal carrier Farhad Mr. Hogan graduated from the University matters, as well as various corporate was involved in negotiations, drafting of Michigan (AB with distinction, in and related matters in Azerbaijan. a number of joint operating and services Russian and East European Studies, contracts in the telecommunications and 1979), the Pushkin Institute, Moscow During 2000-2001 Ms. Abdullayeva oil and gas industries. (1980, 1981) and the University of worked part-time in the Firm’s London Texas (JD, with honors, 1984). He was office. Ophelia has been recognized as Farhad has also been ranked in General admitted to the District of Columbia bar a leading business lawyer (Corporate Business Law by Chambers Global and in 1984, qualified to practice in France Tax, Construction) by Who’s Who Legal. Chambers Asia Pacific 2017. He speaks as a conseil juridique in 1991 and as an She has also been recommended Azerbaijani, Russian, English and Turkish. avocat with the Paris bar in 1992. He in Banking & Finance, Corporate speaks English, French and Russian. and M&A, Litigation and Tax by Best Lawyers in Azerbaijan and was named James E. Hogan He is a member of the American Bar “Lawyer of the Year” in Tax Law. She Managing Partner, Dentons’ Baku office. Association and the International Bar has additionally been named a leading Association, as well as the Boards of lawyer in the 2016 edition of IFLR Active in international practice since the International Tax & Investment 1000: Guide to the World’s Leading 1984, he has concentrated exclusively Center (ITIC) and La Chambre de Financial Law Firms. on corporate, commercial and natural commerce France-Azerbaïdjan (CCFAz). resource matters relating to the CIS Recommended for Azerbaijan by Ophelia is also recognized as one and Eastern Europe since 1988. He is Chambers Global, Chambers Asia-Pacific, of the most highly acclaimed legal particularly active in the structuring, Chambers Energy, Legal 500, IFLR1000 experts in Azerbaijan in General negotiation and implementation of and Who’s Who Legal – Energy 2016. Corporate Practice by Asia law Leading petroleum, mining and other natural Lawyers. Ms. Abdullayeva has also resource projects in Azerbaijan, been ranked in General Business Law Kazakhstan, the Russian Federation, by Chambers Global and Chambers Ukraine and elsewhere in the CIS. His Asia Pacific 2017. Ophelia speaks experience has included PSAs, service Russian, Azerbaijani, English and basic agreements, concessions, oil-field German. service and drilling contracts, licensing and pipeline and marine transportation issues, including the sale and transportation of LNG.
dentons.com 117 Ruhiyya Isayeva Nargiz Kazimova Kamal Mammadzada has been ranked Senior Associate, Dentons’ Baku office. Associate, Dentons’ Baku office. in Band 1 in General Business Law by Chambers Global 2017 and Chambers Ruhiyya graduated from the School of Law Nargiz is experienced in corporate law, Asia Pacific, 2017. He has also been and Social Sciences of Khazar University contract law, corporate compliance, recommended by The Legal 500 and (BSc, 1998) and Azerbaijan University (LLM, commercial and business law, tax, by Best Lawyers in Banking & Finance, 2004). A member of the Collegium of employment law and migration law. Corporate and M&A in Azerbaijan. Advocates of the Republic of Azerbaijan, She has also advised extensively in Kamal was named a leading lawyer in and a practicing advocate, she has the construction and engineering the 2017 edition of IFLR 1000: Guide extensive experience in litigation and sector and has experience with to the World’s Leading Financial Law dispute resolution of civil, economic and constitutional issues in Azerbaijan. Firms, and he was recently recognized administrative matters (including contract Nargiz holds an LLM degree in as one of the most highly acclaimed law, commercial law, tax law, banking, International Commercial Law from legal experts in Azerbaijan in General corporate, employment, real estate, the University of Edinburgh, in addition Corporate Practice by Asialaw Leading product liability, telecommunications and to her bachelor and master degrees Lawyers. Kamal speaks Azerbaijani, IP law in all court instances of Azerbaijan, in Law from Baku State University. She Russian and English. including the Supreme Court and has completed a number of courses on the Constitutional Court. legal topics organized by the American Bar Association. Nargiz has also taught Sabina Orujova In 2013 Ruhiyya was awarded by courses on International Private Law, Associate, Dentons’ Baku office. the Presidium of the Collegium Translation Legal Documents and Legal of Advocates with a Certificate of Commercial English at Baku Eurasian Sabina graduated from the law faculty Appreciation for long-term efficient legal University during 2008-2009. Nargiz of Odlar Yurdu University, 2001. She has practice. Ruhiyya has been teaching speaks Azerbaijani, English, Russian experience in corporate, environmental, courses in English on International Law and Turkish. employment, competition, IP and to students of Special Talented Groups administrative law. Sabina speaks at Azerbaijan State Economic University Azerbaijani, Russian and English. and on European Private Law in the LLM Kamal Mammadzada in the European Law program of Baku Partner, Dentons’ Baku office. State University in 2013. Naida Sadigova Kamal graduated from Khazar Associate, Dentons’ Baku office. Ruhiyya continues teaching in English University’s Faculty of Law and Social on the Impact of EU Law on the National Sciences (BSc. 1996, LLM, 1999), Naida graduated from Khazar University Law of Member States in the LLM in attended George Mason University, (BA English/Arabic, 2000; Master of European Law program of Baku State Virginia, USA, and graduated from Laws, 2006) and the University of New University since September 2013. Ruhiyya Manchester University, UK (LLM with Hampshire School of Law (formerly also serves as the Chair of the Board merit, 2001). He is experienced in Franklin Pierce Law Center), Concord, of Directors of local NGO “Legal banking and finance law, secured New Hampshire, USA (LLM, 2008). Resource and Information Centre” Public lending, mergers and acquisitions She has experience in corporate, Association, which she founded in 2005 and corporate law. He has extensive banking and finance and trademark with the aim to assist in the development experience in the structuring of and intellectual property matters. She of lawyers and the legal education transactions, foreign investment, oil & was Khazar University team captain for of the population. Ruhiyya speaks gas and other matters. He shares his the Philip C. Jessup International Law Azerbaijani, Russian, English, Turkish and time between the Firm’s offices in Baku Moot Court Competition in 2004 and some French and German. and Almaty. 2005, also winning best Oralist (2004)
118 dentons.com and best memorial awards (2004 Ulvia Zeynalova-Bockin and 2005). Naida speaks Azerbaijani, Counsel, Dentons’ Baku office. Russian and English. Ulvia graduated from Khazar University School of Law, Baku, cum laude, (LLB, Sona Taghiyeva 2006) and Georgetown University Law Senior Associate, Dentons’ Baku office. Center, USA (LLM, with a concentration in Securities and Financial Regulation, 2009). Sona graduated from Baku State She is admitted to the New York Bar as of University (BA in International Law, January 2010 and completed a short-term 2005), Baku State University (LLM assignment in the Firm’s New York office International Law, 2007 cum laude) in October-November 2011. Her practice and the University of San Diego, USA includes banking law, Islamic finance, real (LLM in Comparative Law, specializing estate finance, mergers and acquisitions, in Corporate and Business Law, 2010), as well as corporate law and finance, and she was admitted to the New York with special expertise in securities and Bar (2011). She has been a member of financial regulation, including work with American Bar Association since January the Corporation Finance Division of the U.S. 2011. While working in the Washington Securities & Exchange Commission in DC office of Dentons in 2015, Sona Washington, D.C. and advising clients with advised clients on energy, corporate, business interests in the CIS countries trade compliance and other matters. while working in the Firm’s New York office. Sona has experience in corporate and commercial law, as well as banking Ulvia has provided legal support to local and finance, real estate, hospitality, and international clientele in high-profile tax and dispute resolution. Working in matters, including the first IPO to be the New York office of legacy Salans listed on the Baku Stock Exchange, in 2010, Sona assisted on various and advising major investment banks corporate, mergers and acquisitions, on the enforceability of ISDA Master real estate, estate and probate matters. Agreements, Global Master Repurchase She has been teaching courses on Agreements and Global Master Securities “Corporations” at the LLM Commercial Lending Agreements and participating Law Faculty of Baku State University in the privatization of the largest bank since November 2012 and “General in Azerbaijan. Ulvia also successfully Energy Law” at the LLM Energy and represented local and foreign banks Maritime Law Faculty of Baku State in various derivatives and lending University since September 2013. Sona transactions, assisted in shareholding has been independently recommended restructuring, conducted legal due as a Rising Star in Azerbaijan by diligence, drafted agreements and other the IFLR Energy and Infrastructure transaction documents and assisted with Guide, 2016 and in “Financial and regulatory approvals and other business Corporate” by the IFLR1000 (2016 concerns. She has been recognized as edition) – The Guide to the World’s the Next Generation Lawyer by The Legal Leading Financial Law Firms. She 500 EMEA 2017 rankings. She speaks speaks Azerbaijani, Russian and English. Azerbaijani, Russian, English and Turkish.
dentons.com 119 22 Global presence
Munich Berlin Milan Prague Frankfurt Bratislava Luxembourg Warsaw Amsterdam St. Petersburg Brussels Moscow Shijiazhuang Beijing London Hohhot Tianjin Krasnodar Milton Keynes Taiyuan Dalian Rostov-on-Don Calgary Ottawa Minsk Xi’an Shenyang Toronto Watford Tbilisi Vancouver Edmonton Albany Kyiv Ulaanbaatar Changchun Paris Baku Chicago Montréal Yinchuan Harbin St. Louis Boston Barcelona Xining Jilin Kansas City New York Madrid Tashkent Urumqi Sacramento Denver Rome Jinan Short Hills Algiers Ashgabat Seoul Astana Qingdao San Francisco/Oakland Dallas Washington, DC Casablanca Beirut Zhengzhou Hefei Tripoli Wuhan Changzhou, Nanjing Silicon Valley Houston Tysons Tehran Almaty Budapest Lhasa Los Angeles Miami Zhoushan, Ningbo, Bucharest Orange County Atlanta Chengdu Nantong, Hangzhou, Istanbul San Diego New Orleans Muscat Kunming Shanghai, Suzhou, Wuxi Honolulu Nouakchott Cairo Phoenix Dubai Chongqing Hilo Barbados Praia Amman Taipei Abu Dhabi Nanning Monterrey Bogotá Jeddah Haikou Wenzhou Mexico City Bissau Riyadh Changsha Fuzhou Accra Guatemala City Doha Singapore Xiamen Lagos Guanacaste Nairobi Huangshi Nanchang São Tomé San Jose Kampala Luanda Panama City Kigali Guangzhou, Zhuhai, Port Moresby Lusaka Hong Kong, Shenzhen
Port Louis Brisbane Perth Cape Town Sydney Johannesburg Adelaide O ices Maputo Associate firms, o ices, and special alliances
120 dentons.com Munich Berlin Milan Prague Frankfurt Bratislava Luxembourg Warsaw Amsterdam St. Petersburg Brussels Moscow Shijiazhuang Beijing London Hohhot Tianjin Krasnodar Milton Keynes Taiyuan Dalian Rostov-on-Don Calgary Ottawa Minsk Xi’an Shenyang Toronto Watford Tbilisi Vancouver Edmonton Albany Kyiv Ulaanbaatar Changchun Paris Baku Chicago Montréal Yinchuan Harbin St. Louis Boston Barcelona Xining Jilin Kansas City New York Madrid Tashkent Urumqi Sacramento Denver Rome Jinan Short Hills Algiers Ashgabat Seoul Astana Qingdao San Francisco/Oakland Dallas Washington, DC Casablanca Beirut Zhengzhou Hefei Tripoli Wuhan Changzhou, Nanjing Silicon Valley Houston Tysons Tehran Almaty Budapest Lhasa Los Angeles Miami Zhoushan, Ningbo, Bucharest Orange County Atlanta Chengdu Nantong, Hangzhou, Istanbul San Diego New Orleans Muscat Kunming Shanghai, Suzhou, Wuxi Honolulu Nouakchott Cairo Phoenix Dubai Chongqing Hilo Barbados Praia Amman Taipei Abu Dhabi Nanning Monterrey Bogotá Jeddah Haikou Wenzhou Mexico City Bissau Riyadh Changsha Fuzhou Accra Guatemala City Doha Singapore Xiamen Lagos Guanacaste Nairobi Huangshi Nanchang São Tomé San Jose Kampala Luanda Panama City Kigali Guangzhou, Zhuhai, Port Moresby Lusaka Hong Kong, Shenzhen
Port Louis Brisbane Perth Cape Town Sydney Johannesburg Adelaide O ices Maputo Associate firms, o ices, and special alliances
dentons.com 121 What the Press Says
“Dentons has outstanding knowledge of “Dentons’ … team provides a ‘very Azerbaijan and its laws and government, satisfactory’, ‘very prompt and highly and finds workable solutions to business professional’ service on matters ranging problems” from general legal support to complex
— The Legal 500, 2017 projects, financings and transactions”
— The Legal 500, 2015 “I enjoy working with them because of their high level of professionalism, “The team is recognized as being client-oriented approach and ‘competent and responsive’ and for timeliness,” “always helpful and doing ‘very good work quickly.’”
available” “comprehensive and — Chambers Asia-Pacific, 2015 practical” advice
— Chambers Global, 2017 “We have had a very good experience working with Dentons,” “The team “Dentons in Baku has developed has been proactive, professional and substantial legal expertise in oil extremely hard working in managing and gas throughout the years.” a complex matter.”
— IFLR1000, 2017, Energy and infrastructure — IFLR1000, 2015
“They gave us legal opinion and analysis “Baku-based James Hogan has on making joint ventures and advised a “phenomenal track record” across on which form of venture would the CIS and is particularly active be better,” “They are cost effective, on the structuring, negotiation and negotiable and Kamal [Mammadzada] is implementation of petroleum and very good and always has time.” mining projects in the region, advising
— IFLR1000, 2017, Financial and corporate both companies, banks, investors and the government of Azerbaijan.”
“provides services on a high professional — Who’s Who Legal: Energy, 2014 level’ and is ‘technically good and commercially practical“
— The Legal 500, 2016
122 dentons.com dentons.com 123 ^Dentons is the world’s largest law firm, delivering quality and value to clients around the globe. Dentons is a leader on the Acritas Global Elite Brand Index, a BTI Client Service 30 Award winner and recognized by prominent business and legal publications for its innovations in client service, including founding Nextlaw Labs and the Nextlaw Global Referral Network. Dentons’ polycentric approach and world-class talent challenge the status quo to advance client interests in the communities in which we live and work. www.dentons.com
© 2017 Dentons. Dentons is a global legal practice providing client services worldwide through its member firms and affiliates. This publication is not designed to provide legal or other advice and you should not take, or refrain from taking, action based on its content. Dentons UKMEA LLP is a limited liability partnership registered in England and Wales under no. OC322045. It is authorised and regulated by the Solicitors Regulation Authority. A list of its members is open for inspection at its registered office: One Fleet Place, London EC4M 7WS. Any reference to a “partner” means a person who is a partner, member, consultant or employee with equivalent standing and qualifications in one of Dentons’ affiliates. Please see dentons.com for Legal Notices.
CSBrand-3310 - The Doing Business in Baku — 30/05/2017