Amendments to Tax Code

The law dated December 21 2012 (entered into force on January 1 2013) introduced a number of amendments to the Tax Code of the Republic of Azerbaijan. The main novelties introduced by this law are the following:

(1) The activity of insurance agents and insurance brokers has been classified as financial activity thus exempting such activity from the VAT;

(2) The minimum value of main assets has been increased to AZN 500 ($637) (previously AZN 100);

(3) Introduction of the concepts of tax liability minimisation and tax partnership agreements;

(4) The term "large taxpayers" has been defined as a taxpayer (excluding budget entities) falling under at least one of the following criteria: (i) residual value of main assets at the year end exceeds AZN 2.5 million in each year of the last three years and the average annual turnover during the last three years exceeds (without VAT) AZN 1.25 million; (ii) aggregate amount of all tax and non-tax payments during each tax year of the last three tax years exceeds AZN 500,000; (iii) taxpayers considered natural monopolies and entities with a dominant position in the market including their subsidiaries being residents of the Republic of Azerbaijan;

(5) The minimum period for keeping accounting documents has been defined as five years;

(6) The rate of income tax of natural persons has been decreased. Thus monthly income up to AZN 2,500 is now subject to 14% income tax and part of the monthly income in excess of AZN 2,500 is subject to 25% income tax;

(7) The turnover – within consequential 12 month period – which requires registration as VAT payer has been defined as AZN 120,000. Previously this figure was set at AZN 150,000 for legal entities and AZN 90,000 for natural persons;

(8) Sale of shares in legal entities has explicitly become exempt of VAT thus ending long lasting disputes on these issues.


Prohibition of mobile banking

On February 5 2013 the Central Bank of the Republic of Azerbaijan has issued an instruction (the "Instruction") to Azerbaijani banks prohibiting mobile banking, i.e. the activity on issuance of loans at points of sale of various goods. Although local banks have complied with the Instruction, the Instruction itself is not flawless from a legal perspective. Thus, the authority of the Central Bank to apply such prohibition is not clear as it exceeds the regulatory authority vested in the Central Bank by law. In addition, the Instruction has been adopted in an arguable form. Thus, the Instruction is in the form of a letter to all local banks and therefore fails to meet the requirements of a normative act. It may therefore be argued that the Instruction is not mandatory. On the other hand the Instruction questions the legality of banking activities through ATMs as ATMs offer a wide range of banking services that, using the line of thought appearing in the Instruction could be interpreted as mobile banking.

Property law

Balance between rights of owners and residents

The decision of the Plenum of Constitutional Court of the Republic of Azerbaijan dated December 21 2012 (and entered into force on February 6 2013) has clarified certain matters relating to contradictions of property rights to privatized apartments and the right to reside in such apartments. In this decision the Plenum of Constitutional Court arrived to certain important conclusions. Thus, it was held that:

  • where a privatised flat has been acquired without compensation and under a voluntary consent of a spouse such a flat may not be considered a joint property of spouses;
  • consent of family members residing in a privatized flat to transfer the flat to ownership of other family members shall not be considered as refusal to reside in the flat;
  • the owner of the flat shall not misuse its property rights by violating the residing rights of other family members.

The Plenum of Constitutional Court made a recommendation to Milli Mejlis (the legislative body of Azerbaijan) to improve the legal position of the owner of a flat and his/her family members taking into account the above mentioned decisions.

Migration law

The requirements applicable to the registration of foreigners and persons without citizenship (thereafter "foreigners") have tightened

The Law of the Republic of Azerbaijan published on March 19 2013 and entered into force on April 1 2013 introduced amendments to various laws regulating registration of foreigners at the place of residence or location.

The amendments have tightened the requirements on registration of foreigners at the place of residence in the Republic of Azerbaijan. While previously such registration was required in case of foreigners staying in the Republic of Azerbaijan for a period exceeding 30 days, further to the introduction of recent amendments the requirement of registration was revised to apply to foreigners who stay in the Republic of Azerbaijan for longer than three days.

The new rules attempt to soften the impact through introduction of a flexible procedure of registration. The application for registration now may be filed by the administration of hotels, guest houses, resorts, camping sites, tourist facilities, medical institutions and similar entities or by the owner of premises where the foreigner resides with the State Migration Service of the Republic of Azerbaijan within 3 days from the date of arrival. Moreover, the application may now be filed via email.