5 May 2016 An up-to-the-minute guide to developments in the legislation of the Republic of Azerbaijan Legislative alert: Legal updates The Law on Licenses and Permissions In this issue we would like to bring to your attention a brief overview of the latest amendments to the legislation concerning the following: The Law on Licenses and Permissions; Introduction of investment incentives; Exemption from taxes and customs duties; Criteria for issuance of the Investment Incentive Document; Issuance procedure of confirming document for import of machinery, technological equipment and devices to legal entities and individual entrepreneurs who obtained the Investment Incentive Document; The Law on implementation of investment projects related to construction and infrastructure facilities based on special financing. Milli Majlis adopted the Law on Licenses and Permissions (the Law on Licenses ) on 15 March 2016, which was published on the official website of the President of the Republic of Azerbaijan on 20 April 2016. The Law on Licenses envisages inter alia criteria for determining the activities as licensable, general principles of state control over licensing, procedures on issuance and revocation of licenses, as well as suspension/restoration of licensable activities, obligations and liability of responsible state authorities. Moreover, the draft law stipulates one-stop shop principle with respect to license issuance. It should also be noted the Law on Licenses qualifies licenses as general (enabling licensees to engage in all sub-activities under licensable activity without obtaining specific licenses for each type) and special licenses (enabling its licensees to engage in only one or several sub-activities of certain licensable activity). The law will enter into force on 1 June 2016. Introduction of investment incentives Decree of the President of the Republic of Azerbaijan dated 18 January 2016 #745 on additional measures on investment incentive (the Decree ) envisages the new investment incentives package. According to the Decree a new type of document entitiling its holders to tax and customs privileges is introduced, i.e. Investment Incentive Document (the Certificate ). The Certificate is granted by the Ministry of Economy of Azerbaijan to entrepreneurs who presented their investment projects that are in conformity with criteria confirmed by the Cabinet of Ministers (the Criteria for Issuance of the Certificate ), which are as follows:
- Fields of economic activities where investments will be made ( Fields of economic activities ) - Minimum amount related to the scale of an investment project ( Minimum Investment Amount ) - Administrative-territorial units where investment projects will be performed ( Administrative-territorial units ) Respective amendments were made to the Tax Code and the Law on Customs Tariffs outlining exemptions for entrepreneurs. Exemptions from taxes According to the Law on amendments to the Tax Code dated 19 January 2016 the following exemptions from taxes and their duration were defined for legal entities and individual entrepreneurs who obtained the Certificate: From Personal Income Tax - 50% of individual entrepreneur s income acquired after the moment they obtained the Certificate for 7 years; From Profit tax - 50 % of legal entity s income acquired after the moment they obtained the Certificate - for 7 years; From VAT full exemption for import of machinery, technological equipment and devices by individual entrepreneurs and legal entities who obtained the Certificate - for 7 years; From Property tax full exemption for respective property of individual entrepreneurs and legal entities after the moment they obtained the Certificate for 7 years; From Land tax full exemption for respective land plots owned or used by individual entrepreneurs and legal entities after the moment they obtained the Certificate - for 7 years. Exemptions from customs duties According to the Amendments to the Law on Customs Tarrifs dated 19 January 2016 the following are exempt from customs duties: 1) Import of machinery, technological equipment and devices based on respective confirming document by individual entrepreneurs and legal entities for 7 years from the date they obtained the Certificate;
2) Import of machinery, technological equipment and devices by operator or managing organisation of industrial or technological parks based on respective confirming document for purposes of establishment and construction of infrastructures and production areas of industrial or technological parks, scientificresearch and practical construction works; 3) Import of machinery, technological equipment and devices based on respective confirming document by resident individuals and legal entities of industrial or technological parks for purposes of construction of production areas, as well as for execution of scientificresearch and practical construction works in industrial or technological parks - for 7 years after the date of registration of the resident in industrial or technological parks. Criteria for Issuance of the Certificate determined We would like to deliver that finally the Criteria for Issuance of the Certificate were finally approved by Decree of the President of the Republic of Azerbaijan dated 20 April 2016 (the Decree ). Fields of economic activities To summarize, it shoud be noted that 30 types of economic activities are included therein as the fields where investments will be made. The said economic activities include but are not limited to the following: - Particular areas of agricultural activities; - Food and beverage production; - Chemicals and pharmaceutics production; - Production of IT and other electronic devices; - Production of construction materials and furniture; - Tobacco production; - Paper and carton production; - Rubber and plastic production; - Machinery and equipment production; - Metal production; - Production of clothing, leather products, shoes; - Production of cars and other means of transport; - Production of alternative energy sources. Administrative-territorial units Meanwhile, the Republic of Azerbaijan is divided into 5 Regions:
Region 1 includes Baku (except for Baku suburban settlements); Region 2 includes Baku suburban settlements and Absheron district; Region 3 includes Sumgayit and Gandja cities; Region 4 includes cities and districts not included into other classifications; Region 5 includes Nakhchivan Autonomous Republic, Fuzuly, Khodjavend, Aghdam, Tartar, Agjabady, Naftalan, Goranboy, Goygol, Gadabay, Dashkasan, Qazakh, Tovuz, Aghstafa, Lerik, Yardimly, Balakan, Gusar districts. Minimum Investment Amount Minimum Investment Amounts range from AZN 200,000 to AZN 10,000,000. Meanwhile, there is a correlation between the Administrative-Territorial Units and corresponding Minimum Investment Amounts. Based on the general review, Minimum Investment Amounts decrease from Region 1 to Region 5 accordingly. It worth to note that the highest amount of AZN 10,000.000 is determined for pharmaceutics production. Issuance procedure of confirming document for import of machinery, technological equipment and devices to legal entities and individual entrepreneurs who obtained the Certificate According to the Decree of the President of the Republic of Azerbaijan dated 20 April 2016, the confirming document (the Confirming Document ) is granted by the Ministry of Economy to legal entities and individual entrepreneurs who have duly obtained the Certificate and presented the following: 1) The list of machinery, technological equipment and devices to be imported; 2) The copy of the agreement of purchase of the said devices; 3) The copy of the Certificate. Administrative procedure for the issuance of the Confirming Document is conducted in accordance with one-stop shop principle envisaged in the Law on Licenses.
The Ministry of Economy informs the Ministry of Taxes and the State Committee of Customs on the issuance of the Confirming Document within 3 working days. The above-mentioned Decree also provides rules for liquidation of the Confirming Document. The Law on implementation of investment projects related to construction and infrastructure facilities based on special financing The Law on implementation of investment projects related to construction and infrastructure facilities based on special financing came into force on 22 April 2016 (the Law ). The purpose of the Law is to encourage implementation of construction projects according to the Build-Operate- Transfer model ( BOT ). BOT is one of the project financing forms, whereby investor covers its investment expenses and gain profits by getting payments for procuring goods and rendering services to the competent authority (i.e. Ministry of Economy) or consumers. BOT is applicable to construction, current and capital repair, reconstruction and restoration, operation and transfer of specific construction and infrastructure facilities. The Law provides for the non-exhaustive list of construction and infrastructure facilities falling under BOT (e.g. bridges, tunnels, conference centers, education, health, cultural and tourism objects, industrial parks, highways, underground stations and etc.). The Law envisages conclusion of the BOT agreement between investors and the Ministry of Economy. The duration of such agreement can be up to 49 years. After expiration of the BOT agreement the facilities are handed over to the Ministry of Economy free of charge. Meanwhile, the investors who implement investment projects based on BOT in accordance with the Law get exemptions from state duties and levies. However, specific terms for execution of BOT, requirements for investors, features, terms and conditions of BOT agreements, pricing of the goods produced and services rendered as a result of investments are yet to be determined in particular by the President of the Republic of Azerbaijan.
Meanwhile, the Law is not applicable to investment projects based on BOT agreements signed before the Law came into force. EY Assurance Tax Transactions Advisory Contacts We hope that you will find this overview helpful. For more detailed information, please contact the following specialists: Arzu Hajiyeva Partner, Tax & Law Tel: +994 (12) 490 7020 Email: arzu.hajiyeva@az.ey.com Ilya Murzinov Head of Law, Tax & Law Tel: +994 (12) 490 7020 Email: ilya.murzinov@ru.ey.com Zaur Gurbanov Manager, Tax & Law Tel: +994 (12) 490 7020 Email: zaur.gurbanov@az.ey.com About EY EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help build trust and confidence in the capital markets and in economies the world over. We develop outstanding leaders who team to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. EY works together with companies across the CIS and assists them in realizing their business goals. 4,500 professionals work at 20 CIS offices (in Moscow, St. Petersburg, Novosibirsk, Kazan, Togliatti, Vladivostok, Yuzhno-Sakhalinsk, Almaty, Astana, Bishkek, Baku, Kyiv, Tashkent, Tbilisi, Minsk and other locations). EY refers to the global organization, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients. For more information about our organization, please visit ey.com. 2016 Ernst & Young (CIS) B.V. All Rights Reserved. This publication has been carefully prepared, but it necessarily contains information in summary form and is therefore intended for general guidance only, and is not intended to be a substitute for detailed research or the exercise of professional judgment. EY can accept no responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the appropriate adviser. Contacts Almaty +7 (727) 258 5960 Astana +7 (7172) 58 0400 Baku +994 (12) 490 7020 Kazan +7 (843) 567 3333 Kyiv +380 (44) 490 3000 Minsk +375 (17) 209 4535 Moscow +7 (495) 755 9700 St. Petersburg +7 (812) 703 7800 Tashkent +998 (71) 140 6482 Tbilisi +995 (32) 43 9375