Overview

Local companies are often distributors for foreign brands.  Chinese, Turkish, Iranian, and Russian products have historically tended to dominate this price-sensitive market.  Potential distributors and franchise operators frequently cite the high cost of U.S. goods and expensive supply chains as reasons to prefer regional, Chinese, or European products.  Nonetheless, several Azerbaijani firms have successfully sold and represented U.S. brands in Azerbaijan.  Due diligence should be conducted on any potential Azerbaijani distributor before concluding an agreement or shipment.

Using an Agent or Distributor

U.S. firms seeking distribution partners in Azerbaijan should focus on private Azerbaijani or regional (primarily based in Türkiye and Kazakhstan) firms with proven track records and good financial standing.  State-owned enterprises are unlikely candidates for distribution and sales activities on behalf of U.S. firms.  They generally lack the resources to cover the costs of maintaining U.S. product inventories for the local market.  Although many private Azerbaijani firms have poor cash flow and other structural disincentives, training and flexible stock/inventory options can help U.S. goods and services penetrate the Azerbaijani market.  Businesses should work with local firms for internal distribution within Azerbaijan.

Establishing an Office

Foreigners can register business entities by opening a fully owned subsidiary, acquiring shares of an existing company, or creating a joint venture with local partners.  Foreign companies are also permitted to operate in Azerbaijan without creating a local legal entity by registering a representative or branch office with the State Tax Agency.  Representative offices and branch offices are not considered Azerbaijani legal entities but are subject to taxation.  An Azerbaijani legal entity can take the form of a Joint Stock Company, a General Partnership, a Limited Partnership, a Limited Liability Company, an Additional Liability Company, or a Cooperative.

Most frequently, U.S. companies enter the market by selecting a well-established distributor who provides logistical support, including customs clearance, warehousing, and inventory management.  U.S. businesses should closely monitor their advertising and marketing efforts to ensure success, as distributors often service multiple product suppliers.  A representative office allows for greater contact with clients and control over marketing and distribution.  A fully owned subsidiary affords even greater control.  Local partners often encourage U.S. companies to establish joint ventures.

Under the “single window” principle, the State Tax Service (via ASAN centers) is authorized to register all types of commercial legal entities and is legally obligated to do so within two business days.  Online registration is available at https://www.taxes.gov.az/az/page/bir-pencere-qeydiyyat and works adequately. 

The following documents should be submitted to the State Tax Service to register a representative office or branch of a foreign commercial organization:

•     A notarized “Application for state registration of a commercial organization”

•     “Information on founders-legal entities” form

•     Regulations approved by the foreign legal entity establishing the representative office or branch or its authorized representative in 2 copies

•     Decision of a foreign legal entity establishing a representative office or branch

•     Original or notarized copy of the foreign legal entity’s decision to establish the representative office or branch on the appointment of the head of the   representative office or branch 

•     Documents confirming the registration of a legal entity that is the founder of a representative office or branch abroad - a notarized copy of the registration     certificate (extract from the register) and other documents (legalized [subject to the Hague Convention of 1961 abolishing the requirement to legalize foreign   official documents])

•     A document confirming the legal address of the representative office or branch

•     A document confirming payment of state duty (receipt)

•     Original or notarized copy of the power of attorney issued by the foreign legal entity establishing the representative office or branch (subject to legalization [taking into account the Hague Convention of 1961 abolishing the requirement to legalize foreign official documents])

•     “Information on the application of the special tax regime” (if the representative office or branch will operate under a special tax regime)

•     Identity card of the applicant

•     Power of attorney (if the application is signed by the attorney)

•     A document confirming the initial consent of the Central Bank and the Ministry of Finance, respectively, in case of establishment of representative offices or   branches of foreign banks and insurance companies.

To register a commercial entity with foreign capital, the foreign legal entity, should submit the following documents:

•      Notarized “Application for state registration of a commercial organization”

•     “Information on founders-individuals” form

•     A copy of the identity document of the founding individual (s)

•     “Information on founders-legal entities” form

•     A notarized copy of state registration certificates (extracts from the state register) and charters of the founding legal entity (persons)

•     The charter approved by the founder (founders) or the authorized representative of the organization in 2 copies

•     Decision(s) on the establishment of the institution, approval of its charter and formation of governing bodies

•     If the founder is a foreign legal entity, the documents confirming its registration in a foreign country - a notarized copy of the registration certificate (extract     from the register) and other documents (subject to legalization (taking into account the Hague Convention of 1961 abolishing the requirement to legalize   foreign official documents))

•     If the founder is a foreigner or a stateless person, a document confirming that he is engaged in economic activities in any country (legalized (subject to the   Hague Convention of 1961 abolishing the requirement to legalize foreign official documents))

•     “Information on reorganized legal entity” (for a commercial organization created as a result of reorganization)

•     “Information about the members of the Supervisory Board” (if the commercial organization is a company and the company’s supervisory board is elected   on the date of submission of the application (with copies of identity documents attached))

•     “Information on the application of the special tax regime” (if it will operate under a special tax regime)

•     A copy of the legal representative’s identity document

•     A document confirming the legal address

•     A document confirming payment of state duty (receipt)

•     A document confirming the payment of the authorized capital (bank receipt, real estate mortgage, etc.), except for the cases when the charter of a limited   liability company stipulates the payment of the authorized capital within a certain period

•     An independent auditor’s opinion on the valuation of property not paid in cash to the authorized capital Identity card of the applicant
•     Power of attorney (if the application is signed by the attorney)    

•  A document confirming the initial consent of the Central Bank, the Ministry of Finance and the relevant body of the Ministry of Economy, respectively, in case of establishment of a bank, insurance, financial-industrial group.

There is a registration fee for a branch office of approximately $130 (220 Azerbaijani manat) payable to the Taxes Ministry.

U.S. firms should note that all documents from the foreign legal entity must be notarized and legalized in the United States.  It is compulsory for any document written in English to be accompanied by a notarized translation into the Azerbaijani language. 

Laws and regulations are subject to change.  For detailed registration, legal, and tax counseling, U.S. firms are advised to contact tax and legal professionals residing in Azerbaijan to receive expert advice (see the Local Professional Services section).  A U.S. firm experiencing registration problems should contact the U.S. Embassy in Baku (see contact information in the Business Travel section). 

For the latest Investment Climate Statement (ICS) which includes information on investment and business environments in foreign economies pertinent to establishing and operating an office and to hiring employees, visit the U.S. Department of Department of State’s Investment Climate Statements website.

Franchising

Franchising can be a successful retail model in Azerbaijan, with several well-known U.S., European, and Turkish franchises operating in the country.  The Commercial Unit at the U.S. Embassy provides paid commercial services to parties interested in identifying an international partner and establishing a franchise in Azerbaijan.

Direct Marketing

In Baku, business-to-business and e-marketing to potential customers is common.  Direct marketing via mobile phones is also popular.  Person-to-person direct marketing for health and beauty products is well developed.

Joint Ventures/Licensing

American firms considering establishing a joint venture (JV) with an Azerbaijani partner should carefully evaluate the proposed structure, particularly in the non-energy sector, as it is not protected by the production sharing agreements that shield oil and gas investments.  If a JV is selected as the best way to proceed, U.S. firms should ensure there is tight management control, clear capital increase and cash call provisions, iron-clad confirmation of share increases and decreases, clear procedures for calling shareholder meetings, and a well-planned exit strategy.  Several U.S. companies have reported being pressured by local partners to establish joint ventures and localize production.

U.S. companies previously reported obstacles with licensing in Azerbaijan.  However, as part of its economic reform program, the government simplified the licensing regime.  All licenses are now issued with indefinite validity through the “ASAN” Service Centers and must be issued within 10 days of application. 

Express Delivery

Several major U.S., European, Russian, and Asian courier services operate in Azerbaijan.  They offer domestic and international shipping, courier, cargo, warehousing, and logistics services.

Due Diligence

Accurate financial documentation and credit history can be difficult to obtain for some potential buyers and partners.  A 2013 commercial secrecy law complicates due diligence efforts because it limits the information banks and other financial institutions can share with third parties about Azerbaijani companies.  Additionally, understanding the corporate structure of a company or discovering who the beneficial owners, major partners or shareholders are can be difficult.  Failure to perform a careful survey of former partners, clients, and competitors jeopardizes investments and commercial deals.  Recourse in such instances is limited, and even where arbitration clauses are respected disputes can take a long time to be resolved.  Despite these difficulties, many Azerbaijani firms have established track records of positive work with international firms.  Companies may contact the U.S. Embassy to discuss their plans in Azerbaijan.  The Commercial Unit at the U.S. Embassy can help U.S. clients determine the bona fides of prospective foreign business representatives or partners.