Azerbaijan

1. Openness To, and Restrictions Upon, Foreign Investment

Policies towards Foreign Direct Investment

Over the past few years, the Azerbaijani government has actively sought to attract foreign investment.  Flows of foreign direct investment to Azerbaijan have risen steadily in recent years, primarily in the energy sector.  Foreign investment in the government’s priority sectors for economic diversification (agriculture, transportation, tourism, and ICT) has thus far been limited.

Foreign investments enjoy complete and unreserved legal protection under the Law on the Protection of Foreign Investment, the Law on Investment Activity, and guarantees contained within international agreements and treaties.  In accordance with these laws, Azerbaijan will treat foreign investors, including foreign partners in joint ventures, in a manner no less favorable than the treatment accorded to national investors.  Azerbaijan’s Law on the Protection of Foreign Investments protects foreign investors against nationalization and requisition, except under specific circumstances.  The Azerbaijani government has not shown any pattern of discriminating against U.S. persons or entities through illegal expropriation.

Azerbaijan’s primary body responsible for investment promotion is the Azerbaijan Export and Investment Promotion Agency (AzPromo).  AzPromo is a joint public-private initiative, established by the Ministry of Economy and Industry in 2003 to foster the country’s economic development and diversification by attracting foreign investment into the non-oil sector and stimulating non-oil exports.  A January 2018 decree called for new legislation, which has not yet been introduced, to ensure Azerbaijan conforms to international standards to protect foreign investor rights.  The Azerbaijani government meets regularly with the American Chamber of Commerce (AmCham) to solicit the input from the business community, particularly as part of AmCham’s biennial white paper process.  In 2018, AmCham reported the government accepted around 50 percent of the proposals put forth in their white paper.  The next white paper will be presented in 2020.

Limits on Foreign Control and Right to Private Ownership and Establishment

Foreigners are allowed to register business entities by opening a fully owned subsidiary, acquiring shares of an existing company, or creating a joint venture with a local partner.  Foreign companies are also permitted to operate in Azerbaijan without creating a local legal entity by registering a representative or branch office with the tax authorities.

Foreigners are not permitted to own land in Azerbaijan but are permitted to lease land and own real estate.  Under Azerbaijani laws, the state must retain a controlling stake in companies operating in the mining, oil and gas, satellite communication, and military arms sectors, limiting foreign or domestic private ownership to a 49 percent share of companies in these industries.  Foreign ownership in the media sector is also strictly limited.  Furthermore, a special license to conduct business is required for foreign or domestic companies operating in telecommunications, sea and air transportation, insurance, and other regulated industries.  Azerbaijan does not screen inbound foreign investment and U.S. investors are not specifically disadvantaged by any existing control mechanisms.

Other Investment Policy Reviews

Azerbaijan has not conducted an Organization for Economic Cooperation and Development (OECD) investment policy review, a United Nations Conference on Trade and Development (UNCTAD) investment policy review, or a WTO Trade Policy Review.

Business Facilitation

Azerbaijani law requires all companies operating in the country to register.  Without formal registration, a company may not maintain a bank account, or clear goods through customs.  As part of the ongoing business law reforms, a “Single Window” principle was introduced January 1, 2008, significantly streamlining the registration process.  Businesses must now only register with the tax authorities, which takes approximately three days for commercial organizations.  Since 2011, companies have also been able to e-register at http://taxes.gov.az .

Azerbaijan ranked 34th and joined the top 20 “reformer” countries, according to the World Bank’s “Doing Business 2020” report.  Over the period from May 2018 to May 2019, the government implemented four reforms related to obtaining registration of real estate rights, obtaining loans, and protecting minority shareholders.  In addition, Azerbaijan made enforcing contracts easier by introducing an e-system allowing plaintiffs to file an initial complaint electronically and by adopting a consolidated law on voluntary mediation, according to the report.  The country has also improved its position in terms of “obtaining loans” indicator, climbing 21 spots to take first place.

Outward Investment

Azerbaijan does not actively promote or incentivize outward investment, though Azerbaijani entities, particularly the State Oil Company of Azerbaijan (SOCAR) and the State Oil Fund of Azerbaijan (SOFAZ), have invested in various countries, including the United States.  SOFAZ investment is typically limited to real estate, precious metals, and low-yield government securities.  SOCAR has invested heavily in oil and gas infrastructure and petrochemicals processing in Turkey and Georgia, as well as gas pipeline networks in Greece, Albania, and Italy as part of the Southern Gas Corridor that transports Azerbaijani gas to European markets.  The government does not restrict domestic investors from investing overseas.

2. Bilateral Investment Agreements and Taxation Treaties

Azerbaijan has signed 51 Bilateral Investment Treaties (BIT).  The 2001 BIT in force between the United States and Azerbaijan facilitates the reciprocal protection of investment.  Azerbaijan also has bilateral investment treaties currently in force with: Austria, Belgium-Luxembourg Economic Union, China, Croatia, Czech Republic, Finland, France, Georgia, Germany, Greece, Hungary, Iran, Israel, Jordan, Kazakhstan, South Korea, Kuwait, Kyrgyzstan, Latvia, Lithuania, Moldova, Montenegro, Poland, Romania, Russia, San Marino, Serbia, Spain, Switzerland, Syria, Tajikistan, Turkey, Ukraine, UAE, the United Kingdom, and Uzbekistan.

Azerbaijan has free trade agreements (FTAs) with Russia, Ukraine, Georgia, Kazakhstan, Kyrgyzstan, Tajikistan, Uzbekistan, Moldova, and Belarus.  Under the FTAs, goods can be imported from those countries free of customs duties.

The United States signed a double taxation treaty with the USSR, to which Azerbaijan is considered a successor state.  The United States and Azerbaijan do not have a separate bilateral double taxation treaty.  The United States and Azerbaijan are parties to the OECD Convention on Mutual Administrative Assistance in Tax Matters.  Azerbaijan signed an intergovernmental agreement with the United States to implement the Foreign Account Tax Compliance Act (FATCA) on October 9, 2015, based on the “IGA Model 1a” form.

Azerbaijan also has double taxation treaties with: Austria, Belarus, Belgium, Bosnia & Herzegovina, Bulgaria, Canada, China, Croatia, Czech Republic, Denmark, Estonia, Finland, France, Georgia, Germany, Great Britain, Greece, Hungary, Iran, Italy, Japan, Jordan, Kazakhstan, Kuwait, Latvia, Lithuania, Luxembourg, Macedonia, Malta, Moldova, Montenegro, Netherlands, Norway, Pakistan, Poland, Romania, Russia, San Marino, Saudi Arabia, Serbia, Slovenia, South Korea, Spain, Sweden, Switzerland, Tajikistan, Turkey, UAE, Ukraine, Uzbekistan, and Vietnam.  Treaties with Jordan, Spain, Sweden, Malta and Denmark are pending ratification by the parliament of Azerbaijan.

12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance Programs

The U.S. International Development Finance Corporation (DFC) and the U.S. Export-Import (EXIM) Bank provide political risk insurance and financing and loan guarantees in Azerbaijan.  Azerbaijan is also a member of the Multilateral Investment Guarantee Agency (MIGA) and the European Bank for Reconstruction and Development (EBRD).  The World Bank, Asian Development Bank, and other third-country institutions are active in providing financing and insurance for investment in Azerbaijan.

Over the past two decades, the DFC (through its predecessor, OPIC) has invested around $230 million in Azerbaijan across 24 business projects.  While Azerbaijan’s financial services sector has been a major area for investments, legacy OPIC-funded projects have included investments in the energy (such as the BTC oil pipeline completed in 2006), franchising, banking, microfinance, and hotel and hospitality sectors of Azerbaijan.  The DFC has repeatedly provided funds for numerous banks operating in Azerbaijan in order to expand their SME lending portfolios, including $4.8 million to Rabita Bank in 2008 and $7.3 million to Turan Bank in 2009.  In 2011, DFC predecessor OPIC provided MuganBank a loan guarantee for $10 million to expand its operations, targeting SME borrowers.  OPIC also provided USD $1 million and $3 million to FinDev and CredAgro for microfinance lending, respectively.  In 2012, OPIC provided loan insurance to Viator Microcredit Azerbaijan LLC ($500,000), NBCO Vision Fund Azercredit LLC ($2 million), and FinDev again ($1 million).  In 2013, OPIC signed a memorandum with Turan Bank for a loan in the amount of $7 million with a term of seven years for SME financing.  As of 2015, the DFC has active loan projects with two non-banking credit organizations, KredAgro and TBC Kredit.

In its 2014 annual report, EXIM Bank reported outstanding insurance and loan guarantees for Azerbaijan in the amount of $211.9 million, primarily in support of aviation sales.  In 2011, EXIM Bank closed a $116.6 million loan with a ten-year repayment period to finance the Azerbaijan space agency’s purchase of the AzerSat-1 satellite from Orbital Sciences.  In June 2015, EXIM Bank finalized a $211.9 million loan to finance Azerbaijan Airline’s purchase of Boeing commercial aircraft.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount  
Host Country Gross Domestic Product (GDP) ($M USD) 2018 $46,939 2017 $40,748 https://data.worldbank.org/
country/azerbaijan
 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) No reliable data BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
Host country’s FDI in the United States ($M USD, stock positions) No reliable data BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
Total inbound stock of FDI as % host GDP No reliable data 2017 76.6% UNCTAD data available at
https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx
 
 

* Source for Host Country Data:  Azerbaijan State Statistical Committee

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward $29,314 100% Total Outward $20,461 100%
United Kingdom $6,317 22% Turkey $10,761 53%
Turkey $5,797 20% Georgia $2,984 15%
Norway $3,063 10% Switzerland $1,237 6%
Iran $2,523 9% United Kingdom $1,013 5%
Cyprus $1,907 7% United States $594 3%
“0” reflects amounts rounded to +/- USD 500,000.

Table 4: Sources of Portfolio Investment
Data not available.

Turkey

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment  

Turkey acknowledges that it needs to attract significant new foreign direct investment (FDI) to meet its ambitious development goals.  As a result, Turkey has one of the most liberal legal regimes for FDI among Organization for Economic Cooperation and Development (OECD) members.  According to the Central Bank of Turkey’s balance of payments data, Turkey attracted a total of USD 5.6 billion of FDI in 2019, almost USD 1 billion down from USD 6.7 billion in 2018.  This figure is the lowest FDI figure for Turkey in the last 15 years.  In order to attract more FDI, Turkey needs to improve enforcement of international trade rules, ensure the transparency and timely execution of judicial awards, increase engagement with foreign investors on policy issues, and pursue policies to promote strong, sustainable, and balanced growth.  It also needs to take other political measures to increase stability and predictability for investors.  A stable banking sector, tight fiscal controls, efforts to reduce the size of the informal economy, increased labor market flexibility, improved labor skills, and continued privatization of state-owned enterprises would, if pursued, have the potential to improve the investment environment in Turkey.

Most sectors open to Turkish private investment are also open to foreign participation and investment.  All investors, regardless of nationality, face similar challenges:  excessive bureaucracy, a slow judicial system, relatively high and inconsistently applied taxes, and frequent changes in the legal and regulatory environment.  Structural reforms that would create a more transparent, equal, fair, and modern investment and business environment remain stalled.  Venture capital and angel investing are still relatively new in Turkey.

Turkey does not screen, review, or approve FDI specifically.  However, the government has established regulatory and supervisory authorities to regulate different types of markets.  Important regulators in Turkey include the Competition Authority; Energy Market Regulation Authority; Banking Regulation and Supervision Authority; Information and Communication Technologies Authority; Tobacco, Tobacco Products and Alcoholic Beverages Market Regulation Board; Privatization Administration; Public Procurement Authority; Radio and Television Supreme Council; and Public Oversight, Accounting and Auditing Standards Authority.  Some of the aforementioned authorities screen as needed without discrimination, primarily for tax audits.  Screening mechanisms are executed to maintain fair competition and for other economic benefits.  If an investment fails a review, possible outcomes can vary from a notice to remedy, which allows for a specific period of time to correct the problem, to penalty fees.  The Turkish judicial system allows for appeals of any administrative decision, including tax courts that deal with tax disputes.

Limits on Foreign Control and Right to Private Ownership and Establishment  

There are no general limits on foreign ownership or control.  However, there is increasing pressure in some sectors for foreign investors to partner with local companies and transfer technology, and some discriminatory barriers to foreign entrants, on the basis of “anti-competitive practices,” especially in the information and communication technology (ICT) sector or pharmaceuticals.  In many areas Turkey’s regulatory environment is business-friendly.  Investors can establish a business in Turkey irrespective of nationality or place of residence.  There are no sector-specific restrictions that discriminate against foreign investor access, which are prohibited by World Trade Organization (WTO) Regulations.

Other Investment Policy Reviews 

The OECD published an Environmental Performance Review for Turkey in February 2019, noting the country was the fastest growing among OECD members.  Turkey’s most recent investment policy review through the World Trade Organization (WTO) was conducted in March 2016.  Turkey has cooperated with the World Bank to produce several reports on the general investment climate that can be found at:  http://www.worldbank.org/en/country/turkey/research .

Business Facilitation  

The Presidency of the Republic of Turkey Investment Office is the official organization for promoting Turkey’s investment opportunities to the global business community and assisting investors before, during, and after their entry into Turkey.  Its website is clear and easy to use, with information about legislation and company establishment. (http://www.invest.gov.tr/en-US/investmentguide/investorsguide/Pages/EstablishingABusinessInTR.aspx ).  The website is also where foreigners can register their businesses.

The conditions for foreign investors setting up a business and transferring shares are the same as those applied to local investors.  International investors may establish any form of company set out in the Turkish Commercial Code (TCC), which offers a corporate governance approach that meets international standards, fosters private equity and public offering activities, creates transparency in managing operations, and aligns the Turkish business environment with EU legislation as well as with the EU accession process.

Turkey defines micro, small, and medium-sized enterprises according to Decision No. 2018/11828 of the Official Gazette dated June 2, 2018:

  • Micro-sized enterprises: fewer than 10 employees and less than or equal to 3 million Turkish lira in net annual sales or financial statement.
  • Small-sized enterprises: fewer than 50 employees and less than or equal to 25 million Turkish lira in net annual sales or financial statement.
  • Medium-sized enterprises: fewer than 250 employees and less than or equal to 125 million Turkish lira in net annual sales or financial statement.

Outward Investment

The government promotes outward investment via investment promotion agencies and other platforms.  It does not restrict domestic investors from investing abroad.

12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance Programs

The U.S. International Development Finance Corporation (DFC) replaced the Overseas Private Investment Corporation (OPIC) in December 2019, and continues to offer a full range of programs in Turkey, including political risk insurance for U.S. investors, under its bilateral agreement.    Since 1987, Turkey has been a member of the Multinational Investment Guarantee Agency (MIGA),  most recently financing a public hospital project  in 2019.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or 

international statistical source

USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2019 $753,693 2018 $771,350 www.worldbank.org/en/country 

www.turkstat.gov.tr 

Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2018 $4,433 2018 $4,656 BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
www.tcmb.gov.tr 
Host country’s FDI in the United States ($M USD, stock positions) 2018 $1,773 2018 $2,135 BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
 
www.tcmb.gov.tr 
Total inbound stock of FDI as % host GDP 2018 17.7% 2018 17.6% UNCTAD data available at
https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx
 
  www.tcmb.gov.tr 
Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data (2018)
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 103,176 100% Total Outward 44,449 100%
The Netherlands 19,072 18% The Netherlands 17,571 40%
Russian Federation 16,248 16% United Kingdom 4,113 9%
Germany 7,339 7% Jersey 3,419 8%
Qatar 6,448 6% Austria 1,917 4%
Azerbaijan 5,915 5% United States 1,815 4%
“0” reflects amounts rounded to +/- USD 500,000.

IMF’s Coordinated Direct Investment Survey (CDIS) data available at: http://data.imf.org/?sk=40313609-F037-48C1-84B1-E1F1CE54D6D5&sId=1482331048410

Table 4: Sources of Portfolio Investment
Portfolio Investment Assets (June, 2019)
Top Five Partners (Millions, US Dollars)
Total Equity Securities Total Debt Securities
All Countries 1,965 100% All Countries 570 100% All Countries 1,394 100%
USA 916 47% USA 274 35%  USA 642 46%
Luxembourg 491 25% UK 91 16%  Luxembourg 429 31%
Cayman Islands 203 15% Luxembourg 62 11%  Cayman Islands 203 15%
UK 93 45% Germany 33 6% Germany 36 3%
Germany 69 24% Russian Federation 17 3%  Malaysia 14 1%

“0” reflects amounts rounded to +/- USD 500,000.
IMF’s Coordinated Portfolio Investment Survey (CPIS) data available at: http://data.imf.org/regular.aspx?key=60587804 

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