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The investment climate in Azerbaijan continues to improve in certain sectors, although significant challenges remain. Azerbaijan’s government has sought to attract foreign investment and has introduced reforms to diversify its economy. The Azerbaijani economy remains heavily dependent on oil and gas output, which accounts for roughly 92 percent of export revenue and over half of the state budget. The economy of Azerbaijan grew 4.6percent year-on-year in 2022, compared to a 5.6percent increase in the previous year. The non-oil and gas sector of the economy expanded as the economy continued to recover from the pandemic. Russia’s further invasion of Ukraine, lingering effects from the COVID-19 pandemic, and global inflation impacted Azerbaijan’s economy in 2022. These issues contributed to increased prices in Azerbaijan in 2022. Azerbaijan’s official statistics agency estimated that Azerbaijan’s overall inflation rate in 2022 to be 14.3 percent.

In June 2022, Azerbaijan and the European Commission signed a memorandum of understanding to double Azerbaijan’s gas exports to Europe by 2027. By the year 2027, Azerbaijan plans to increase its gas transportation through the Trans Adriatic Pipeline (TAP) from the current 11 billion cubic meters to 20 billion cubic meters. In 2021, Azerbaijan supplied Europe with 19 billion cubic meters of gas.  Volumes increased to 22.6 billion cubic meters in 2022 and are expected to reach 24.5 billion cubic meters in 2023. While the oil and gas sector has historically attracted the largest share of foreign investment, the Azerbaijani government has targeted four non-oil sectors to diversify the economy: agriculture, tourism, information and communications technology (ICT), and transportation/logistics. Azerbaijan is also expected to continue to develop Azerbaijan’s central position on the east-west Middle Corridor, an increasingly important trade route because it avoids Russia.

Despite substantial efforts to open the business environment, progress remains slow on structural reforms required to create a diversified and competitive private sector, and corruption remains a major challenge for firms operating in Azerbaijan. A small group of government-connected holding companies dominates the economy, intellectual property rights enforcement is improving but remains insufficient, and judicial transparency is lacking.

Under Azerbaijani law, foreign investments enjoy complete and unreserved legal protection and may not be nationalized or appropriated, except under specific circumstances. Private entities may freely establish, acquire, and dispose of interests in business enterprises. Foreign citizens, organizations, and enterprises may lease, but not own, land. Azerbaijan’s government has not shown any pattern of discriminating against U.S. persons or entities through illegal expropriation. The Bilateral Investment Treaty (BIT) between the United States and Azerbaijan provides U.S. investors with recourse to settle investment disputes using the International Center for the Settlement of Investment Disputes (ICSID). The average time needed to resolve international business disputes through domestic courts or alternative dispute resolution varies widely.

Following the release in November of a tripartite ceasefire declaration by Armenia, Azerbaijan, and Russia, which brought an end to the fall 2020 intensive fighting in the Armenia-Azerbaijan conflict, the Azerbaijani government is seeking new investments in the territories previously under Armenian control. Azerbaijan’s 2023 budget includes an allocation of USD 1.76 billion for the restoration and reconstruction of these territories. These funds will be used to restore road, rail, electricity, gas, water, and communications infrastructure as well as invest in the education and healthcare sectors, and restore cultural and historical monuments. The government is also pursuing green energy projects in this region. Reconstruction is expected to continue over the coming years, along with continued special budget allocations provided for rebuilding and resettling these territories. Demining these territories as part of reconstruction efforts remains a priority of the Azerbaijani government.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2022 157 of 180 
Global Innovation Index 2022 93 of 132 
U.S. FDI in partner country ($M USD, historical stock positions) 2022 N/A 
World Bank GNI per capita 2021 USD 4,480 

Policies Towards Foreign Direct Investment

The Azerbaijani government actively seeks foreign direct investment.  The flow of foreign direct investment to Azerbaijan is primarily concentrated 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. The government of Azerbaijan has an ambitious plan towards development of renewable energy and is actively seeking investment in this sector. The European Bank for Reconstruction and Development and Asian Development Bank have committed significant financing for three large wind and solar projects.

Foreign investments enjoy 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 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 input from the business community, particularly as part of AmCham’s annual white paper process.  Over recent years some measures were taken to improve the business climate and general state of economy. Significant measures include elimination of redundant business license categories, simplified customs procedures, and reforms in the tax regime.

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 by 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 with the tax authorities.  Without formal registration, a company may not maintain a bank account or clear goods through customs.  Registration takes approximately three days for commercial organizations.  Companies may e-register at . On 1 January 2020, the last Tax Code amendment entered into force. Residents of industrial and high-tech parks in Azerbaijan are exempted from income, land, and property taxes for 10 years. Furthermore, the period of VAT and custom duties exemption on importation of equipment and facilities for construction of production facilities was extended to 10 years. In 2022, a VAT and sales tax exemption for electric vehicles was added to the one existing for hybrid vehicles.

Outward Investment

Azerbaijan does not actively promote or incentivize outward investment, although 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.

Azerbaijan has signed 52 Bilateral Investment Treaties (BIT).  The 2001 BIT in force between the United States and Azerbaijan encourages the reciprocal protection of investment.  Currently Azerbaijan also has bilateral investment treaties in force with Albania, Austria, Belarus, the Belgium-Luxembourg Economic Union, China, Croatia, Czech Republic, Estonia Finland, France, Georgia, Germany, Greece, Hungary, Iran, Israel, Jordan, Kazakhstan, Kuwait, Kyrgyzstan, Latvia, Lithuania, Moldova, Montenegro, North Macedonia, Poland, Qatar, Romania, Russian Federation, San Marino, Saudi Arabia, Serbia, South Korea, Spain, Switzerland, Syria, Tajikistan, Türkiye , Turkmenistan, 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 former 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) in October 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, Morocco, Netherlands, Norway, Pakistan, Poland, Qatar, Romania, Russia, San Marino, Saudi Arabia, Serbia, Slovenia, South Korea, Spain, Sweden, Switzerland, Tajikistan, Türkiye , Turkmenistan, UAE, Ukraine, United Kingdom and Northern Ireland, Uzbekistan, and Vietnam.

Transparency of the Regulatory System

Azerbaijan’s central government is the primary source of regulations relevant to foreign businesses.  Azerbaijan’s regulatory system has improved in recent years, although enforcement is inconsistent, and decision-making remains opaque.  Private sector associations do not play a significant role in regulatory processes, although some associations have made progress in providing private sector feedback to the government on some new economic regulations. Generally, the draft legislation process typically does not include public consultations and draft legislation text is rarely made available for public comment.  The government has in some cases engaged business organizations, such as AmCham, and consulting firms on various draft laws.  The website of Azerbaijan’s National Parliament,  lists all the country’s laws, but only in the Azerbaijani language.

Legal entities in Azerbaijan must adhere to the International Financial Reporting Standards (IFRS).  These are only obligatory for large companies.  Medium-sized companies can choose between reporting based on IFRS or IFRS-SME standards, which are specially designed for large and medium enterprises.  Small and micro enterprises can choose between reporting based on IFRS, IFRS-SME, or simplified accounting procedures established by the Finance Ministry.

Several U.S. companies with operations and investments in Azerbaijan previously reported they had been subjected to repeated tax audits, requests for prepayment of taxes, and court-imposed fines for violations of the tax code.  These allegations have markedly decreased since 2017.

On October 19, 2015, Azerbaijan suspended inspections of entrepreneurs for two years, but inspections still may occur if a complaint is lodged.  This suspension was subsequently extended several times and has recently been extended through January 1, 2024. Medicine quality and safety, taxes, customs, financial markets, food safety, fire safety, construction and safe usage of hazardous facilities, radioactive substances, and mining fields are not subject to this suspension order and are inspected for quality and safety.

The government has also simplified its licensing regime.  All licenses are now issued with indefinite validity through ASAN service centers and must be issued within 10 days of application.  The Economy Ministry also reduced the number of activities requiring a license from 60 to 32.

International Regulatory Considerations

Azerbaijan has held observer status at the World Trade Organization (WTO) since 1997 but has not made significant progress toward joining the WTO for the past several years.  A working party on Azerbaijan’s succession to the WTO was established on July 16, 1997, and Azerbaijan began negotiations with WTO members in 2004.  In February 2020, Azerbaijani President Ilham Aliyev made public remarks outlining Azerbaijan’s “cautious” approach to the WTO, saying that “the time [had] not come” for Azerbaijan’s membership.

Legal System and Judicial Independence

Azerbaijan’s legal system is based on civil law.  Disputes or disagreements arising between foreign investors and enterprises with foreign investment, Azerbaijani state bodies and/or enterprises, and other Azerbaijani legal entities, are to be settled in the Azerbaijani court system or, upon agreement between the parties, in a court of arbitration, including international arbitration bodies.  The judiciary consists of the Constitutional Court of the Republic of Azerbaijan, the Supreme Court of the Republic of Azerbaijan, the appellate courts of the Republic of Azerbaijan, trial courts, and other specialized courts.  Trial court judgments may be appealed in appellate courts and the judgments of appellate courts can be appealed in the Supreme Court.  The Supreme Court is the highest court in the country.  Under the Civil Procedure Code of Azerbaijan, appellate court judgments are published within three days of issuance or within ten days in exceptional circumstances.  The Constitutional Court has the authority to review laws and court judgments for compliance with the constitution.

Businesses report problems with the reliability and independence of judicial processes in Azerbaijan.  While the government promotes foreign investment and the law guarantees national treatment, in practice investment disputes can arise when a foreign investor or trader’s success threatens well-connected or favored local interests.

Laws and Regulations on Foreign Direct Investment

Foreign investment in Azerbaijan is regulated by a number of international treaties and agreements, as well as domestic legislation.  These include the Bilateral Investment Treaty (BIT) between the United States and Azerbaijan, the Azerbaijan-European Commission Cooperation Agreement, the Law on Protection of Foreign Investment, the Law on Investment Activity, the Law on Investment Funds, the Law on Privatization of State Property, the Second Program for Privatization of State Property, and sector-specific legislation.  Azerbaijani law permits foreign direct investment in any activity in which a national investor may also invest, unless otherwise prohibited (see “Limits on Foreign Control and Right to Private Ownership and Establishment” for further information).

Azerbaijan Law No 551-VIQ, dated 22 June 2022, On Investing [Investment Activity], came into effect on 28 July 2022. This law supersedes the Law On Protection of Foreign Investments, dated 15 January 1992, and the Law On Investment Activity, dated 13 January 1995 and neither of those laws are in force.

Pursuant to the new Law, the following initiatives are identified as preference investment projects:

  • Innovative projects aimed at developing the technological capacity of the Azerbaijani economy;
  • Promoting the use of eco-friendly technologies and efficient use of natural resources;
  • Promoting a healthy lifestyle among the population;
  • Development of social infrastructure and different sectors of the economy;
  • Developing the expertise and skills that match with the current demands; and
  • Promoting the development of the regions of Azerbaijan.

The law also identifies the introduction of digitalization of investor services and implementing a one-stop shop mechanism for those services as key areas of Azerbaijan’s investment policy.

Competition and Antitrust Laws

The State Service for Antimonopoly Policy and Consumer Protection under the Economy Ministry is responsible for implementing competition-related policy.  The law on Antimonopoly Activity was amended in April 2016 to introduce regulations on price fixing and other anti-competitive behavior.  Parliament began revising a new version of the Competition Code in late 2014, but it has not yet been adopted.  Azerbaijan’s antimonopoly legislation does not constrain the size or scope of the handful of large holding companies that dominate the non-oil economy.

Expropriation and Compensation

The Law on the Protection of Foreign Investments forbids nationalization and requisition of foreign investment, except under certain circumstances.  Nationalization of property can occur when authorized by parliamentary resolution, although there have been no known cases of official nationalization or requisition against foreign firms in Azerbaijan.  By a decision of the Cabinet of Ministers, requisition is possible in the event of natural disaster, an epidemic, or other extraordinary situation.  In the event of nationalization or requisition, foreign investors are legally entitled to prompt, effective, and adequate compensation.  Amendments made to Azerbaijan’s Constitution in September 2016 enabled authorities to expropriate private property when necessary for social justice and effective use of land. In one recent case U.S. citizen property owners were allegedly pressured by local authorities to relinquish property rights at rates perceived to be well below fair market value and the property was physically taken over by city officials in 2022.  The tenant was allegedly forced to relocate to a temporary location with little warning because of imminent demolition.  The U.S. citizen property owner reports that it is pursuing arbitration under the Azerbaijan-U.S. Bilateral Investment Treaty. The U.S. citizen property owner is pursuing arbitration under the Azerbaijan-U.S. Bilateral Investment Treaty.The Azerbaijani government has not shown any pattern of discriminating against U.S. persons by way of direct expropriations.

Dispute Settlement

ICSID Convention and New York Convention

Azerbaijan is a member of the International Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID convention) as well as the New York Convention of 1958 on the Recognition and Enforcement of Foreign Arbitral Awards.  The Supreme Court of Azerbaijan is responsible for recognizing and enforcing arbitral awards rendered pursuant to the Conventions.  For the time being, as a method of resolving disputes in Azerbaijan, international arbitration is unpopular and underdeveloped.  Domestic parties still prefer litigation as the main method of dispute settlement.  Arbitration practice in Azerbaijan is limited to the recognition of foreign arbitral awards by the Supreme Court and their enforcement by the Ministry of Justice.  Although there is an Azerbaijan International Commercial Arbitration Court, at present its activity is limited.  Azerbaijan adopted a Law on Mediation on March 29, 2019 which requires attendance at an initial mediation session before bringing an action concerning family, labor, and business disputes.  New laws amending the Civil Procedural Code and the Law on Courts and Judges were published in July 2019.  Per the amendments, administrative-economic courts charged with administrative and economic disputes are divided into administrative courts and commercial courts.  The newly established commercial courts are authorized to hear all commercial disputes and some other disputes affecting entrepreneurial activities.  Legal experts anticipate commercial courts and administrative courts will grow to specialize respectively in commercial matters and administrative disputes, with such specialization increasing the quality of justice.

Investor-State Dispute Settlement

Azerbaijan is party to the European Convention on Foreign Commercial Arbitration dated April 21, 1961.  The Bilateral Investment Treaty (BIT) between the United States and Azerbaijan, which went into force in 2001, provides U.S. investors recourse to settle any investment dispute using the ICSID convention.  Azerbaijan has been a party to three ICSID cases, two of which were settled and one of which was decided in favor of the State.  Thus far, the ICSID has not issued arbitral awards against the government of Azerbaijan.  The U.S. Embassy in Baku has been notified of four investment dispute cases regarding U.S. citizens.  None of these cases, however, have been resolved.

International Commercial Arbitration and Foreign Courts

International arbitration in Azerbaijan is regulated by the Law on International Commercial Arbitration, based on the UNCITRAL model law.  Parties may select arbitrators of any nationality, the language of the proceedings, the national law to be applied, and the arbitration procedure to be used.  In cases in which parties did not stipulate the terms of the proceedings, the Supreme Court of the Republic of Azerbaijan will resolve the omission.  In 1999 Azerbaijan acceded to the New York Convention on the enforcement of foreign arbitral awards.  Azerbaijan also passed a Law “On International Arbitration.”  Accession to the New York Convention has greatly increased the utility of overseas arbitrations, while the Law “On International Arbitration” provides for international arbitrations with the place of arbitration in Baku.  This law aimed to resolve difficulties in instances where it is impractical or inadvisable to arbitrate abroad (for example, for reasons of cost, language, or law).  However, as no procedural mechanism has been established in Azerbaijan for the enforcement of a local arbitral award, arbitration proceedings inside Azerbaijan are fraught with difficulties.  Though both the Law “On International Arbitration” and the New York Convention have been in force in Azerbaijan for several years, foreign arbitration is not necessarily effective and attempts to enforce foreign arbitral awards have been largely untested.

Bankruptcy Regulations

Azerbaijan’s Bankruptcy Law applies only to legal entities and entrepreneurs, not to private individuals.  Either a debtor facing insolvency or any creditor may initiate bankruptcy proceedings.  In general, the legislation focuses on liquidation procedures.  The bankruptcy law in Azerbaijan is underdeveloped, which restricts private sector economic development by deterring entrepreneurship.  Amendments to Azerbaijan’s bankruptcy law adopted in 2017 extended the obligations of bankruptcy administrators and defined new rights for creditors.

Investment Incentives

Since early 2016, the government has introduced tax and investment incentives for entrepreneurs and legal entities in non-oil export sectors as part of the overall economic reform and economic diversification efforts.  These measures include certain partial, temporary exemptions from corporate and property taxes; favorable tax treatment for manufacturing facilities and imports of manufacturing equipment; and subsidies for certain exports.  Investment certificate holders are exempt from paying 50 percent of the assessed income tax, 100 percent of the land tax, and 100 percent of customs duties on imported machinery, equipment, and devices.  Certificates are issued for seven years to projects in priority non-oil sectors.

The Law of Azerbaijan “On the Use of Renewable Energy Sources in the Production of Electricity”, was signed into law by the President and published on July 14, 2021, together with a Presidential Decree on the implementation of the Renewable Energy Law. The Renewable Energy Law addresses guaranteed tariffs, foreign investment and other support mechanisms, such as scientific research and the promotion of active consumers. The law prescribes two methods for selecting investors for the generation of electricity using renewable energy sources (RES) auctions or via direct negotiation with the host government. Azerbaijan has yet to introduce auctions for renewables projects.

Under the law, if the selection of an investor is conducted in the form of an auction, the winner of the auction shall be the lowest bidder in relation to the purchase price for electricity subject to guaranteed offtake. The Ministry of Energy is the authorized body to organize RES auctions. The government is also considering other incentives for investors in RES projects in Azerbaijan, including guaranteed offtake, guaranteed connection, priority in transmission and distribution and long-term land leases.

Additionally, the government has introduced some investment promotion measures. In December 2022, the government adopted the Decree of the President of the Republic of Azerbaijan on the improvement of the investment promotion mechanism. The Decree created new rules relating to investment procedures, changed the existing legislation, and approved a new list that identified the minimum amount for an investment project and the zones for economic activities.

Foreign Trade Zones/Free Ports/Trade Facilitation

In March 2016, a government decree established the Alat Free Economic Zone (AFEZ) next to the Port of Alat, located approximately 50 miles south of Baku. The AFEZ is intended to support increased local and foreign investment in non-oil sectors. Azerbaijan has promoted the AFEZ and Port of Baku as key nodes on the Middle Corridor. The Law of the Republic of Azerbaijan “On the Alat Free Economic Zone”, which came into effect in June 2018, provides the legal framework for the development, operation, and governance of the AFEZ. The law creates a special economic zone that exempts all businesses in the AFEZ from taxes and customs; charges the AFEZ’s administration with setting up its own employment, migration, dispute resolution, and arbitration regulations; provides protections from nationalization; and guarantees the free flow of funds in and out of the free trade area.

Performance and Data Localization Requirements

The Azerbaijani government does not mandate local employment, although some Production Sharing Agreements (PSAs) in the oil sector include localization provisions.  While performance requirements are not generally imposed on new investments, the government is seeking to increase the number of value-added services and processes performed in Azerbaijan.  American companies have reported that government-connected companies often encourage current or potential partners to establish joint ventures, initiate local production of certain components, facilitate technology transfer, or otherwise invest in Azerbaijan in order to maintain or expand cooperation.

Azerbaijan does not have any data localization requirements.

Real Property

International organizations, foreign citizens, and foreign legal entities may not own land or be granted a purchase option on a lease, but they are permitted to lease land.  Following independence, the government implemented land reforms that divided state-owned farms into privately held small plots. Amendments made to Azerbaijan’s Constitution in September 2016 enabled authorities to expropriate private property with compensation in instances where it is necessary for “social justice and efficient use of the land.” The government reportedly compensates farmers well for expropriated land.

Azerbaijan’s State Real Estate Registry Service at the Committee for Property Issues registers real estate.  April 2016 amendments to the Law on Immovable Property Register cut the time to register property from 20 to 10 working days.

Intellectual Property Rights

Azerbaijan is not listed in USTR’s Special 301 Report, nor is it included in USTR’s Notorious Markets List.

The legal structure covering intellectual property protections in Azerbaijan is relatively strong, but experts and the business community report the level of enforcement within the country as weak.  Piracy and blatant infringements of both digital and physical goods are common and stifle foreign investment and local entrepreneurship.  In 2015, The Business Software Alliance estimated the prevalence of software piracy in Azerbaijan, including government ministries, to be at 84 percent. In 2022, Azerbaijan’s Copywrite Copyright? Agency stated that that rate has fallen to 71 percent. U.S. companies routinely list weak IPR protections as a key concern.  With strong Embassy encouragement, the government is taking steps to increase the use of licensed software in government institutions, but progress has been limited.

IPR in Azerbaijan is regulated by the Law on Copyrights and Related Rights, the Law on Trademarks and Geographic Designations, the Law on Patents, the Law on the Topology of Integrated Microcircuits, the Law on Unfair Competition, and the Law on Securing Intellectual Property Rights and Combating Piracy. The Copyright Agency of Azerbaijan is the agency in charge of activities related to copyright and intellectual property protection.

Azerbaijan is a party to the Convention Establishing the World Intellectual Property Organization (WIPO), the Paris Convention for Protection of Industrial Property, and the Berne Convention for the Protection of Literary and Artistic Works.  Azerbaijan is also a party to the Geneva Phonograms Convention and acceded to the two WIPO Internet treaties in 2005.

Violation of IPR can result in civil, criminal, and administrative charges.  Azerbaijan tracks and reports on seizures of counterfeit goods but does not publish statistics on this effort.  For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at .

Capital Markets and Portfolio Investment

Access to capital is a critical impediment to business development in Azerbaijan.  An effective regulatory system that encourages and facilitates portfolio investment, foreign or domestic, is not fully in place.  Though the Baku Stock Exchange opened in 2000, there is insufficient liquidity in the market to enter or exit sizeable positions.  The Central Bank assumed control over all financial regulation in January 2020, following disbandment of a formerly independent regulator.  Non-bank financial sector staples such as capital markets, insurance, and private equity are in the early stages of development.  The Capital Market Modernization Project is an attempt by the government to build the foundation for a modern financial capital market, including developing market infrastructure and automation systems, and strengthening the legal and market frameworks for capital transactions.  One major hindrance to the stock market’s growth is the difficulty in encouraging established Azerbaijani businesses to adapt to standard investor-friendly disclosure practices, which are generally required for publicly listed companies.

Azerbaijan’s government and Central Bank monitors payments and transfers for international transactions.  Foreign investors are permitted to obtain credit on the local market, but smaller companies and firms without an established credit history often struggle to obtain loans on reasonable commercial terms.  Limited access to capital remains a barrier to development, particularly for small and medium enterprises.

Money and Banking System

The country’s financial services sector – of which banking comprises more than 90 percent – is underdeveloped, which constrains economic growth and diversification.  Capital levels and profitability have recovered since the slump in oil prices after mid-2014. Azerbaijan has adopted de-dollarization measures, including open currency position limit, higher deposit insurance premiums for foreign-exchange deposits and bans on foreign-exchange lending. The fast increase in manat deposits in 2022 has reduced deposit dollarization to 50.8% from 54% in 2021.

Situation in the currency market of Azerbaijan remained stable, and the exchange rate of the manat did not change.

As of January 1, 2023, 25 banks were registered in Azerbaijan, including 11 banks with foreign capital and two state-owned banks.  Total banking sector assets stood at approximately USD 27.6 billion as of January 2023, with the top five banks holding almost 60 percent of this amount. De-dollarization trends continued in 2022. In the credit portfolio dollarization decreased by 6.1 percent amounting to 20.1 percent and in the deposit, portfolio dollarization dropped by 1.9 percent to 39.8 percent.

As of December 31, 2022, the share of business loans in the structure of credit portfolio made up 55.4 percent (AZN 10.85 billion or USD 6.37 billion, growth of 11.45 percent year over year), consumer loans – 29.36 percent (AZN 5.75 billion or USD 3.38 billion, growth of 27.36 percent), and mortgage loans – 15.24 percent (AZN 2.98 billion or USD 1.75 billion, growth of 24.38 percent year over year).

Foreign banks are permitted in Azerbaijan and may take the form of representative offices, branches, joint ventures, and wholly owned subsidiaries.  These banks are subject to the same regulations as domestic banks, with certain additional restrictions.  Foreign individuals and entities are also permitted to open accounts with domestic or foreign banks in Azerbaijan.

Foreign Exchange and Remittances

Foreign Exchange

Azerbaijan’s Central Bank officially adopted a floating exchange rate in 2016 but continues to operate under an “interim regime” that effectively pegs the exchange rate at AZN 1.7 per USD.  Azerbaijan’s foreign currency reserves are based on the reserves of the Central Bank, those of the State Oil Fund of Azerbaijan (SOFAZ), and the assets of the State Treasury Agency under the Finance Ministry.  Foreign currency reserves of the Central Bank totaled USD 9 billion in January 2023.  As of January 2023, SOFAZ assets reached USD 49 billion.

Foreign exchange transactions are governed by the Law on Currency Regulation.  The Central Bank administers the overall enforcement of currency regulation.  Currency conversion is carried out through the Baku Interbank Currency Exchange Market and the Organized Interbank Currency Market.

There are no statutory restrictions on converting or transferring funds associated with an investment into freely usable currency at a legal, market-clearing rate.  The average time for remitting investment returns is two to three business days.  Some requirements on disclosure of the source of currency transfers have been imposed to reduce illicit transactions.

Remittance Policies

Corporate branches of foreign entities are subject to a remittance tax of 10 percent on all profits derived from their business activities in Azerbaijan.  There have not been any recent changes or plans to change investment remittance policies that either tighten or relax access to foreign exchange for investment remittances.  There do not appear to be time limitations on remittances, including dividends, returns on investment, interest and principal on private foreign debt, lease payments, royalties, and management fees.  Nor does there appear to be limits on the inflow or outflow of funds for remittances of profits or revenue.

Sovereign Wealth Funds

Azerbaijan’s sovereign wealth fund is the State Oil Fund of Azerbaijan (SOFAZ).  Its mission is to transform hydrocarbon reserves into financial assets generating perpetual income for current and future generations and to finance strategically important infrastructure and social projects of national scale.  While its main statutory focus is investing in assets outside of the country, since it was established in 1999 SOFAZ has financed several socially beneficial projects in Azerbaijan related to infrastructure, housing, and education.  The government’s fiscal rule places limits on pro-cyclical spending, with the aim of increasing hydrocarbon revenue savings. SOFAZ publishes an annual report that it submits for independent audit.  The fund’s assets totaled USD 49 billion as of January 1, 2023.

In Azerbaijan, state-owned enterprises (SOEs) are active in the oil and gas, power generation, communications, water supply, railway, and air passenger and cargo sectors, among others.  There is no published list of SOEs.  While there are no SOEs that officially have been delegated governmental powers, companies such as the SOCAR, Azerenerji (the national electricity utility), and Azersu (the national water utility) – all of which are closed joint-stock companies with majority state ownership and limited private investment – enjoy quasi-governmental or near-monopoly status in their respective sectors.

SOCAR is wholly owned by the government of Azerbaijan and takes part in all oil and gas activities in the country.  It publishes regular reports on production volumes, the value of its exports, estimates of investments in exploration and development, production costs, the names of foreign companies operating in the country, production data by company, quasi-fiscal activities, and the government’s portion of production-sharing contracts.  SOCAR is also responsible for negotiating PSAs with all foreign partners for hydrocarbon development.  SOCAR’s annual financial reports are audited by an independent external auditor and include the consolidated accounts of all SOCAR’s subsidiaries.

There have been instances where state-owned enterprises have used their regulatory authority to block new entrants into the market.  SOEs are, in principle, subject to the same tax burden and tax rebate policies as their private sector competitors.  However, in sectors that are open to both private and foreign competition, SOEs generally receive a larger percentage of government contracts or business than their private sector competitors.  While SOEs regularly purchase or supply goods or services from private sector firms, domestic and foreign private enterprises have reported problems competing with SOEs under the same terms and conditions with respect to market share, information, products and services, and incentives.  Private enterprises do not have the same access (including terms) to financing as SOEs.  SOEs are also afforded material advantages such as preferential access to land and raw materials – advantages that are not available to private enterprises.  There is little information available on Azerbaijani SOEs’ budget constraints, due to the limited transparency in their financial accounts.

Privatization Program

A renewed privatization process started with the May 2016 presidential decree implementing additional measures to improve the process of state property privatization and the July 2016 decree on measures to accelerate privatization and improve the management efficiency of state property.  The State Committee on Property Issues launched a portal to provide privatization information in July 2016.  The portal contains information about the properties, their addresses, location, and initial costs with the aim of facilitating privatization.  Azerbaijan’s current privatization efforts focus on smaller state-owned properties.  While there are no immediate plans to privatize large SOEs, Azerbaijan established Azerbaijan Investment Holding (AIH) in August 2020 to improve efficiency and corporate governance as well as prepare these companies for possible privatization.  However, the government announced no plans to sell stakes in state-owned companies in 2023.

Responsible business conduct (RBC) is a relatively new concept in Azerbaijan.  Producers and consumers tend not to prioritize responsible business conduct, including environmental, social, and governance issues.  No information is available on legal corporate governance, accounting, and executive compensation standards to protect shareholders in Azerbaijan.  Larger foreign entities tend to follow generally accepted RBC principles consistent with parent company guidelines and aim to educate their local partners, who generally consider basic charitable donations and paying taxes as acts of social responsibility.

AmCham established a Corporate Social Responsibility (CSR) Committee in October 2011 to encourage companies to embrace social responsibility through activities and dialogue with relevant stakeholders.  AmCham also published a corporate social responsibility guide on CSR for businesses in Azerbaijan.  The Committee has since been renamed Sustainable Development and Corporate Impact and has sponsored conferences supporting CSR development in Azerbaijan.

In 2011, the Economy Ministry established standards for corporate governance, which included an evaluation methodology for these standards and a code of ethical behavior.  The Economy Ministry has been tasked with explaining the importance of corporate governance standards to entrepreneurs.  Some companies report that government restrictions on NGO registration have complicated CSR corporate social responsibility efforts.

Azerbaijan’s Extractive Industries Transparency Initiative (EITI) status was downgraded from “compliant” to “candidate” in April 2015, due to concerns about Azerbaijani civil society’s ability to engage critically in the EITI process.  Following the EITI Secretariat’s evaluation in March 2017 that Azerbaijan had not sufficiently implemented required “corrective actions,” Azerbaijan withdrew from the EITI and established a domestic Extractive Industries Transparency Commission in April 2017 to ensure transparency and accountability in the extractive industries of the country.  The Commission has published two Reports on Transparency in the Extractive Industries, but the Commission does not conform with EITI standards. In 2021 the Ministry of Energy announced its Extractive Industries Transparency Portal; however, it is not yet operational.

Azerbaijan has signed and ratified the Paris Climate Agreement.  Azerbaijan’ Nationally Determined Contribution is a 35 percent reduction in its carbon emissions from 1990 levels by 2030. At COP27, the government conditionally agreed to a 40 percent reduction by 2050.

Additional Resources

Department of State

Department of the Treasury

Department of Labor

Climate Issues

Azerbaijan has signed and ratified the Paris Climate Agreement.  Azerbaijan’ Nationally Determined Contribution is a 35 percent reduction in its carbon emissions from 1990 levels by 2030. At COP27, the government conditionally agreed to a 40 percent reduction by 2050.

The World Bank has reported that climate-related changes in temperature could result in further pressure on the country’s water supply thus reducing agricultural productivity, exacerbating desertification and soil salinity, and increasing demand for irrigation. The Caspian Sea has seen levels fall by an average of 6.7cm per year from 1996 and 2015.

Corruption is a challenge for firms operating in Azerbaijan and is a barrier to foreign investment despite government efforts to reduce low-level corruption.  Azerbaijan does not require that private companies establish internal codes of conduct to prohibit bribery of public officials, nor does it provide protections to NGOs involved in investigating corruption.  U.S. firms have identified corruption in government procurement, licensing, dispute settlement, regulation, customs, and taxation as significant obstacles to investment.

The Azerbaijani government publicly acknowledges problems with corruption but does not effectively or consistently enforce anticorruption laws and regulations.  Azerbaijan has made modest progress in implementing a 2005 Anti-corruption Law, which created a commission with the authority to require full financial disclosure from government officials.  The government has achieved a degree of success reducing red tape and opportunities for bribery through a focus on e-government and government service delivery through centralized ASAN service centers, which first opened in February 2013.  ASAN centers provide more transparent, efficient, and accountable services through a “one window” model that reduces opportunities for rent-seeking and petty government corruption and have become a model for other initiatives aimed at improving government service delivery.

On April 4, 2022, President Aliyev issued a decree approving the country’s National Action Plan to Strengthen the Fight Against Corruption for the period 2022-2026. The Plan highlights six key focus areas for the next four years:  further enhancing the country’s legislative framework; maximizing transparency; targeting money laundering and terror financing; improving public oversight and participation; cooperating domestically and nationally with civil society institutions; and promoting anticorruption awareness.

Despite progress in reducing corruption in public services delivery, the civil service, public procurement apparatus, and the judiciary still suffer from corruption.  Tax and customs reforms announced in January 2019 were aimed partially at reducing corruption in tax administration and received praise from the local business community. However, in a what seems to be a move to reduce corruption, in 2022 the President removed the head of the State Customs Committee and several of his staff as well as the head of the Nahkchivan State Customs Committee.

Azerbaijan signed and ratified the UN Anticorruption Convention and is a signatory to the Council of Europe Criminal and Civil Law Conventions.  Azerbaijan is not currently a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

Resources to Report Corruption

Ramin Valizade
Commission on Combating Corruption
Baku, Azerbaijan
(+994 12) 492-04-65

There have been no known acts of political violence against U.S. businesses or assets, nor against any foreign owned entity.  It is unlikely that civil disturbances, should they occur, would be directed against U.S. businesses or the U.S. community.

Following 44 days of intensive fighting from September 27 to November 10, 2020 with Armenia and Armenia-supported separatists, Azerbaijan, with Turkish support, established authority over parts of Nagorno-Karabakh and seven surrounding territories controlled by separatists since 1994. A Russian-brokered ceasefire arrangement announced by Azerbaijan and Armenia on November 9, 2020, resulted in the introduction of Russian peacekeepers to the region.  While the ceasefire has largely held, tensions remain high and outbreaks of fighting are not uncommon, including an incident in September 2022 along the undelimited international border that resulted in approximately 300 Armenian and Azerbaijani fatalities.

Russian forces have played a role in controlling access along highways near the border and into the Nagorno-Karabakh region from Armenia and Azerbaijan.  The Azerbaijani government has suspended or threatened to suspend the operations of U.S. companies in Azerbaijan whose products or services are provided in Nagorno-Karabakh in which Russian “peacekeepers” are currently deployed and has banned the entry into Azerbaijan of some persons who have visited Nagorno-Karabakh.  The U.S. government is unable to provide emergency services to U.S. citizens in and around Nagorno-Karabakh as access is restricted.

The 1999 Labor Code regulates overall labor relations and recognizes international labor rights.  The work week generally is 40 hours.  The right to strike exists, although industrial strikes are rare.  Azerbaijan is a member of the International Labor Organization (ILO) and has ratified more than 57 ILO Conventions.  In practice, labor unions are strongly tied to political interests of the government; unions do not function independently or effectively advocate for workers’ rights.  Collective bargaining is not practiced.  Azerbaijan has regulations to monitor labor abuses, health, and safety standards in low-wage assembly operations, but enforcement is less effective.

Employment relations are established by an employment contract, which, in most cases, does not necessarily indicate a fixed term of employment.  While a number of workers still work without contracts in Azerbaijan’s informal economy, recent tax and customs reforms have provided incentives for individuals to register their employment to benefit from state financial support.  Under national law, an employer must give an employee two months’ notice of termination, with certain exceptions.  An employee can terminate his/her employment contract at any time but must give one month’s notice.  Upon termination of formally registered employment, employers must pay departing employees monetary compensation for unused vacation leave.  A formally registered employee who becomes unemployed is entitled to 70 percent of his/her average monthly wage, calculated over the past 12 months at the last place of work.  An employee must have worked under a valid labor contract in order to obtain unemployment benefits.  The law “On Unemployment Insurance” signed in August 2017 allows for payments to unemployed individuals registered with the State Employment Fund.

Azerbaijan has an abundant supply of semi-skilled and unskilled laborers. The service and agricultural sectors dominate the labor market but represent a disproportionally low percentage of GDP relative to the hydrocarbon sector. For instance, an estimated 35 percent of the Azerbaijani population works in agriculture, although this sector only contributes around 6 percent of the country’s GDP.  The construction sector tends to use temporary and contract workers; reportedly many of these workers’ agreements are not formally registered with the government.  The relatively limited supply of highly skilled labor is one of the biggest challenges in Azerbaijan’s labor market.  The average monthly wage as of January 2022 was AZN 840 (USD 494), and the official minimum wage increased in 2023 to AZN 345 (USD 203) per month, compared to the previous level of AZN 300 (USD 176) per month.  The Ministry of Labor and Social Protection took measures to avoid unjustified dismissals, redundancies of employees in a public sector, as well as to preserve salaries of the employees sent on vacation and ensured expansion of unemployment insurance benefits, and the establishment of a proactive support mechanism in this area.  Part of the reform program was to expand services to ensure employment, ensure transparency and prevent corruption.  The number of legalized labor contracts increased by 30 percent during 2017-2021.

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 USD 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 USD 4.8 million to Rabita Bank in 2008 and USD 7.3 million to Turan Bank in 2009.  In 2011, DFC predecessor OPIC provided MuganBank a loan guarantee for USD 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 (USD 500,000), NBCO Vision Fund Azercredit LLC (USD 2 million), and FinDev again (USD 1 million).  In 2013, OPIC signed a memorandum with Turan Bank for a loan in the amount of USD 7 million with a term of seven years for SME financing.

In its 2014 annual report, EXIM Bank reported outstanding insurance and loan guarantees for Azerbaijan in the amount of USD 211.9 million, primarily in support of aviation sales.  In 2011, EXIM Bank closed a USD 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 USD 211.9 million loan to finance Azerbaijan Airline’s purchase of Boeing commercial aircraft.

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) ($B USD) 2022 $78.70 billion 2021 $54.62 billion 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data: BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) N/A N/A N/A N/A BEA data available at 
Host country’s FDI in the United States ($M USD, stock positions) N/A N/A N/A N/A BEA data available at 
Total inbound stock of FDI as % host GDP No reliable data 2022 UNCTAD data available at 

* 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 34,330 100% Total Outward 26,692 100%
UK 7,165 Türkiye 13,986
Türkiye 6,434 Georgia 3,265
Norway 2,896 UK 1,570
Iran 2,841 United States 1,462
Cyprus 2,317 Switzerland 892
“0” reflects amounts rounded to +/- USD 500,000.


Blake Dawgert
Economic and Commercial Officer
U.S. Embassy in Baku, Azerbaijan

On This Page

  2. 1. Openness To, and Restrictions Upon, Foreign Investment
    1. Policies Towards Foreign Direct Investment
    2. Limits on Foreign Control and Right to Private Ownership and Establishment
    3. Other Investment Policy Reviews
    4. Business Facilitation
    5. Outward Investment
  3. 2. Bilateral Investment and Taxation Treaties
  4. 3. Legal Regime
    1. Transparency of the Regulatory System
    2. International Regulatory Considerations
    3. Legal System and Judicial Independence
    4. Laws and Regulations on Foreign Direct Investment
    5. Competition and Antitrust Laws
    6. Expropriation and Compensation
    7. Dispute Settlement
      1. ICSID Convention and New York Convention
      2. Investor-State Dispute Settlement
      3. International Commercial Arbitration and Foreign Courts
    8. Bankruptcy Regulations
  5. 4. Industrial Policies
    1. Investment Incentives
    2. Foreign Trade Zones/Free Ports/Trade Facilitation
    3. Performance and Data Localization Requirements
  6. 5. Protection of Property Rights
    1. Real Property
    2. Intellectual Property Rights
  7. 6. Financial Sector
    1. Capital Markets and Portfolio Investment
    2. Money and Banking System
    3. Foreign Exchange and Remittances
      1. Foreign Exchange
      2. Remittance Policies
    4. Sovereign Wealth Funds
  8. 7. State-Owned Enterprises
    1. Privatization Program
  9. 8. Responsible Business Conduct
    1. Additional Resources
    2. Climate Issues
  10. 9. Corruption
  11. 10. Political and Security Environment
  12. 11. Labor Policies and Practices
  13. 12. U.S. International Development Finance Corporation (DFC), and Other Investment Insurance or Development Finance Programs
  14. 13. Foreign Direct Investment Statistics
  15. 14. Contact for More Information
2023 Investment Climate Statements: Azerbaijan
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