New Law Establishes Special Economic Zones

Azerbaijan has promulgated a law that creates special economic zones (SEZs) where businesses may take advantage of preferential tax and customs regimes. Law 791-IIIQ is aimed at developing and promoting business and the economy in general by creating new production and service capacities under a special legal regime.

The law specifically seeks to promote the use of advanced technologies in Azerbaijan. (For prior coverage, see Doc 2009-8928 or 2009 WTD 75-7.)

Under the law, an SEZ is a section of Azerbaijani territory where businesses are governed by a special legal regime. The law defines a special legal regime as a regime that applies to residents of an SEZ to allow them to run their businesses on special terms.

The law establishes the framework of a special regime under which an SEZ can be established and operate.

Tax Regime

The law establishes a special tax regime for residents of SEZs. A simplified 0.5 percent tax rate applies to the proceeds of residents doing business in SEZs from the supply of goods, works, and services, as well as to out-of-sale proceeds; the tax must be reported and paid by the 20th of the month following each calendar quarter. Residents are exempt from all other Azerbaijani taxes except for the individual income tax of employees when it is withheld by employers.

If a zone resident's registration is terminated for failure to commence operations within a year of the contract with the SEZ operator, the resident's tax liabilities for that period are reinstated. All other issues of taxation and tax administration in SEZs are subject to Azerbaijani tax law.

Customs Regime

The law establishes a special customs regime for residents of SEZs. This regime does not apply to residents that export products produced or processed in an SEZ to other parts of the Republic of Azerbaijan.

The following rules apply to the importation and exportation of goods (not otherwise restricted under Azerbaijani law) under the special customs regime:

goods (except for excise goods) imported into an SEZ from outside Azerbaijan are not subject to the import duty or VAT; goods imported to an SEZ from outside Azerbaijan are not subject to customs duties or taxes while being exported from the zone outside Azerbaijan; goods produced or processed in an SEZ are not subject to customs duties or taxes while being exported outside Azerbaijan; customs duties and taxes specified by relevant Azerbaijani law apply on exportation from the SEZ inside Azerbaijan...