A recent decree of the Cabinet of Ministers of Azerbaijan linking registration requirements for foreign companies for the purposes of the Ministry of Taxes and the Ministry of Justice may have useful applications wider than those originally envisaged by its drafters.
Typically, foreign businesses in Azerbaijan reach a point where full local registration becomes effectively unavoidable - for example, where there arises a need to enter a lease contract for office space, open a local bank account or commence relations with the tax department. Generally, all entities, independent of whether they have a permanent establishment or substantial business presence, undertake full registration with the Ministry of Justice. However, Decree 153 allows registration for tax only purposes.
Decree 153 may initially be viewed as useful in providing an option for foreign companies resident in a country possessing a Double Tax Agreement (DTA) with Azerbaijan, and perhaps also in finally establishing an advance tax clearance procedure where protection from a DTA is sought. However, the Decree's scope and application may be both narrower and wider than this initial assessment - narrower in that it would seem intended as part of an advance clearance process for DTA qualifying companies, and wider in that a number of special tax regimes in Azerbaijan allow companies to apply the model OECD tax treaty to their operations even in the absence of a treaty relationship between their origin country and Azerbaijan. Such regimes are widely represented in Azerbaijan's oil and oil transport industries and include Production Sharing Agreements, the Baku-Tbilisi-Ceyhan Pipeline Agreement and the South Caucuses Gas Pipeline Agreement.
Although the Decree was not specifically designed for application to these regimes, it may nevertheless prove effective for foreign companies seeking short- (or long-) term contractual work in Azerbaijan under such regimes to obtain a tax identification number without a Ministry of Justice registration. This would represent a significant increase in flexibility for foreign investors commencing operations in Azerbaijan.
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