Foreign ownership restrictions / limitation of foreign investments and equity in corporations in Azerbaijan

1) Are there any restrictions on foreign ownership in companies?

As a general rule, the legislation of the Republic of Azerbaijan, in particular the Civil Code, does not impose any restrictions on foreign investors. This means that both foreign individuals and legal entities may act as founders of companies in Azerbaijan.

2) Is government approval required for foreign investment in local companies?

As a general rule, the legislation of the Republic of Azerbaijan does not require prior approval from government authorities for foreign individuals to invest in local companies. Foreign investors have the right to freely participate in the establishment and operation of legal entities in Azerbaijan on an equal footing with local residents. However, in certain cases, the registration of a legal entity, as well as a representative office or branch of a foreign legal entity involving state participation, requires the prior consent/an official opinion of the competent state authority.

3) Which sectors are subject to special rules or restrictions for foreign investors?

The legislation of the Republic of Azerbaijan does not impose restrictions on the ability of foreign individuals and legal entities to own shares or interests in local companies, except in certain sectors. These sectors include television broadcasting, private security services, cartography, insurance, and banking.

4) Can foreign persons own 100% of a limited liability company or joint-stock company?

According to the legislation of the Republic of Azerbaijan, foreign individuals and legal entities may own 100% of the shares in a company registered as a limited liability company (LLC) or a joint-stock company (JSC).

At the same time, it should be noted that under local legislation, an LLC or JSC may not have as its sole participant another business entity consisting of one person (i.e. “1-1-1” shareholding structure).

5) Are beneficial ownership rules applicable to foreign participants?

According to Article 4.2-2 of the Law of the Republic of Azerbaijan “On State Registration and the State Registry of Legal Entities”, each legal entity, as well as a representative office or branch of a foreign legal entity, is required to know accurate, reliable, and up-to-date information about the beneficial owner of the foreign legal entity, to possess supporting documents (including electronic documents), and to submit them in the cases and manner prescribed by law.

6) Are there any quotas or thresholds on foreign ownership in strategic companies?

In the Republic of Azerbaijan, the legislation establishes certain thresholds, restrictions, and prohibitions on the participation of foreign shareholders in the charter capital of companies operating in the media, banking, insurance, and other sectors.

Media

The following requirements apply to media entities:

• If the founder is an individual, they must be a citizen of the Republic of Azerbaijan and permanently reside within its territory;
• If the founder is a legal entity, at least 75% of its charter capital must be owned by Azerbaijani citizens who permanently reside in the country and/or legal entities registered in the Republic of Azerbaijan.

Insurance

The opening of a branch of a foreign insurance company on the territory of the Republic of Azerbaijan is prohibited.

• The share of a single foreign individual in the charter capital of an insurance company may not exceed 10%, and the total share of all foreign individuals may not exceed 30%;
• For foreign legal entities (excluding international financial organizations of which Azerbaijan is a member, foreign insurance companies, and institutional investors such as banks, credit institutions, pension funds, and investment funds), the total share in the charter capital of an insurance company may not exceed 50%. 

Banking Sector

• The limits on foreign capital participation in credit institutions operating in Azerbaijan are established by the Central Bank of the Republic of Azerbaijan;
• An exception is made for foreign banks and banking holding companies, which may be subject to different participation conditions. In all other cases, the Central Bank determines the maximum allowable shareholding of foreign natural and legal persons in the capital of local banks.

7) Is disclosure of foreign shareholders/participants required when registering a company?

In accordance with Article 5.3 of the Law of the Republic of Azerbaijan "On State Registration and the State Registry of Legal Entities", the application form for state registration should contain the following information:

• if the founder(s) is an individual - their first name, last name, patronymic, place of residence, and the number and date of issuance of the identity document;
• if the founder(s) is a legal entity - its name, registered address, and registration number.

8) Are there any restrictions on the acquisition of real estate by foreign legal entities?

According to Article 48.3 of the Land Code of the Republic of Azerbaijan, foreign citizens, stateless persons, foreign legal entities, international associations and organizations, as well as foreign states, may acquire land plots in Azerbaijan only on the basis of lease rights.

Furthermore, pursuant to Article 60.2 of the Land Code, if the owner of a privatized enterprise (or asset) is a foreign citizen, a stateless person, or a foreign legal entity, the respective land plot may be leased to them without the right of ownership (purchase).

9) Are there any business or office localization requirements for foreign investors?

Having a legal address is a mandatory requirement, while having an actual address and registering it is not required from a purely legal standpoint. However, it should be noted that as a matter of practice, companies are generally required to have an office and register the actual address accordingly. As a result, maintaining a local presence becomes practically necessary.

10) Are sanctions or other restrictions applied to investors from specific countries?

There are no direct prohibitions or restrictions for investors from specific countries. However, in cases where such countries are subject to international sanctions, company registration is generally carried out in the usual manner, while enhanced due diligence (including AML and KYC procedures) may be conducted by the banks' compliance departments at the stage of opening bank accounts.

Author: Vafa Teymurzade