Tests of doing business and penalties for unregistered entities considered as doing business in Azerbaijan

1) What is considered doing business without registration?

In accordance with the legislation of the Republic of Azerbaijan, “doing business without state registration” means the systematic conduct of entrepreneurial activities aimed at generating income by a person who is not registered as an entrepreneur (individual or legal entity). Engaging in entrepreneurial activity without state registration (tax registration) entails administrative liability. In cases where the act has caused significant damage to individuals or legal entities or to the state, as well as if it has been committed with the aim of obtaining significant income, criminal liability shall apply.

2) What are the key indicators of doing business?

According to Article 13 of the Civil Code of the Republic of Azerbaijan, entrepreneurial activity is characterized as follows:

• carried out independently by an individual;
• the main goal is to make a profit (for individual entrepreneurs - income);
• sources of profit: use of property, production and/or sale of goods, performance of work and provision of services.

3) What are the legal consequences of doing business without registration?

Engaging in entrepreneurial activity without state registration (tax registration) in Azerbaijan entails administrative liability in the form of a fine ranging from two to four times the amount of the damage caused or the profit obtained (Article 398 of the Code of Administrative Offenses of the Republic of Azerbaijan). If the activity causes substantial damage (exceeding 50,000 AZN) or generates income of this amount, criminal liability arises. A person who commits this violation for the first time may be exempted from administrative liability upon full compensation of the damage or full remittance of the income obtained to the state budget.

4) What is the penalty amount in 2025?

Pursuant to the Code of Administrative Offenses of the Republic of Azerbaijan, the amount of the fine for engaging in entrepreneurial activity without state registration (tax registration) is determined based on the amount of damage caused or profit obtained as a result of such activity.

5) Is criminal liability possible?

Conducting entrepreneurial activity without state registration (tax registration) in Azerbaijan entails criminal liability under Article 192 of the Criminal Code of the Republic of Azerbaijan.

• Acts that cause substantial damage or generate income in significant amounts are punishable by a fine ranging from two to three times the amount of the damage or income, corrective labor for up to 1 year, or imprisonment for up to 6 months.
• If the violation involves causing large-scale damage, obtaining large-scale income, or is committed by an organized group, the penalties increase to a fine of three times the amount of the damage or income, restriction of liberty for up to 3 years, or imprisonment for 1 to 5 years.
• In cases of exceptionally large damage or exceptionally large income, the penalties include a fine of four times the amount of the damage or income, or imprisonment for 5 to 7 years, with the possibility of deprivation of the right to hold certain positions or engage in certain activities for up to 3 years.

6) Who identifies unregistered business activity?

The identification of unregistered entrepreneurs is carried out by the State Tax Service under the Ministry of Economy of the Republic of Azerbaijan.

7) What should be done if the activity is already ongoing without registration?

In the event that entrepreneurial activity is already being conducted without registration, it is necessary to immediately undergo state registration as an individual entrepreneur or a legal entity and voluntarily fully compensate for any damages caused or remit to the state budget all income received from such activity, which may allow avoiding administrative liability.

8) What obligations arise after registering a business?

After successful registration of the company, the following practical steps must be taken before the actual commencement of business activities:

1. ordering a corporate seal for the company;
2. obtaining the ASAN Signature in the name of the company or its legal representative/director;
3. opening a bank account;
4. registration of the legal representative's/director's employment agreement at the e-gov portal;
5. registration with the State Statistical Committee;
6. submission of the relevant tax reports to the State Tax Service.                                                                                                                                                                            
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.

For individual entrepreneurs, some steps are simplified: they do not need a corporate seal or an employment agreement, but they must obtain an Asan Signature, open a bank account, and register with the State Tax Service. They are also required to maintain accurate records of income, taxes, and reports.

9) From what income level must an individual register as an entrepreneur?

If the activity of an individual has the characteristics of entrepreneurial activity as defined by the Civil Code of the Republic of Azerbaijan, it is subject to state registration regardless of the amount of income earned.

Author: Vafa Teymurzade