Study of Small and Medium Enterprises in Azerbaijan - IFC

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• The Law No. 560 IIQ on State Registration and State Registry of Legal Entities dated December 12, 2003; • The Civil Code dated September 1, 2000; • The Tax Code dated July 11, 2000; • The Law No. 250 IQ on Social Insurance dated February 18, 1997. Requirements for registration with government agencies like the Ministry of Justice, Ministry of Taxes, Social Protection Fund and State Statistic Committee were also regulated by their internal guidelines and regulations. 3.2 Registration of legal entities The registration of small and medium companies posed a significant barrier to business. The multi-step and complicated procedures requiring a large number of documents made the process even more complicated. The entrepreneurs expressed the view that the situation of unclear admission and registration procedures with little degree of transparency made it necessary to pay some additional fees to have the registration completed within a reasonable time. The registration of legal entities was mainly regulated by the Law on State Registration and State Registry of Legal Entities. Box 3.1 Legal forms of legal entities According to the Civil Code the following legal entities exist in Azerbaijan: • Business Partnerships and Companies; • Subsidiary; • Dependent Business Company; • General Partnership; • Limited Partnership; • Limited Liability Company; • Additional Liability Company; • Joint Stock Company; • Open Joint Stock Company; • Closed Joint Stock Company; • Cooperatives. According to the law, legal entities had to register with local registration departments of the Ministry of Justice, with the exception of legal entities with foreign investment and financial/credit institutions, which must register with the central office of the Ministry of Justice. State registration of legal entities consisted of 13 steps (see Annex 3.1). 46 St u d y o f Sma l l a n d Me d i u m Ent e r p r i s es in Az e r b a i j a n
According to the law previously in place, on average the overall registration of legal entities should have been completed within 30-34 days and included almost 33 documents. However, survey and focus groups results illustrated that in practice it took around 11 days. For example, confirmation of the legal address, notarization of documents, depositing the charter capital in a bank, and payment of the state registration fee (steps 1-3) could have been completed in one day. Moreover, the possibility of making unofficial payments could also speed up the registration process significantly (see Box 3.2). The average cost (including official and unofficial payments) for business registration was approximately 270 Azerbaijani manats ($333) while the approximate portion of official payments varied from 130-150 Azerbaijani manats ($160-185). Box 3.2 According to surveyed entrepreneurs, unofficial payments and personal relationships between entrepreneurs and officials may speed up the registration process as follows: 1. In case of unofficial payment, registration with the Ministry of Justice (step 4) could have been completed within one-two days instead of five days; 2. Although not required by law, in practice the draft seal approved by the Ministry of Justice should have also been submitted to the seal producing company, and therefore step 5 could have been completed simultaneously with step 4; 3. In case of unofficial payment, registration with the State Statistics Committee (step 6) could have been completed within one-two days instead of five days; 4. In case of unofficial payment, registration with the tax authorities (step 7) could have been completed within one-two days instead of five days; 5. In case of unofficial payment, registration with the Social Protection Fund (step 8) could have been completed one-two days instead of five days; 6. As survey data confirmed, most of the small and medium companies in Azerbaijan were not VAT payers, therefore, these type of companies usually did not need to register as VAT payers with the tax authorities. Moreover, in case of unofficial payment, step 10 could have been completed in one-three days instead of seven days; 7. Opening a permanent bank account and returning the notification duplicate(s) to the tax office and the Social Protection Fund (steps 11 and 12) sometimes could have been completed in one day. As survey results reveal, entrepreneurs usually hired specialized lawyers providing assistance with registration by means of unofficial payments. Though the majority of entrepreneurs registering their business resorted to unofficial payments, almost 41 percent of respondents considered the overall procedures as not complicated. This result also confirmed the need to increase the legal awareness of entrepreneurs. View from an entrepreneur: “To be honest, it is easier to pay some money to the practicing lawyers or officials to speed up the registration process. Although it is more expensive for me, at least I don’t have the headache of trying to convince officials to accept my documents…” According to the survey results, among other key issues, the entrepreneurs indicated the extensive number of required documents (29 percent), the extensive number of various procedures (25 percent) and the lengthy registration process (12 percent) as troublesome (see Chart 3.1). Aze r b a i j a n Bu s i n e s s En a b l i n g En v i r o n m e n t Pr o j e c t 47
Page 1 and 2: Study of Small and Medium Enterpris
Page 3 and 4: Study of Small and Medium Enterpris
Page 5 and 6: 5. Business Permits................
Page 7 and 8: Foreword and Acknowledgements IFC,
Page 9 and 10: critically examines all areas of op
Page 11 and 12: of each formality. Special attentio
Page 13 and 14: Policy Recommendations Business Reg
Page 15 and 16: Problems Sources of Problem Recomme
Page 19 and 20: Business Taxation Problems Sources
Page 25 and 26: Capital: Baku Country’s populatio
Page 27 and 28: The state, ultimately responsible f
Page 29 and 30: 1. Methodology 1.1 Background The s
Page 31 and 32: the share of economically active co
Page 33 and 34: Scope of activity Official statisti
Page 35 and 36: 2. SMEs in Azerbaijan The aim of th
Page 37 and 38: Meanwhile, the number of small and
Page 39 and 40: Table 2.2 Statistical information o
Page 41 and 42: The “typical” small enterprise
Page 43 and 44: According to the IFC survey, more t
Page 45 and 46: 2.5.3 Legal disputes Most entrepren
Page 47: 3. Business Registration In January
Page 51 and 52: 3.4 Economic impact estimate Accord
Page 53 and 54: tion duplicate is addressed to the
Page 55 and 56: the local tax inspectorate for regi
Page 57 and 58: 3.10.3 Introduce the electronic reg
Page 59 and 60: 3.10.7 Simplify the liquidation pro
Page 61 and 62: Business registration before ‘one
Page 63 and 64: Process map of one-stop-shop busine
Page 65 and 66: Registration for individual entrepr
Page 67 and 68: 4.1 Licensing: the legal framework
Page 69 and 70: Chart 4.1 Number of activities requ
Page 71 and 72: While the Rules specify limits for
Page 73 and 74: Chart 4.6 Economic impact of licens
Page 75 and 76: Annex 4.1 Checklist of issues for d
Page 77 and 78: Based on the IFC survey estimates,
Page 79 and 80: 5.2 Permits coverage The Azerbaijan
Page 81 and 82: Box 5.4 An example of overlapping p
Page 83 and 84: 5.4 Permit expenses Azerbaijani leg
Page 85 and 86: Chart 5.9 40% Average percentage of
Page 87 and 88: 2.4. Specifying in the law a unifor
Page 89 and 90: Annex 5.1 Procedure for obtaining c
Page 91 and 92: Annex 5.2 Checklist of issues for d
Page 93 and 94: The most significant legal act in i
Page 95 and 96: 6.1.2 There is no effective mechani
Page 97 and 98: 6.1.4 Entrepreneurs are not aware o
Page 99 and 100:
IFC’s analysis showed that only h
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6.2.2.1 The inspections process and
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View from an entrepreneur: “The s
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Chart 6.11 Average registration in
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going in the opposite direction. In
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clearly defined circumstances, or a
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Annex 6.2 Presidential Decree No. 7
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The bulk of individual entrepreneur
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Items 1-9 are collected at the firs
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The IFC survey reveals that one in
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Table 7.5 Main tax obligations of a
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Chart 7.3 IFC Survey: Complexity of
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7.3.2 Tax inspections negatively af
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7.3.5 The cumbersome VAT administra
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• Introducing clearer and more el
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Chart 8.1 Development of Credit Ins
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More than 90 percent of entrepreneu
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Chart 8.9 The loan interest rates o
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Case study of a Baku-based glass an
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View from a bank employee: “One p
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Box 8.2 Examples of a successful cr
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Box 8.3 Examples of alternative mec
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9. Foreign Trade The volume of fore
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Box 9.1 Customs regimes under the C
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As Chart 9.1 illustrates, 98 percen
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Table 9.1 A comparison of the proce
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The comprehensive system of mandato
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Table 9.2 Average costs for imports
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Box 9.5 Customs payments The Custom
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Box 9.8 An excessive number of docu
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Moreover, due to the underdeveloped
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Expected impact More comprehensible
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9.5.6 Accelerate WTO accession of A
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Chart 9.5 Goods importable upon app
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Azerbaijan has been long pending a
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List of Laws 1. The Tax Code of the
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Statistical Annexes Aze r b a i j a
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Chart A1.3 Individual Entrepreneurs
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Chart A1.7 Individual Entrepreneurs
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Chart A1.14 Three Major Types of Ob
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Registration Chart A2.1 Entrepreneu
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Chart A2.8 Three Major Problems Occ
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Chart A3.3 Existence of Licenses by
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Chart A3.9 Three Major Obstacles to
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Chart A4.4 Obtaining of Any Permits
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Chart A4.10 Time Required to Obtain
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Chart A5.4 Application for Credit o
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Chart A5.12 Average Interest Rate (
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Chart A6.3 Entrepreneurs That Under
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Chart A6.8 Authorities That Made In
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Chart A6.13 Breakdown of Number of
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Chart A6.19 Average Duration of One
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Chart A6.25 Small and Medium Enterp
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Chart A7.3 Small and Medium Enterpr
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Chart A7.8 Reported Share of Busine
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Chart A8.3 Usage of Optional (not c
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Azerbaijan Business Enabling Enviro
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Study of Small and Medium Enterprises in Azerbaijan - IFC

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