Study of Small and Medium Enterprises in Azerbaijan - IFC

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Chart 3.1 Main issues faced by SME’s during registration (Percentage of those legal entities who had issues during registration) Extensive number of requested documentation Extensive number of procedures (steps, bodies,) during registration Lengthy registration process Low professional level of staff of registering authorities Imposed requirements are not clear and transparent Necessity to use unofficial means No access to registration information Remote location of the registering body 0% 5% 10% 15% 20% 25% 30% 3.3 Registration of individual entrepreneurs Even before introducing the one-stop-shop system, the registration of individual entrepreneurs was a simpler process compared to the registration of legal entities and was mainly regulated by the Tax Code. The process consisted of six steps (see Annex 3.2). Since the majority of entrepreneurs usually did not have to open a permanent bank account and also did not have to collect and notarize a number of company documents, in practice the registration of individual entrepreneurs could have been completed in four-five days. As focus groups revealed, unofficial payments also played a role in the registration process and could significantly reduce the overall duration of registration. Moreover, steps 4 and 5 could have been completed in one day. Again, however, the overwhelming majority of entrepreneurs undergoing registration procedures had to pay unofficial payments; survey results illustrated that almost 59 percent of respondents considered the overall procedures as not complicated (see also Chart 3.2). This result also confirms the necessity of increasing the legal awareness of entrepreneurs. Chart 3.2 Main issues faced by individual entrepreneurs during registration (Percentage of those IE who had problems during the registration) Extensive number of requested documentation Extensive number of procedures (steps, bodies) during registration Lengthy registration process Imposed requirements are not clear and transparent Necessity to use unofficial means No access to registration information Low professional level of staff of registering authorities Remote location of the registering body 0% 5% 10% 15% 20% 48 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
3.4 Economic impact estimate According to survey data, SMEs and individual entrepreneurs lost on average 1 percent of their annual profit to undergo the registration process. (Note: IFC survey data is accurate and should not be changed). Chart 3.3 Economic impact of registration expenses 350 300 250 267 329 270 333 200 150 100 50 0 1% of annual profit Individual Entrepreneurs 1% of annual profit SMEs Azerbaijani manat USD 3.5 Introducing registration one-stop-shop In light of difficulties faced by entrepreneurs during the business registration process and Azerbaijan’s relatively low ranking in the Doing Business report, the government of Azerbaijan expressed its strong commitment to reforming the registration system which was followed by two presidential decrees in late 2007 7 . Consequently, the Ministry of Taxes with its regional registration offices throughout the country was appointed as a primary agency responsible for “one-stop-shop” registration. In other words, the Ministry of Taxes became a state registry of business entities 8 through the already established AVIS software system. Survey data does not cover the latest “single window” reform which has significantly streamlined the business registration process in Azerbaijan. Therefore, this analysis of the current “one-stop-shop” system is based on the results of focus groups and information provided by the Ministry of Taxes. According to the Ministry of Taxes, in only three months after introducing the one-stop-shop, the overall number of newly registered legal entities reached 2,100 across the country. This is a substantial improvement compared with the same period of the previous year 9 . 7 President’s Decree No. 567 On Certain Measures Regarding the Development of Entrepreneurship in the Republic of Azerbaijan dated April 30, 2007. President’s Decree No. 2458 on Measures for Organization of “One-Stop-Shop” Registration of Businesses dated October 25, 2007. 8 Prior to reform this function was carried out by the Ministry of Justice. 9 The number of companies registered with the Ministry of Justice in 2007 was 5087. 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 49
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 and 48: 3. Business Registration In January
Page 49: According to the law previously in
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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