Study of Small and Medium Enterprises in Azerbaijan - IFC

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4. Business Licensing The Government of Azerbaijan has recognized the importance of administrative constraints in the licensing regime and has subsequently implemented a number of actions to simplify the system. Among the most significant of these legal acts was the Presidential Decree approving the Rules on Granting Licenses 17 (hereafter “Licensing Rules”), which substantially reduced the number of licensable activities. According to this decree the Ministry of Economic Development is responsible for providing control and administration over licensing procedures, while different ministries or government agencies are involved in sector licensing. Despite these legislative changes, there are still some problematic areas that need further actions from the legislative and procedural perspective. One problem is that the licensing regime discriminates between state owned and private companies. According to Presidential Decree No. 310 18 enterprises or organizations established by a Presidential Decree or funded by the state budget can engage in licensable activities without a license. While it is appropriate to require licenses to manage and allocate limited natural resources, this legitimate regulatory purpose is not met when the licenses are used to limit competition between the public and private sectors. In addition, the list of licensable activities might also be streamlined. For example, specific sectors of the economy such as tourism, which is important for fostering economic development, is subject to licensing which is difficult to justify from an economic perspective. Main Findings • About 36 percent of entrepreneurs need to obtain at least one license; • Duration of the application process and the cost of licenses is different for individual entrepreneurs and small and medium enterprises: – Individual entrepreneurs spend on average 276 Azerbaijani manats ($340) and 10 working days to obtain one license; – Small and medium enterprises spend on average 564 Azerbaijani manats ($696) and 15 working days to obtain one license. • Nearly 37 percent of surveyed entrepreneurs who obtained a license in 2007 claim to have resorted to unofficial payments. 17 Presidential Decree No. 782 on Improvement of Regulations for Granting Special Permits (Licenses) for Some Types of Activities dated September 2, 2002. 18 Presidential Decree No. 310 on Improvement of Regulations of Granting Special Permits (Licenses) for Certain Types of Activities dated March 28, 2000. 64 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
4.1 Licensing: the legal framework A license is a document which is required for continued activity of a certain type or requiring a particular expertise 19 . Therefore, if a business requires a license according to the law, an entrepreneur must obtain the required license before starting his/her activity. Box 4.1 Definition of a license provided for by the Licensing Rules Paragraph I – General Provisions “A license represents an official document, authorizing legal entities, as well as individuals engaged in entrepreneurial activity without creating a legal entity irrespective of their organizational and legal form, to implement certain types of entrepreneurial activity.” The licensing regime in Azerbaijan is mainly regulated by the following legal acts: • Presidential Decree No. 782 on Improvement of Regulations of Granting Special Permits (Licenses) for Some Types of Activities dated September 2, 2002; • Resolution of the Cabinet of Ministers No. 174 on Additional Conditions for Issuance of Special Permits (Licenses) for Certain Types of Activities dated November 7, 2002. The adoption of these legal acts was a substantial step forward in terms of streamlining the overall licensing regime. Thus, licensing rules set up: • General provisions for the licensing of certain activities; • License issuance procedure; • Validity period of a license; • Time frame for processing with application for a license; • Procedure for suspension and cancellation of a license; • List of activities subject to licensing; • Government agencies issuing licenses; • Licensing fees. The Cabinet of Ministers Decree No.174 in turn specifies additional conditions for specific activities subject to licensing. However, there is still room for further improvement of the Licensing Rules from the legislative and procedural point-of-view. Even though the Licensing Rules and Resolution No. 174 of the Cabinet of Ministers specify that no other document other than those identified in these regulations can be requested from a license applicant, it is clear from various laws that, in some cases at least, additional documents are required 20 . For example, the list of documents required to obtain a banking license are 19 Small and Medium Enterprise Department, The World Bank Group. 2006. Business Licensing Reform: A Toolkit for Development Practitioners. Washington, D.C.: The World Bank. 20 For further details see FIAS Report Azerbaijan Licensing and Permits System, 2007. 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 65
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Study of Small and Medium Enterpris
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Study of Small and Medium Enterpris
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5. Business Permits................
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Foreword and Acknowledgements IFC,
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critically examines all areas of op
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of each formality. Special attentio
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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 and 50: According to the law previously in
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: Registration for individual entrepr
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
Page 101 and 102: 6.2.2.1 The inspections process and
Page 103 and 104: View from an entrepreneur: “The s
Page 105 and 106: Chart 6.11 Average registration in
Page 107 and 108: going in the opposite direction. In
Page 109 and 110: clearly defined circumstances, or a
Page 111 and 112: Annex 6.2 Presidential Decree No. 7
Page 113 and 114: The bulk of individual entrepreneur
Page 115 and 116: 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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