Page 100 - Azerbaijan State University of Economics

THE JOURNAL OF ECONOMIC SCIENCES: THEORY AND PRACTICE, V.80, # 1, 2023, pp. 94-105

The government accepted the law which is aimed to attract and efficient use of foreign
material and financial resources in the economy, modern foreign equipment and
technology, and managerial experience and guarantees the protection of rights of
foreign investors. (Law of the Azerbaijan Republic About Protection of Foreign
Investments, 1992).

Azerbaijan has implemented various tax and regulatory measures to attract foreign
investors and promote economic growth. One of the key measures is the country's
double taxation agreements (DTAs) with other countries, which aim to avoid double
taxation of income earned in one country by residents of the other country. Double
taxation occurs when the same income is taxed by two different countries. For
example, if a foreign company earns income in a country, it may be subject to taxes
in both its home country and the country where the income is earned. This can make
investing in a foreign country less attractive, as the company must pay taxes twice on
the same income. To avoid double taxation, many countries have entered into tax
treaties with other countries. These agreements typically include provisions for
reducing or eliminating double taxation, such as allowing companies to claim foreign
tax credits on their home country taxes or providing for an exemption from taxes in
one of the countries. Azerbaijan has DTAs with numerous countries including Turkey,
Russia, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Germany, Belgium, Italy, China,
UAE, India, Iran, Czech Republic, Slovakia, and many others. The DTAs generally
provide for reductions or exemptions on withholding taxes on dividends, interests,
and royalties.

In addition to this, Azerbaijan has also implemented a transfer pricing regulation to
prevent the abuse of DTAs by related parties for tax avoidance. The transfer pricing
regulation requires companies to maintain documentation to demonstrate that their
related-party transactions are conducted at arm's length. This helps to ensure that
companies are not using the DTAs to artificially lower their tax liabilities.

Azerbaijan has also implemented the Common Reporting Standard (CRS) for the
automatic exchange of financial account information to prevent tax evasion by foreign
residents through the use of undeclared offshore accounts. This helps to create a level
playing field for foreign investors and promotes transparency in the country's financial
system.
Azerbaijan also offers several benefits to foreign investors. These include exemptions
from customs duties, VAT, and profit tax for up to 7 years for certain industries and
regions. (The Tax Code of the Republic of Azerbaijan, 2000). Additionally, the
country has established special economic zones, such as the Sumgait Chemical
Industrial Park and the Balakhani Industrial Park, which offer further tax and
regulatory benefits to investors.

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