Alat Free Economic Zone: Business setup

 

According to the World Bank reports, there are 6 000 special economic zones within around 150 economies worldwide.

 

Alat Free Economic Zone (AFEZ) is a special economic zone in Azerbaijan that is established pursuant to the legislation of the Republic of Azerbaijan and offers free zone opportunities.At the outset, we shall note that, in certain circumstances, Alat Free Economic Zone is incorrectly called as "Alat Free Zone" or "Alat Trade Zone". It must be emphasised that AFEZ is practically designated for the production industry, not for trading of goods (therefore, literally it is not a "free trade zone" in this sense). 

 

The legal and economic relations related to the establishment and management of special economic zones in Azerbaijan and the rules for organizing entrepreneurial activity in those zones are regulated by the Law of the Republic of Azerbaijan on "Special economic zones" which was adopted in 2009. According to the Law on “Special economic zones”, a special economic zone is a limited part of the territory of the Republic of Azerbaijan where a special legal regime is applied for the implementation of entrepreneurial activity.

 

On 18 May 2018 the Law of the Republic of Azerbaijan "On Alat Free Economic Zone" (hereinafter referred to as “Law”) was adopted. This Law sets out the legal framework for the operation, development, and governance of the Alat Free Economic Zone. With respect to the legal definition, the Alat Free Economic Zone is the zone established by the President of the Republic of Azerbaijan for carrying out entrepreneurial and investment activities.

 

There are also industrial parks in Azerbaijan that have the necessary infrastructure for entrepreneurial activities and create opportunities for the application of modern technologies which allows the development of entrepreneurs and their businesses. 

 

Below we explain the practicalities and requirements for company registration in Azerbaijan and obtaining residence status at AFEZ. 

 

1. Business Setup in Alat Free Zone

 

The very first requirement for the business setup, i.e. company registration and obtaining residence status is engaging in high-value-added and export-oriented manufacturing and internationally traded productions. This business should use innovative technologies and approaches to work following the best international standards.

 

The location of the Free Zone is of economic and strategic importance. It is situated near the Baku International Sea Trade Port and on significant global transport corridors. Most of the relations in the AFEZ will be regulated by the internal rules & regulations of the Free Zone (hereinafter legislation of the Free Zone).

 

There is no limitation on the amount of the charter capital and field of activity established in the Free Zone, which makes it different from other Free Zones established all over the world. Additionally, there is no limitation on localization, hiring, or employees in the AFEZ; and, there is no time limit for the application of the exemptions and opportunities in the Alat Free Zone.

 

2. Alat Free Economic Zone Authority

 

The Alat Free Zone Authority is the administrative body that is responsible for the regulation, oversight, and operation of the Alat Free Economic Zone. The activity and management of the Free Zone Authority is carried out by the Governing Board which is a collegial body. The Governing Board shall be headed by a chairman appointed by the President of the Republic of Azerbaijan and shall report directly to the President of the Republic of Azerbaijan. The Governing Board shall be responsible for the management, achievement of strategic objectives, and performance of the Free Zone Authority.

 

the Alat Free Zone Authority regulates and oversees the following:

• - the activities of Free Zone Residents, Free Zone Legal Entities, and Free Zone Administrative Entities;

• - Free Zone Land;

• - all property and assets located within the Free Zone;

• - any and all other matters related to the strategic objectives of the Free Zone.

 

The Alat Free Zone Authority shall have the power to:

 

•  - draft, issue and amend Internal Regulations for the Free Zone in accordance with best international practices and standards; 

•  - establish, fund, empower, and audit Free Zone Administrative Entities in order to create in the Free Zone a system of governance in accordance with international standards;

•  - delegate its powers and responsibilities to third parties;

•  - sell or otherwise dispose of its shareholdings (participatory interest);

•  - engage relevant advisors, third-party consultants, or contractors;

•  - request the assistance and cooperation of the Base Economy Authorities in relation to the operation of the Free Zone;

•  - set and collect fees and other financial charges for the services provided by the Free Zone Authority and Free Zone Administrative Entities;

•  - issue certificates of origin;

•  - impose punishment or set and collect fines for violations of Free Zone Legislation;

•  - set and approve its financial budget and the financial budget of Free Zone Administrative Entities;

•  - request state funding and/or borrow money from banks, financial institutions and other bodies;

•  - mortgage or otherwise encumber property and assets for the purpose of securing any finance;

•  - open bank accounts;

•  - engage in any business activity;

•  - provide business incentives in order to attract investment into the alat Free Zone;

•  - enter into contracts with third-party contractors and/or service providers;

•  - conclude contracts on his own behalf, acquire and exercise property and nonproperty rights, act as a plaintiff or defendant in court;

•  - exercise all other powers in order to fulfill its duties and responsibilities.

 

3. Advantages of doing business in Alat Free Zone

 

First of all, AFEZ residents are free of all taxes and customs duties.

 

The supply of goods works, and services from the Base Economy to the Free Zone and from the Free Zone to the Base Economy shall be equal to the import and export of goods, works, and services for tax purposes.

 

If the Alat Free Zone Legal Entities are providing goods, performing works or services to the taxpayer of the Base Economy, or the taxpayer of the Base Economy is providing goods, performing works or services to the Alat Free Zone Legal Entities or Free Zone Residents, then the provisions of the Base Economy Legislation shall apply only to such taxpayer of the Base Economy in relation to such goods, works and services.

 

The Law "On Alat Free Economic Zone" also encourages trade between the taxpayers of the Base economy and the AFEZ Legal Entities. So that, taxes at the source of payment shall not be withheld from payments made by taxpayers of the Base Economy in connection with the goods, works, and services provided to the Free Zone Legal Entities.

 

Even during the tax audits conducted on the taxpayer of the Base economy, the tax authorities as third parties obtain information about the transactions conducted with the Alat Free Zone Legal Entity only through the Free Zone Authority. Information is provided by the Alat Free Zone Authority in accordance with the Base Economic Legislation.

 

The Law also determines advantages in custom issues too. To give an instance, no other customs duties and taxes shall be payable, except for fees charged for customs clearance of goods and vehicles imported into the Alat Free Zone by Free Zone Authorities, Free Zone Administrative Entities, and the Alat Free Zone Legal Entities.

 

If goods and vehicles are delivered from the Alat Free Zone to the Base Economy or vice versa, the provisions of the Base Economy legislation shall be applied to such goods and vehicles during customs clearance.

 

Additionally, the Base Economy Customs Authority shall establish a relevant customs body responsible for the implementation of customs regulations in the Alat Free Zone. The relevant customs body shall ensure that its activities are conducted in accordance with the legislation of the Free Zone, with best international practices, international standards, and strategic objectives of the Free Zone.

 

The Alat Free Zone Authority shall issue Internal Regulations covering customs requirements to ensure the regulation of goods and vehicles imported into and exported from the Free Zone. The Internal Regulations shall set out the following:

• - Rules and requirements for clearance and marking of goods and vehicles imported in and exported out from the Free Zone;
• - procedures and execution guidelines in relation to customs clearance of goods and vehicles;
• - rules related to the interoperability of the relevant customs body and the Base Economy Customs Authority in order to provide a streamlined and efficient customs clearance process;
• - fees for any documents or services which may be applicable in respect of customs;
• - rules on the use of customs agents and brokers' services; and
• - address other matters in order to achieve the strategic objectives of the Alat Free Zone.

 

The Alat Free Zone Authority shall issue Internal Regulations in order to:

• - create a framework for the regulation of labor relations within the Alat Free Zone, including matters of labor safety and social protection; and
• - regulate migration processes, including types of visas and rules and requirements per each type thereof within the Free Zone.

 

In accordance with international practice, AFEZ and the "On Alat Free Economic Zone" Law of Azerbaijan aim to protect the best interest of the investors. The Alat Free Zone Legal Entities entitled operate in the Alat Free Zone shall not be subject to any nationalization, expropriation measures, or any other restrictions on private ownership, except for the cases provided for in the Internal Regulations adopted by the Alat Free Zone Authority. Free Zone Legal entities, their investors and shareholders, as well as Alat Free Zone Residents in the cases stipulated by the Internal Regulations adopted by the Free Zone Authority shall have the freedom to invest into the Alat Free Zone and to transfer abroad money earned from their activities, without any limitations. Most importantly, Free Zone Legal Entities, their employees, investors, shareholders and the Alat Free Zone Residents in the cases stipulated in the regulations adopted by the Free Zone Authority shall have the freedom to transact and conduct financial operations in any foreign currency without limitations.

 

4. Dispute resolution in Alat Free Zone

 

As economic and business relations are developing dynamically, the easy and efficient solution to investment and commercial disputes has been of particular importance in recent years. Arbitration is considered the main method of dispute resolution in the AFEZ.

 

The Alat Free Zone Authority shall establish one or more of the following:

• - Arbitration Centre; and

• - other dispute resolution bodies.

 

Dispute resolution procedures and the activities of Dispute Resolution Bodies within the AFEZ will be regulated by the internal regulations issued by the Alat Free Zone Authority.

 

AFEZ Dispute Resolution Bodies shall have exclusive jurisdiction to resolve disputes involving of the Alat Free Zone Authority, Free Zone Administrative Entities and their employees, Alat Free Zone Legal Entities, Free Zone Residents, or any other disputes related to the Alat Free Zone Authority and its operation. However, the Law gives an opportunity to the parties to agree on dispute resolution methods and applicable law.

 

The law excludes the jurisdiction of the courts of the Republic of Azerbaijan over disputes in which the Free Zone Authority, Free Zone Administrative Entities, and their employees, Alat Free Zone Legal Entities, and Free Zone Residents are parties or any other disputes related to the Free Zone Authority and its operation, except for the cases set out by this Law (unless otherwise contractually agreed between the parties).

 

Additionally, the courts of the Republic of Azerbaijan and its other dispute resolution bodies may not have jurisdiction over disputes subject to the exclusive jurisdiction of the Alat Free Zone Dispute Resolution Bodies. Judgments and awards issued by the Alat Free Zone Dispute Resolution Bodies shall be considered as an enforcement document and no other court or arbitrage may terminate, change, or invalidate such judgments and awards, except free zone appellation bodies.

 

It must be noted that judgments and awards issued by Dispute Resolution Bodies shall be enforceable in the alat Free Zone and the Republic of Azerbaijan without any recognition or verification.

 

It is important to take into account that, the enforcement of judgments issued by foreign courts, tribunals, other judicial bodies, or arbitration in connection with a dispute arising from activities in the territory of the Alat Free Zone is limited to the activities carried out in the Alat Free Zone or the property and assets located therein. Such judgments and awards shall be enforced in accordance with international agreements entered into by the Republic of Azerbaijan, or, in the absence of such international agreements, judgments, and awards may be enforced at the sole discretion of the Alat Free Zone Authority.

 

5. Alat Free Economic Zone regulations

 

The Alat Free Zone Authority is entitled to issue compulsory Internal Regulations applicable to the following areas of the Alat Free Zone in accordance with best or leading international practices and standards:

• - activities of Alat Free Zone Legal Entities and Free Zone Administrative Entities;

• - financial and insurance services;

• - land relations;

• - customs;

• - labor relations;

• - migration;

• - taxation;

• - freedom to transact in any currency;

• - bankruptcy and insolvency;

• - notarial activity;

• - intellectual property;

• - environment;

• - competition;

• - certificates of origin;

• - dispute resolution;

• - anti-money laundering and “know your customer” compliance;

• - other areas as may be deemed necessary.

 

Caspian Legal Center has working relations and experience in business establishments at free and economic zones in Azerbaijan. In order to set up a business, register a company and obtain a residence status at AFEZ with favorable conditions and take advantage of opportunities at Alat Free Economic Zone or other special economic zones in Azerbaijan, you can contact us via email and mobile number:

[email protected]; +994 50 289 89 73