Financial Leasing in Azerbaijan: New Law Transfers the Regulation of Financial Leasing Activities to the Supervision of the Central Bank

The leasing institution will be replaced by the financial leasing institution regulated under the Law of the Republic of Azerbaijan “On Financial Leasing”, which will enter into force on 25 December 2026. Accordingly, Chapter 38 of the Civil Code of the Republic of Azerbaijan governing leasing relations will be repealed, and such relations will instead be regulated under a separate law. The new Law establishes the legal, organisational and economic foundations of financial leasing activities, the mechanisms for state regulation and supervision in this field, as well as the legal relationships arising between the lessor, the lessee and the seller.

The new Law regulates the conclusion and performance of financial leasing agreements, the rights and obligations of the parties, financial lease payments, subleasing, the allocation of risks, and the rules governing the early termination of financial leasing agreements. In addition, for the first time, the concept of “financial leasing” is defined on the basis of specific economic criteria. Accordingly, an agreement will qualify as a financial lease where at least one of the following criteria is satisfied: ownership of the leased asset is transferred to the lessee upon expiry of the agreement (or the lessee is granted the right to acquire ownership); the lease term exceeds 75 per cent of the useful life of the leased asset; the residual value of the leased asset at the end of the agreement is less than 20 per cent of its market value; or the aggregate amount of lease payments is at least 90 per cent of the market value of the leased asset.

Unlike the current chapter of the Civil Code governing leasing, the new Law regulates financial leasing not only as a civil law contractual relationship but also as a financial activity subject to the supervision of the Central Bank. Pursuant to the Law, financial leasing activities may be carried out only by commercial legal entities and local branches of foreign commercial legal entities included in the register maintained by the Central Bank. Furthermore, the Law establishes minimum charter capital requirements, prudential standards, and corporate governance and risk management requirements. It also clarifies the subjects and scope of application of financial leasing: a lessee may only be a legal entity or an individual entrepreneur, while the subject matter of a financial lease does not include property intended for personal or household use. 

The Law establishes a 9-months transition period for existing leasing providers. During this period, they must bring their activities into compliance with the new requirements and register with the Central Bank. Otherwise, they will lose the right to enter into new financial lease agreements or extend existing ones and will also be required to remove the words “leasing”, “financial leasing”, or similar expressions from their trade names.

In addition, the amendments to the Code of Administrative Offences dated 7 July 2026 introduce administrative liability in relation to financial leasing activities. Under the newly added Article 439-3, persons engaged in financial leasing activities (excluding banks, local branches of foreign banks, and non-bank credit organizations) will be subject to administrative fines for failing to submit, or for improperly submitting, reports required to be filed with the Central Bank of the Republic of Azerbaijan. The fines range from AZN 1,000 to AZN 1,500 for officials and from AZN 3,000 to AZN 5,000 for legal entities. Furthermore, the amendments to Article 440.1 include such persons among the entities obliged to submit information to the Centralized Credit Registry and/or a credit bureau, with administrative liability also established for non-compliance with this obligation. These amendments will enter into force on the same date as the Law of the Republic of Azerbaijan “On Financial Leasing”.

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