Winter 1995 (3.4) Page 42 Q & A Doing Business in Azerbaijan The Most Frequently Asked Questions by Alum Bati of Ernst & Young Have you ever wondered whether you can earn foreign currency when doing business in Azerbaijan? Or whether you can pay your staff in cash or foreign currency? What about repatriating funds or opening bank accounts? Here are the answers to some of the most frequently asked questions about foreign currency transactions in Azerbaijan. Can a foreign individual have a foreign currency bank account in Azerbaijan? Yes. An individual may open a foreign currency bank account and deposit or transfer money into such an account without restriction. However, an individual may only transfer money out to the country from which he / she had previously remitted, transferred or carried it into the country. Can a foreign company have a foreign currency bank account in Azerbaijan? Yes. Foreign companies operating as Foreign Legal Entities (FLE) can open foreign currency bank accounts in Azerbaijan. However, in order to open an account, an FLE must prove that it was registered with the Ministry of Foreign Economic Relations and the tax authorities and submit a long list of documents. Companies wanting to do business in Azerbaijan should be aware that the registration processes leading to the opening of a bank account may take several months. Can an Azerbaijani company open a foreign currency account? Yes. A company established in accordance with the laws of Azerbaijan (ALE), including joint ventures and wholly owned subsidiaries of foreign companies, can open foreign currency bank accounts and must deposit foreign currency receipts into these accounts. However, there are restrictions on what an ALE can and cannot do with foreign currency. For example, there are only four purposes outlined by the National Bank instructions for which an ALE may withdraw foreign currency. Similarly, there are only four purposes for which an ALE may purchase foreign currency at the Baku Interbank Currency Exchange (BICE). These include the payment of dividends and settling of invoices with foreign suppliers. In addition, 30% of the foreign currency earnings of an ALE must be converted into local currency through BICE. Can an ALE repatriate profits? Yes. A joint venture incorporated in Azerbaijan or a wholly owned subsidiary of a foreign company may purchase foreign currency at BICE for the payment of dividends provided that tax obligations have been met. Can an ALE invoice its clients in foreign currency? Yes. However it must first obtain a foreign currency license from the National Bank. It is our understanding that significant justification for the need for a foreign currency license must be present in order for the National Bank to issue a license. The instructions from the National Bank specifically rule out the issuance of licenses on the grounds of currency depreciation risk. It is also our understanding that very few licenses have been issued in recent months. Can an ALE open a bank account outside the Azerbaijan Republic? There are draft instructions being considered by the National Bank which would require its consent before permission is granted for an ALE to have a bank account abroad. These draft instructions also outline a limited number of purposes for which an account may be opened abroad. Can an FLE or an ALE pay its employees in foreign currency? An FLE can pay its employees in foreign currency, and the instructions from the National Bank state the payment of salaries as a valid purpose for which foreign currency may be withdrawn from an account. An ALE, however, must pay its employees in local currency. Are there any restrictions on the cash operations of an FLE or an ALE? Yes. In the case of an ALE there are considerable restrictions on cash transactions in both local and foreign currencies. In an attempt to move away from a largely informal cash economy, Azerbaijani officials have set strict limits on the amount of cash a legal entity (foreign or Azerbaijani) may withdraw from the bank each month. In the case of an FLE, however, the more flexible operational rules with respect to foreign currency afford it a less cumbersome burden of compliance, although an FLE is bound by the same restrictions as an ALE with respect to cash operations with local currency. Please note that the above article is of a general nature and specific advice should be sought in all instances. Ernst & Young is the largest and most experienced firm of professional advisers in the CIS. Alum Bati is the Representative Director of Ernst & Young in Baku. He and his team of specialists will be happy to answer your questions on currency. Please contact, in the first instance, Alum Bati, or Robin Bennett, the Managing Partner, or Nader Alizadeh. Ernst & Young is located at 11 Mardanov Qardashlari Street (formerly Gogol), Suite 32 (near the Visa & Registration Office). Tel: (99412) 98-33-85; 94-14-13; Fax: (99412) 98-33-85; 93-73-12; 98-64-82; e-mail <ab@ernst young.baku.az>. From Azerbaijan International (3.4) Winter 1995. © Azerbaijan International 1995. All rights reserved. Back to Index AI 3.4 (Winter 1995) AI Home | Magazine Choice | Topics | Store | Contact us