INVESTMENT CLIMATE

In 2003 the foreign investments into the economics of the country increased by 46.5% (USD 1038.4 million) from the previous year and up to USD 3273.3 million. The direct investments made up 93.5 % (USD 3060.3 million) and credit investments-6.5% (USD 213 million). The investments into the oil industry of Azerbaijan have increased by 66% from that of 2002.

The due measures are undertaken for the development of the entrepreneurship in Azerbaijan and the patronage of the state in the said direction. Due to that a Council for Entrepreneurs and the Fund of Encouragement of Investments and Consulting in Azerbaijan were created under the President of the Republic of Azerbaijan.

The government of the Republic of Azerbaijan signed contracts with a number of contracts on the prevention of double taxing and the mutual encouragement and protection of investments.

The policy of open doors is conducted for the attraction of investments into the economics of the country. Due to that a number of measures are conducted for the attraction of foreign investments to the non-oil sectors as well.

The State Program for poverty reduction and economic development for 2003-2005 was worked out by the government of the Republic of Azerbaijan and approved by order of the President of the Republic of Azerbaijan of February 20, 03. The program stipulated for the conduction of reforms for the development of the important economic spheres, the undertaking of due steps for the improvement of the spheres of education and health, the improvement of the social state of the population. The draft state investment program for 2006-2009 has already been worked out. The program aims at the encouragement of investments to the countries' economics, their balanced inflow in all the spheres, the provision of the dynamic development of the economics, the acceleration of the socioeconomic development of the country, the creation of new jobs and the improvement of the living standards of the population.

The State Program for the Socioeconomic development of the regions of the Republic of Azerbaijan adopted on February 11, 2004 for 2004-2008 mainly aimed to increase of the production of agricultural goods through the effective utilization of regional reserves and natural conditions, to ensure the development of the non-oil sectors, including refining, services and other infrastructures, to increase the level of employment and to improve the living standards of the population.

The establishment of the tariff Council of the Republic of Azerbaijan by the order of the Cabinet of Ministers of January 31, 2002 was one of the most important steps for the improvement of the investment climate in the country, the conduction of the state control over the activity of natural monopoly establishments and the development of proposals on the tariffs of such establishments. The due secretariat and 12 work groups embracing different spheres within its bounds are operating within the Ministry of Economic Development in accordance with the Regulation of the Council for the purpose. ]

Moreover, the due measures are conducted for the improvement of the legislative basis for the improvement of the investment climate in the country. Due to that the draft laws on the investment activity and special economic areas have been worked out and are currently being considered.

The foreign investment enterprises may engage in any activity not prohibited by the legislative acts of the Republic of Azerbaijan.

Such enterprises are registered in the Ministry of Justice. The registration is carried out in accordance with the Law of the Republic of Azerbaijan "On the state registration of legal enterprises". The foreign investment enterprise gets the status of a legal enterprise since the registration by the state. The information on the state registration of the foreign investment enterprises is included into the republic register of the due state body. The registration may be declined in case the law of the Republic of Azerbaijan is violated in the establishment of the enterprise, or the documents developed do not correspond the defined requirements or the future activity is prohibited by the legislation of the Republic of Azerbaijan.

An enterprise may appeal to the court on the decline for the registration by the state.

The Ministry of Economic Development is the state body supporting the investors in the said procedures.

A number of laws regulating the tax relations -" On the field taxes" (1995), "On the property tax" (1995), "On the income tax of enterprises and organizations (1996) were adopted and a number of additions were introduced to existing laws ("On the VAP", "On income taxes of individuals and others). The Tax Code of the Republic of Azerbaijan came into effect on January 1 , 2001.

The following alterations will be introduced into the tax system for the dynamic development of entrepreneurs and the increase in the economic activity in the region:

- The transfer of income taxing of enterprises and organizations from the progressive to proportional system and the reduction of the tax rates on the said type of incomes from 35 down to 25%, the reduction of the VAT rate from 28 down to 18%, the elimination of the state road fund and a number of taxes, the reduction of the income taxes of individuals from 55% down to 35% (the increase of the monthly income not included into the taxes on the said type of taxing from AZM 60000 up to AZM 100 000);

-the reduction of social insurance transfers from 40% down to 27%;

- the reduction of the financial sanctions applied by the tax bodies by 2.5-7.7 and the reduction of usury by 2;

-the reduction of the number of taxes from 15 down to 9 with the effectiveness of the Tax Code;

-the release of the entrepreneurs engaged in the agricultural production from the taxes except for the taxes on lands for a period of 3 years since 2001.