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Customs Customs Regulations Kenny Hawsey Territory Partner, PricewaterhouseCoopers Since gaining independence in 1991, the Republic of Azerbaijan has been steadily developing its customs legislation. The basic legislative acts that currently govern the customs regulations in the Republic of Azerbaijan are the Customs Code, the Law on Customs Tariff, the Tax Code and a number of Decrees issued by the Cabinet of Ministers. Although there are still improvements to be made, there is an open dialog between the State Customs Committee and the various interest groups operating in the Azerbaijan, which is beginning to bring forward positive change. Import duty rates are assessed at either the fixed percentage rates of 0.5%, 3%, 10% and 15% on the customs value of goods, or at a fixed rate per unit of imported goods (e.g., USD0.20 per one liter of mineral water). If the value of imported goods declared significantly differs from the market prices for similar goods, customs authorities have the right to adjust the customs value according to the market prices. There are certain items, identified below, which may be imported into the Azerbaijan Republic exempt from import duties: Assets imported by a foreign investor as a contribution to the charter capital of an Azerbaijan Legal Entity; Property of Foreign Employees of locally registered companies, which are imported for personal use; Goods imported for use as grants and loans under Inter-Governmental Agreements; Goods imported by physical persons for gratuitous distribution (humanitarian aid); and Goods imported under special regimes (discussed in further detail below) It should be noted that only the first two exemptions mentioned above were provided for by the Law on Protection of Foreign Investments, whereas, all five exemptions have been provided within a Decree of the Cabinet of Ministers. A subsequent Decree has been issued from the Cabinet of Ministers, which has removed both of the first two exemptions, and although the laws of the Azerbaijan Republic prevail over decrees, in practice it is currently very difficult to utilize the first two exemptions.
Side Gates of Opera Buliding in Baku
Generally speaking, goods exported from Azerbaijan are exempt from customs duties. However, effective April 12, 2001, export duties have been introduced on certain products derived from metal. The export duty rates vary from USD5.00 to 15.00 per 1000 kg. Imports into Azerbaijan from all countries are subject to VAT at the rate of 18% of the declared customs value of the goods (including customs duties and excises). Such Import VAT is creditable against the output VAT for taxpayers that are registered for VAT purposes. The following goods are exempt from IVAT: Assets imported by a foreign investor as a contribution to the charter capital of an Azerbaijan Legal Entity; Goods imported for use as grants and loans under Inter-Governmental Agreements; Property of the Foreign Employees of locally registered companies, which are imported for personal use (provided a confirmation from the employer is available); Goods imported by physical persons for gratuitous distribution (humanitarian aid); Certain agricultural and chemical goods, equipment, electrical power, weapons, and securities; National and foreign currencies; and Assets to be used for a Capital Lease The import of drinkable spirits, tobacco and petroleum products is subject to excise taxes in Azerbaijan. Import excise duties are set at fixed amounts applicable to a unit of product (e.g., USD1.50 per 1 litre of wine). The export of such items is exempt from excise taxes. There are special processing fees which are payable to the State Customs Committee in the amount of 0.15% of the declared customs value of the imported/exported goods. It should be noted however that under the special regimes (discussed below), the processing fees generally range from 0.06% to 0.15% depending on the value of the imported goods. The Republic of Azerbaijan is in the process of expanding its free trade co-operation throughout the region and as a result, has ratified agreements on free trade with Moldova, Georgia, Kazakhstan, Uzbekistan, Ukraine and Russia. Under these agreements no import duties would apply to imports originating from these countries. It is important to note that the exemption does not apply to IVAT and Excise taxes. Summarized below are the various customs regimes provided for within the current Customs Code of the Republic of Azerbaijan. Under this regime, imported goods are stored under the customs control without payment of any customs duties or applicable taxes during the period of storage. Goods may remain under the regulations of the customs warehouse for a period of three years without clearance. Upon the expiration of the storage term, goods should be officially transferred from the customs warehouse to a different customs regime.
To properly establish a Customs warehouse, a special license of the Cabinet of Ministers is required. It should be noted that, generally speaking, such a license is only issued to Azerbaijan legal entities and physical persons.
Under this regime goods are imported into Azerbaijan for the purposes of processing and further re-exporting. Import duties are payable at the time of import of such goods and then refunded when the goods are re-exported.
Prior to operating under this regime a company must obtain a license from the State Customs Committee. The license is issued for a period of 1 year and may be extended an additional year upon application. In addition, the State Customs Committee is permitted to establish a minimum compulsory output of processed products. This regime is similar to the above mentioned processing regime and is subject to the same basic requirements. The primary difference is that under the Customs Control regime no duties are to be collected upon importation of goods. It is important to note that there is no definition of Customs Control within the current legislation of the Republic of Azerbaijan and no detailed regulations for the implementation of this regime. Certain types of goods can be imported into Azerbaijan without the application of customs duties for a period of up to 1 year. Generally speaking, this includes goods which are imported by foreign companies for the purpose of maintaining their activities. It is important to note that goods imported for eventual sale are not permitted to be imported under this import regime. There are also goods which may be imported using the temporary import regime discussed above, but for which the complete exemption from customs duties and taxes during the first year is not available. These goods, along with the second year extension period for the traditional temporary imported goods discussed above, are subject to a monthly payment requirement. The monthly payable amount is calculated as 3% of the total customs duties and taxes which would be payable on the import if it were cleared for free circulation and is payable to State Customs. This monthly fee is payable until such time as the total amount of such payments equals the total customs duties and taxes. The extension mentioned above is generally given for 1 additional year, however, may be granted for a longer period at the discretion of the State Customs Committee.
Upon the expiration of the above terms, the goods shall be re-exported from the Azerbaijan without any change in their nature (except for natural tear and wear) or declared under a different customs regime if not re-exported. It should be noted that if the goods are declared into free circulation before the temporary import term expires, all outstanding import duties must be paid.
Where a complete exemption is provided, the Customs Authorities have the right to supervise the use of the imported goods (i.e. to insure they qualify for complete exemption). This may extend to a complete inspection of the imported goods. This represents a regime where goods may be imported into Azerbaijan and stored within a special zone (which must be established by the legislation) in the territory of Azerbaijan without paying any customs duties, until such time as the goods are removed from this zone. Upon such removal of goods into free circulation, all import duties would become payable. It should be noted that there have been no current regulations adopted regarding the creation of the free customs zone and therefore this regime is not currently applicable. Steps are currently being taken with the State Customs Committee to negotiate the creation of free zones and progress is being made. Under the current environment, owners of a free warehouse may only be Azerbaijani legal entities and physical persons. Furthermore, in order to establish a free warehouse, a license from the Cabinet of Ministers will be required. As is the case with the governing regulations, no licensing rules have been issued to date. Since 1994, the Azerbaijani Government has signed over 20 Agreements on the Joint Exploration, Development and Production Sharing of ("PSAs") with Foreign Oil Companies for prospective oil structures in the territory of the Azerbaijan.
Operating Companies, contractor parties and sub-contractors operating under a PSA have the right to import to and re-export from the Republic of Azerbaijan certain goods free of any duties and taxes. Some of the goods included in this list are equipment, materials, machinery and tools, vehicles, spare parts, and foodstuffs (subject to the regulations applicable to import of foodstuffs) provided these goods are to be used for activities covered by the PSA. These rights are also granted to the foreign employees of such contractors and sub-contractors and their family members in respect of their personal property. Temple of Fire in Surakhani This exemption is provided for within the PSA and is also further outlined within the Protocol on Import and Export to each individual PSA. Compared to the PSA, the Protocol contains what is generally recognized as the administrative rules for customs treatment. Thus, the Protocol provides that the full exemption is granted only upon obtaining both a VAT Zero Rate Certificate from the Ministry of Taxes and a Certificate on Exemption from Import Duties from the State Customs Committee. In practice, where an Import and Export Protocol is not signed and effective, a temporary letter may be obtained from the State Customs Committee, which will support the Exemption, until such time as the Protocol is signed and the Certificate is received.
Host Government Agreement
Currently, there is one Host Government Agreement ("HGA") between the Republic of Azerbaijan and the foreign oil companies operating in this Republic. The foundation of this HGA covers the construction of a Main Export Pipeline ("MEP") to transport crude oil from Baku to Ceyhan, Turkey.
Participants and contractors to the HGA have the right to import into and re-export from the Azerbaijan free of any taxes and restrictions, all equipment, materials, machinery, tools, vehicles, spare parts, supplies, and etc. for the conduct of MEP Activities.
Another key benefit to the HGA is that foreign personnel engaged in Pipeline Operations, as well as their family members, have the right to import into and re-export from, free of taxes and restrictions, all goods, works and services or technology used for their own use and personal consumption.
 
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