August - September 1998

by William H. Henry

Key legislation regulating customs rates and procedures for goods imported into Azerbaijan came into force in 1997. A presidential decree enacted a new customs code on June 10, 1997. Less than one month later, on July 1, 1997, Government Decree No. 62, "Customs Duty Rates on Export and Import Transactions" became effective. Some of the most important provisions of these regulations are summarized below.

Goods Imported for Processing and Reexport
Azerbaijan's 1997 customs code establishes procedures for goods which are imported into Azerbaijan for processing and subsequent export. Under the new code, import duties and value added tax (VAT) are payable upon import of the goods. If the goods are processed and exported from the customs territory of Azerbaijan, all import duties and VAT paid on import are to be refunded from the budget upon export.

The new code requires companies that desire to import products for processing and reexport to obtain a license from the Customs Committee. There is no formal procedure specified for making an application for such a license. Legislation does state, however, that the Customs Committee is allowed to determine the time period for the processing of goods, based upon an "economically reasonable" time not to exceed two years for reprocessing and arranging to export the final products. The Customs Committee is also allowed to determine the minimum expected output given the products imported.

Temporary Imports
Goods brought in under the temporary import regime should be reexported from Azerbaijan within deadlines specified by the customs authorities (the law allows for the import of goods under this regime for up to two years). However, in practice, customs authorities provide for the duration of a temporary import for up to one year with the possibility of getting a further prolongation of the import period for an extra year.

It should also be noted that goods and equipment imported under a temporary import regime should be reexported from Azerbaijan without any change in their substantive nature (with the exception of changes and losses resulting from natural transportation, storage, and use).

If a company decides to sell goods or equipment brought in under the temporary regime, the company must notify customs authorities and pay all import taxes due prior to the sale of the goods. Failure to notify Azerbaijani customs authorities will result in penalties totaling 3 percent per day of delay of payment and financial sanctions amounting to 100 - 200 percent of the declared customs value of the goods. An administrative fine totaling two monthly salaries of the representative of the company and the company's chief accountant may also be applied.

Bonded Warehouses and Customs Storage Facilities
Although the customs code provides for regulations on the establishment and operation of bonded and customs warehouses, in practice only ordinary customs warehouses can be operated. A license from the Cabinet of Ministers of the Azerbaijan Republic is required to establish a customs warehouse; licenses are granted only to Azerbaijani legal entities and Azerbaijani persons. Goods and equipment maintained in customs warehouses and not released are exempt from import duties and taxes for up to three years. If the goods or equipment are released from the customs warehouse, all import duties and taxes become payable unless another exemption applies.

Import Duties and Customs Fees
The July 1997 decree on customs established new rates of import duties which vary from no duty to 15 percent of the declared customs value. In addition, the decree established that a VAT is payable upon import at a rate of 20 percent. The VAT payable is equal to the declared customs value plus the value of import duties multiplied by 20 percent.

Regardless of country of origin, no import duty is imposed on a number of goods, including: assets imported into Azerbaijan by a foreign investor as a contribution to a joint venture's charter fund, or for establishment of a 100 percent foreign-owned enterprise; temporary imports; goods in transit; and property of expatriate staff, if only for personal needs.

All customs service payments are to be paid in Azeri Manats at the exchange rate set by the Azeri National Bank on the day of the submission of customs declaration. Decree No. 62 also establishes a number of customs service fees and instructions, including the following:

- For movable property and goods imported to Azerbaijan as a contribution to the charter fund of a business: 0.25 percent of the customs value;

- Any goods imported or exported for which payment is made in hard currency: 0.15 percent of the customs value (not less than US$5);

- Consignment transactions, irrespective of the destination country, including CIS: 0.25 percent of the customs value.

This copyright article is provided courtesy of the U.S. - Azerbaijan Chamber of Commerce (USACC), website: www.usacc.com; tel: 202/857-8069; fax: 202/775-4188.

For more information on doing business in Azerbaijan, see BISNIS OnLine at www.iep.doc.gov/bisnis/country/caucasus.htm.

William R. Henry is with Ernst & Young L.L.P.

This report is provided courtesy of the Business Information Service for the Newly Independent States (BISNIS)