Azerbaijan

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Return to homepage  |  Last updated: 04 May, 2020

To contain the spread of COVID-19, the authorities have introduced a special quarantine regime (until May 4, 2020). It includes border closures, required quarantine of returning citizens, prohibition of mass gatherings, restriction on domestic movements; closure of restaurants and some other public facilities, airports, and transportation hubs; social distancing, and disinfection of public spaces. The COVID-19 Operational Headquarters has been created under the Cabinet of Ministers, and working groups under the leadership of the Minister of Economy, Minister of Finance, Minister of Labor and Social Protection of the Population and Chairman of Central Bank of Azerbaijan have been tasked with developing specific measures in order to reduce the negative impact of the pandemic on the country's business environment.

Click here to see a comprehensive summary of jurisdictional tax measures and government reliefs in response to COVID-19.

In order to reduce the social insurance burden, it is proposed to change the rates of mandatory social insurance contributions for persons deriving income from non-employment activities:

For insured persons deriving income from non-employment activities:

• Calculation of mandatory state social insurance premium from April 1, 2020 to January 1, 2021, by the amount of the minimum monthly salary for entrepreneurial activity * (taking into account the application of differential interest rates by region):
  • 25% in construction and trade,
  • 15% in other areas.
• Calculation of mandatory state social insurance contributions from January 1, 2021 to January 1, 2026 in the amount of minimum monthly salary * (taking into account the application of differential coefficients by regions):
  • 50% in the field of construction,
  • 25% in other areas.

Agriculture sector

• Mandatory state social insurance contributions for each family member of individuals using agricultural lands owned by them, depending on the area of land calculated by the amount of the minimum monthly wage (250 AZN):
  • up to 5 hectares - in the amount of 2%;
  • from 5 to 10 hectares - in the amount of 6%;
  • more than 10 hectares - in the amount of 10%.

It is also planned to replace the submission of social insurance reports by landowners with a fixed receipt.

Attorneys, freelance accountant and auditors

• It is envisaged to determine the social insurance burden of this category of individuals in the amount of 10% after deduction of expenses.
• In addition to the above, payments of a temporary allowance to 600,000 unemployed people started in April and payments will continue though May 2020. Also, social assistance to support the financial situation of the population, support program on the payment of utility bills on electricity consumption for population and support program on the payment of tuition fee of students who are members of families belonging to a socially vulnerable population were also adopted as social benefit packages.
• The government has also instructed the Ministry of Labor and Social Protection to work with employers and provide daily supervision to avoid unjustified layoffs and job cuts.

• 2.5 billion AZN (approximately 1.471 billion USD), which is equal to 3% of GDP,  has been allocated from the State budget to the Cabinet of Ministers for financing the measures on reducing the negative impact caused by COVID-19 as well as subsequent fluctuations in the global energy and stock markets on the economy, macroeconomic stability, employment issues and businesses in the country.
• 97 million AZN (approximately 57 million USD) has been allocated to the State Agency for Compulsory Medical Insurance from the reserve fund of the President of the Republic of Azerbaijan for the supply of necessary medical equipment and other medical means in order to prevent the spread of the coronavirus pandemic and strengthen the fight against it.
• The President of the Republic of Azerbaijan has created a Fund to Support Fight against Coronavirus (Fund), to which it has transferred 20 million AZN (around 12 million USD), with additional contributions from the public and private sectors. As of April 22, 2020, according to the Fund’s website, the donations transferred to Fund amounted to 112, 898,697 AZN  (around 67 million USD).
• Azerbaijan's government has provided $5 million to the COVID-19 Fund as part of the WHO’s Strategic Preparedness and Response Plan.
• The authorities have extended the blanket deposit guarantee until December 4, 2020. The guarantee covers all AZN (foreign currency) deposits within a 10 (2½) percent interest rate cap.
• On March 19, 2020, the Central Bank of Azerbaijan  left the refinancing rate unchanged at 7¼ percent, but raised the floor of the interest rate corridor (within a de facto floor system) by 125 bps to 6¾ percent.
• The Central bank of Azerbaijan, with the participation of the State Oil Fund, has conducted scheduled and extraordinary foreign exchange auctions, and has satisfied all demands for foreign currency at the announced 1.7 AzN/US$ rate.

Payment of a part of the salary of employees and financial support to individual (micro) entrepreneurs in activity areas affected by the pandemic

The following actions are among the measures implemented in order to support for economic growth and entrepreneurship during Coronavirus (COVID-19) pandemic:

• Financial support program in the amount of 215 million AZN (126.5 million USD) for the payment of salaries to 300,000 wage earners in the spheres affected as a result of pandemic (aimed at preventing job cuts);
• Financial support program in the amount of 80 million AZN (47 million USD) for 300,000 individual (micro) entrepreneurs working in the sectors negatively affected as a result of pandemic (aimed at safeguarding employment). The program was applied to the taxpayers who made tax, compulsory state social insurance and unemployment insurance payments in 2019.
• It should be also noted that, above-mentioned financial support programs were aimed at redressing damage to entrepreneurs and the payment of salaries in the sectors of the Azerbaijani economy (20 areas of activity) affected by Coronavirus (COVID-19) pandemic.

State loan and guarantee in the support of the economy and businesses

Credit-guarantee support program for loans in the amount of 0.5 billion AZN (294.1 million USD) to be issued to businesses (including small and medium enterprises) operating in areas negatively affected by the pandemic envisaging the implementation of the following measures:

• state guarantee for 60% for new loans in the amount of 500 million AZN (294.1 million USD);
• subsidizing 50% of the interest on guaranteed loans from the state budget;
• establishment of a mechanism for providing unsecured microloans in the agricultural sector by the Agrarian Credit and Development Agency. In this direction 30 million AZN (12 million USD) have been allocated.

Additionally, allocation of additional funds to the Entrepreneurship Development Fund in the amount of 50 million AZN (29.4 million USD) is planned in April-May 2020.

The program will also support entrepreneurs with the existing loan portfolios who work in the coronavirus affected sectors. The government will subsidize 10% of the interest expenses of these loans for one year and for this purpose 1 billion AZN (588 million USD) were allocated.

Supportive measures proposed by the Central Bank of Azerbaijan

Measures covers broader directions, including matters related to the restructuring of business loans issued via assets of the state funds, the restructuring of mortgage loans issued to individuals via the country’s Mortgage and Credit Guarantee Fund as well as through support of participants of the insurance and capital markets.

Support of individuals and business entities

Private business entities, including individuals engaged in entrepreneurship will be provided with the opportunity to restructure loans (of satisfactory quality, and with interests subsidized by the state) issued to them till March 1, 2020, without deteriorating their quality.

Also, it’s envisioned to create possibility for restructuring business loans issued with the means of state funds and having satisfactory quality as of March 1, 2020. as well as the restructuring of mortgage loans issued with the means of Azerbaijan’s Mortgage and Credit Guarantee Fund in order to support individuals (not engaged in entrepreneurial activity).

Furthermore, in case of full or partial delay in business and consumer loans (principal or interest-bearing debt), credit organizations will be advised not to levy a fine, penalty and other payments from the borrowers and not worsen their' credit history until September 30, 2020.

Reducing the regulatory burden on banks, increasing lending opportunities and maintain financial sustainability

In order to stimulate non-cash payment services and reduce costs, given the decrease in economic activity and income of businesses and households, as well as the negative impact on indicators of the use of payment services till September 30, 2020

• reduction of service fees charged by banks in interbank payment systems up to 50% till September 3, 2020,
• in a similar manner, decrease of tariffs for payment services provided to customers by banks,
• reduction of acquiring fee up to 50% till September 3, 2020 in order to reduce cost of acceptance of payments with cards by business entities.

Support of participants of capital markets.

Baku Stock Exchange will not charge tariffs to issuers of corporate bond until January 1, 2021 and minimize the number of documents required for placing securities by the mass offer method.

Other measures

• It should be noted that the measures are also aimed at taking measures to introduce a new model of economic growth in the post-pandemic period. Construction, mining, petrochemical industry, digital economy, transport, trade, logistics, telecommunications, agriculture and processing industry and domestic tourism will be the main priorities of the country’s economic policy in this period.
• As part of the reforms to improve the government property management system, State Investment Holding will be established to manage the companies from the single center on behalf of the state, increase transparency and economic efficiency of their activity, including investment programs, and ensure competitiveness. A new privatization program will also be developed.
• In addition to that, in order to create a new mechanism for the development and implementation of strategic projects in the construction sector, the Azerbaijan Construction Corporation will be created to accelerate the development of cities and districts. Corporation will ensure long-term management of the portfolio of strategic projects, the development of new projects, attraction of investors and the implementation of a pilot project.
• Finally, the relevant legislation will be amended to create a favorable environment for the expansion of Public-private partnership (PPP).

Main sources of information

• International monetary fund
• President of the Republic
• Cabinet of ministers
• Tax authorities
• Azerbaijan’s Fund to Support Fight against Coronavirus
• Central bank of Azerbaija
• Azerbaijan Deposit Insurance Fund

Legal: Farid İsayev –  fisayev@kpmg.az
Tax: Rizvan Gubiyev – rgubiyev@kpmg.az