Annual Report on Exchange Arrangements and Exchange Restrictions, 2007
Chapter

REPUBLIC OF AZERBAIJAN

Author(s):
International Monetary Fund. Monetary and Capital Markets Department
Published Date:
October 2007
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(Position as of July 31, 2007)

Status under IMF Articles of Agreement
Article VIIIDate of acceptance: November 30, 2004.
Exchange Measures
Restrictions and/or multiple currency practicesInformation is not publicly available.
International security restrictionsRestrictions have been imposed on financial transactions and accounts held by individuals or organizations associated with terrorism pursuant to UN Security Council resolutions and to the list of current terrorist organizations maintained by the U.S. Secretary of State.
In accordance with IMF Executive Board Decision No. 144-(52/51)Yes.
Other security restrictionsYes.
References to legal instruments and hyperlinksn.a.
Exchange Arrangement
CurrencyThe currency of Azerbaijan is the Azerbaijan manat. On January 1, 2006, new manat banknotes were introduced, replacing the old currency at a conversion rate of 1 to 5,000. The old banknotes are out of circulation from the beginning of 2007.
Exchange rate structureUnitary.
Classification
Crawling pegSince early 2006, the Azerbaijan National Bank (ANB) has started to appreciate the exchange rate along a smooth path. In September 2006, the minister of finance indicated that the exchange rate was expected to be at 0.85-0.87 per U.S. dollar by end-2006. As a result, the exchange arrangement has been reclassified, effective January 1, 2006, to the category crawling peg from the category conventional pegged arrangement.
Exchange taxNo.
Exchange subsidyNo.
Forward exchange marketForward transactions are effected through the Baku Interbank Currency Exchange. Currently, these transactions involve only dollars, euros, and Russian rubles.
References to legal instruments and hyperlinksn.a.
Arrangements for Payments and Receipts
Prescription of currency requirements
Use of foreign exchange among residentsIn accordance with current legislation, settlements among residents within the country may be effected in foreign currencies only with approval from the ANB.
Payments arrangements
Bilateral payments arrangements
InoperativeAgreements with the CIS countries are inoperative.
Clearing agreementsAzerbaijan is a member of the Payment Union of the CIS, which is now inoperative.
Barter agreements and open accountsState-owned enterprises and enterprises in which the state has a major share of the authorized capital must register these agreements with the Ministry of Economic Development (MED).
Administration of controlThe ANB regulates foreign exchange transactions, conducts foreign currency operations, and administers official gold and convertible currency reserve holdings. The ANB also has overall responsibility for issuing licenses to deal in foreign exchange and to open foreign exchange accounts abroad; for regulating foreign exchange operations, including implementing and monitoring compliance with the law; and for establishing prudential rules governing foreign exchange operations. The MED regulates foreign trade, whereas the organization and operation of the customs agencies are regulated under the Law on Customs Services. Controls are also administered by authorized banks holding a license to effect foreign exchange transactions acting as agents of foreign exchange control.
Payments arrearsNo.
Controls on trade in gold (coins and/or bullion)Trade in gold in coins and bullion is regulated on the basis of the Rules on the Performance of Operations with Precious Metals (in Coins and Bullion) in the Republic of Azerbaijan and the Execution of Transactions as approved by the Resolution of the Cabinet of Ministers of the Republic of Azerbaijan of October 25, 2004.
On external tradeA license from the MED is required to conduct international trade in gold.
Controls on exports and imports of banknotesThe exportation and importation of foreign banknotes are regulated by the ANB and the customs agencies. Banks may import and export foreign banknotes only with ANB approval.
On exports
Domestic currencyManat banknotes may be taken out of the country up to the maximum amount of manat 50,000.
Foreign currencyResident and nonresident individuals may export up to the equivalent of $10,000 and $1,000, respectively, without documentation but with a customs declaration, or up to $50,000 in currency that they previously brought into the country, also with a customs declaration.
On imports
Domestic currencyn.r.
References to legal instruments and hyperlinksLaw of the Republic of Azerbaijan on Foreign Exchange Regulation of October 21, 1994, with amendments of 2002; Decree of the President of the Republic of Azerbaijan of December 29, 2006, on Approval of the List of Types of Activities Requiring Special Permission (a License) and Amounts of State Duty to Be Paid for the Special Permission (License); the Rules for Performing Operations with Precious Metals in the Republic of Azerbaijan and the Execution of Transactions as approved by Resolution of the Cabinet of Ministers of the Republic of Azerbaijan of October 25, 2004; the Rules for the Importation into the Republic of Azerbaijan and Exportation from the Republic of Azerbaijan of Foreign Exchange Assets by Individuals of March 18, 2002.
Resident Accounts
Foreign exchange accounts permittedYes.
Held domesticallyYes.
Held abroadResident enterprises may open and use foreign exchange accounts in banks abroad, subject to ANB authorization. Enterprises must repatriate the foreign exchange held in accounts abroad (except the amount used for import payments).
There is no regulation on the opening and use of foreign exchange accounts in banks abroad by individuals.
Approval requiredYes.
Accounts in domestic currency held abroadn.r.
Accounts in domestic currency convertible into foreign currencyNatural and juridical persons may purchase foreign exchange through ADs, and ADs may also purchase foreign exchange in these markets on their own account, in accordance with the regulations of the ANB. These regulations do not set any limit.
References to legal instruments and hyperlinksn.a.
Nonresident Accounts
Foreign exchange accounts permittedForeign exchange in these accounts may be transferred abroad or sold to banks for manat. Prior to opening an account, a nonresident legal entity must provide proof of its status issued by the Ministry of Justice.
Domestic currency accountsNonresident enterprises may open and operate accounts in manat and use them for domestic transactions only if they have a local branch or office.
Convertible into foreign currencyYes.
Blocked accountsNo.
References to legal instruments and hyperlinksn.a.
Imports and Import Payments
Foreign exchange budgetNo.
Financing requirements for imports
Advance payment requirementsImport payments made more than 365 days prior to the delivery of goods or services require ANB approval; if the relevant goods are not imported, works not executed, or services not rendered, or if the prepayment is not returned within this period, the AD is required to report the transaction to the ANB and submit relevant documents.
Documentation requirements for release of foreign exchange for importsNo.
Import licenses and other nontariff measures
Negative listImports of certain listed goods (such as narcotics, explosives, weapons, and nuclear substances and waste) require special approval.
Import taxes and/or tariffsTariff rates of zero, 0.5%, 3%, 10%, and 15% apply. Some capital and input goods are subject to a 5% tariff. Imports of underinvoiced goods are subject to specific tariffs.
State import monopolyNo.
References to legal instruments and hyperlinksThe Rules on the Regime for Foreign Exchange Operations of Residents and Nonresidents in the Republic of Azerbaijan as approved by Decision of the Board of the National Bank of the Republic of Azerbaijan of May 27, 2002; the Rules on the Regulation of Export-Import Operations in the Republic of Azerbaijan as approved by Decree of the President of the Republic of Azerbaijan of June 27, 1997.
Exports and Export Proceeds
Repatriation requirementsResidents are required to repatriate all proceeds from exports within 180 days and transfer them to a licensed bank in Azerbaijan within 10 days of receipt. Expenses, commissions, and taxes paid abroad relating to economic activities may be deducted from the proceeds prior to their being transferred to a licensed bank.
Financing requirementsYes.
Documentation requirementsAll export operations must be secured by a 100% prepayment, an irrevocable LC, or a bank guarantee.
Letters of creditYes.
GuaranteesYes.
Export licenses
Without quotasExports of scrap metal are prohibited.
Export taxes
Other export taxesThe export tax applies to domestic producers’ exports of crude oil and petroleum products. For crude oil, the base of the export tax is the difference between the export price (excluding export costs) and the fixed domestic price of crude oil. For petroleum products, the base is the difference between the export price (excluding export costs) and the ex-refinery price (also referred to as the intercompany price) for the products. The tax rate for 2005 was 25%. A progressive export tax was introduced in 2006.
References to legal instruments and hyperlinksn.a.
Payments for Invisible Transactions and Current Transfers
Controls on these transfers
Personal payments
Quantitative limitsThese transactions are permitted, subject to documentary requirements. Residents and nonresidents are free to transfer abroad for personal reasons up to the equivalent of $500 a day from accounts with ADs on declaration of purpose. Residents are free to transfer abroad the equivalent of up to $10,000 annually, from accounts with ADs for the maintenance of close relatives (i.e., parents, spouses, children, siblings, and adopted children) on presentation of supporting documents. When authorized banks are assured of the legitimate nature of the transactions and on presentation of all supporting documents, transfers in excess of the indicative limit may be effected upon confirmation of the transaction with the ANB.
Indicative limits/bona fide testYes.
References to legal instruments and hyperlinksn.a.
Proceeds from Invisible Transactions and Current Transfers
Repatriation requirementsNo.
Restrictions on use of fundsNo.
References to legal instruments and hyperlinksn.a.
Capital Transactions
Controls on capital transactionsThe domestic circulation of foreign securities is subject to controls and monitoring.
Repatriation requirementsYes.
Surrender requirementsn.a.
Controls on capital and money market instruments
On capital market securities
Shares or other securities of a participating nature
Purchase abroad by residentsThe transfer of resources requires ANB approval.
Bonds or other debt securities
Purchase abroad by residentsThe regulations governing shares or other securities of a participating nature apply.
On money market instruments
Purchase abroad by residentsThe regulations governing shares or other securities of a participating nature apply.
On collective investment securities
Purchase abroad by residentsThe regulations governing shares or other securities of a participating nature apply.
Controls on derivatives and other instrumentsThese instruments are not currently available, and legislation concerning derivatives has not been formulated.
Controls on credit operationsCredits provided by residents to nonresidents for longer than 180 days, including financing for projects abroad, require ANB approval.
Commercial credits
By residents to nonresidentsYes.
Financial credits
By residents to nonresidentsYes.
Controls on direct investment
Outward direct investmentDirect investment abroad requires ANB approval.
Inward direct investmentThe minimum authorized capital for existing insurance companies is manat 0.7 billion (previously, 2.5 billion) and for newly established insurance companies, the minimum authorized capital is manat 1 million. Direct foreign ownership may not exceed 49% of capital; indirect ownership limits are not enforced. Effective January 1, 2006, the minimum authorized capital for existing commercial banks was increased to the equivalent of manat 6.4 million from the equivalent of $5 million. It was further increased to manat 8.2 million January 1, 2007, and to manat 10 million July 1, 2007.
Controls on liquidation of direct investmentNo.
Controls on real estate transactions
Purchase abroad by residentsThese transactions require ANB approval.
Controls on personal capital transactions
Loans
By residents to nonresidentsLoans to nonresidents with maturities exceeding 180 days and financing for projects abroad require ANB approval.
Gifts, endowments, inheritances, and legacies
By residents to nonresidentsThese transactions are permitted, subject to documentary requirements. Residents are free to transfer abroad (1) for personal reasons, up to the equivalent of $500 a day from accounts with ADs on declaration of purpose; and (2) the equivalent of up to $10,000 annually, from accounts with ADs for the maintenance of close relatives (i.e., parents, spouses, children, siblings, and adopted children) on presentation of supporting evidence.
Settlements of debts abroad by immigrantsThese transactions are subject to documentary requirements and must be based on a court ruling.
Transfer of assets
Transfer abroad by emigrantsThese transactions require ANB approval.
Transfer of gambling and prize earningsGambling is prohibited in Azerbaijan.
References to legal instruments and hyperlinksn.a.
Provisions Specific to the Financial Sector
Provisions specific to commercial banks and other credit institutions
Lending to nonresidents (financial or commercial credits)Credits provided to nonresidents for longer than 180 days and credits to finance projects abroad require ANB approval.
Differential treatment of deposit accounts in foreign exchange
Reserve requirementsThere is a 10% reserve requirement on all deposit accounts, regardless of the currency involved. A system of reserve averaging for banks on an intraday basis applies.
Liquid asset requirementsLiquid assets must be equal to at least 30% of current obligations with maturities in the current month, regardless of the currency involved.
Differential treatment of deposit accounts held by nonresidents
Reserve requirementsThere is a 10% reserve requirement on all deposit accounts, regardless of the currency involved. A system of reserve averaging for banks on an intraday basis applies.
Liquid asset requirementsLiquid assets must be equal to at least 30% of current obligations with maturities in the current month, regardless of the currency involved.
Investment regulations
Abroad by banksThese transactions are permitted with ANB approval.
In banks by nonresidentsEffective January 1, 2007, all restrictions on direct foreign ownership of capital at banks have been removed. Previously, direct foreign ownership could not exceed 49% of capital.
Open foreign exchange position limitsThe limit on convertible currencies is 10% for each foreign currency, up to an aggregate limit of 20%. The limit on nonconvertible currencies is 7% for each currency, up to an aggregate limit of 15%.
Provisions specific to institutional investors
Insurance companies
Limits (max.) on securities issued by nonresidentsn.r.
Limits (max.) on investment portfolio held abroadn.r.
Pension fundsn.a.
Investment firms and collective investment fundsn.a.
References to legal instruments and hyperlinksn.a.
Changes during 2006
Exchange arrangementJanuary 1. The exchange arrangement was reclassified to the category crawling peg from the category conventional pegged arrangement.
January 1. New manat banknotes were introduced, replacing the old currency at a conversion rate of 1 to 5,000. The old banknotes no longer circulate.
Capital transactions
Controls on direct investmentJanuary 1. The minimum authorized capital requirement for existing commercial banks was increased to the equivalent of manat 6.4 million from $5 million.
Changes during 2007
Capital transactions
Controls on direct investmentJanuary 1. The minimum authorized capital for existing commercial banks was increased to the equivalent of manat 8.2 million from manat 6.4 million.
July 1. The minimum authorized capital for existing commercial banks was increased to the equivalent of manat 10 million from manat 8.2 million.
Provisions specific to the financial sector
Provisions specific to commercial banks and other credit institutionsJanuary 1. All restrictions on direct foreign ownership of capital at banks were removed.

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