Azerbaijan tax breaks tempt Israeli tech firms to relocate

Among the incentives offered to Israeli startups that choose to relocate to Azerbaijan, Globes exclusively revealed, are full exemptions from corporate tax, purchase tax, real estate tax and dividends for 10 years.

The decision for the Shiite Muslim-majority country to take such a step during the current war, despite growing anti-Israel sentiment, is both unusual and surprising. The move follows the opening of a technology park currently under construction in Baku, but the incentives offered by the Azali government will apply to Israeli technology companies setting up anywhere in the country. Sources told Globes that several Israeli technology companies are already in talks to relocate to Azerbaijan.

In addition to the above incentives, company employees pay 0% personal income tax on their monthly salary up to $4,700.To qualify for these incentives, a company must have been in business for at least one year, have at least 10 full-time employees, or have annual revenues of at least 200,000 manats (NIS 430,000).

As part of the program, support will be provided for immigration to the country, including work permit exemptions, assistance with issuing residence permits, and arranging logistical issues such as finding an office or accommodation.

Azerbaijan aspires to become a tech hub in the Euro-Asian region and a gateway to Turkic countries. Baku-Ankara relations are based on the “one nation, two countries” philosophy. Thus, at a time when Israel-Turkey relations are at an all-time low, companies looking to expand in Turkey will benefit from the depth of Turkish-Azerbaijani ties.

It’s time to move away from oil

The program is led by Azerbaijan’s Innovation and Digital Development Agency (IDDA) and has as its main goal the diversification of the economy. The oil and gas sector accounted for 47.8% of Azerbaijan’s GDP, 52.7% of budget resources and 92.5% of exports in 2022. People in Baku recognize that the world is moving away from oil and they need to be prepared to reduce their reliance on the black gold.

Azerbaijan has taken inspiration from Gulf countries, which in recent years have focused on diversifying their economies and “weaning” themselves off fossil fuels. The UAE, for example, launched a program last year requiring private companies to hire 6% local workers by 2024 and 10% by 2026. Azerbaijan, meanwhile, does not require companies that relocate to hire a percentage of local workers.

However, IDDA is already working to train the people involved, providing scholarships to over 3,000 students in IT courses, with the aim of training as many young people as possible and encouraging them to join foreign companies. The number of scholarships for locals is expected to increase to 5,000 next year.

Pasha Aliyev, IDDA’s regional vice president in charge of relocating startups in Azerbaijan, speaks fluent Hebrew. He told Globes that the effort to attract Israeli companies is part of a broader effort to build a strong tech ecosystem in Azerbaijan. “Our young, multilingual population, combined with a variety of different cultures, creates a dynamic and innovative workforce. Additionally, our advanced infrastructure allows companies relocating to the country to quickly settle and integrate in their new home. This combination makes Azerbaijan an ideal location for tech companies looking to grow and innovate in the Asian market,” he said.

Thriving Relationship with Israel

Israeli-Azerbaijani relations have thrived since 1992 on the basis of the sale of Azerbaijani oil to Israel and Israeli sales of advanced technological weapons systems to Azerbaijan. According to the Baku Customs Administration, in the first half of 2024, oil imports from Azerbaijan to Israel increased by 55% to $989 million. As Globes revealed, despite the trade embargo imposed on Israel by Turkish President Recep Tayyip Erdogan, Azerbaijani oil continues to flow through the BTC (Baku-Tbilisi-Ceyhan) pipeline, where it is loaded onto tankers in the Turkish port city of Ceyhan and sent to Haifa. The main reason for the unaffected oil supply is the close relationship between Azerbaijani President Ilham Aliyev and Erdogan.

Meanwhile, Azerbaijan is a major customer for the Israeli defense industry. The country has procured Rafael’s Spike anti-tank missiles, Elbit’s Hermes drones, and Israel Aerospace Industries’ (IAI) Harop loitering munitions, among others. Last October, AzarCosmos signed a contract with IAI for two Optosat-500 satellites, which will replace the Airbus-made Azarsky satellite, which lost communication in April 2023.

The development of Azerbaijan’s technology sector will therefore diversify both the country’s economy and its trade relations with Israel. “We focus on large companies that come to Azerbaijan, employ local talent and form a critical mass,” Aliyev explains. “We are in regular contact with Israeli institutions such as the Export Research Institute, and similar institutions in other countries.”

Published by Globes (en.globes.co.il), an Israeli business news site, on September 5, 2024.

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