Azerbaijan tax breaks tempt Israeli tech firms to relocate

Among the incentives offered to Israeli startups that choose to move to Azerbaijan are full exemptions from corporate tax, purchase tax, property tax and profits tax for ten years, as exclusively revealed by Globes.

The decision by a Shiite Muslim-majority country to take such a step during the current war, despite a wave of anti-Israel sentiment, is unusual and surprising. The move comes on the heels of the launch of a technology park currently under construction in Baku, though incentives offered by the Azaria government are available to Israeli tech companies setting up anywhere in the country. Sources told Globes that several Israeli tech companies are already in talks about moving to Azerbaijan.

In addition to the above incentives, company employees will pay 0% personal income tax on monthly salaries up to $4,700. To qualify for these incentives, companies must have been in operation for at least one year, have ten or more full-time employees, or have annual revenues of at least 200,000 manat (430,000 shekels).

Under the programme, support is provided for immigration to the country, including exemptions from work permits, assistance in issuing residence permits, and arranging logistical issues such as finding offices and housing.

Azerbaijan seeks to become a technology hub in the Eurasian region and a gateway to the Turkic countries. Baku’s relationship with Ankara is based on the idea of ​​“one nation, two states.” Therefore, companies seeking to expand their operations in Turkey, at a time when relations between Israel and Turkey are at an unprecedented low, will be able to benefit from the depth of the Turkish-Azerbaijani ties.

It’s time to stop using oil.

The program is led by the Azerbaijan Innovation and Digital Development Agency (IDDA), and its main goal is to diversify the economy. The oil and gas sector accounted for 47.8% of Azerbaijan’s GDP, 52.7% of budget sources, and 92.5% of exports in 2022. Baku realizes that the world is weaning itself off oil, and preparations are needed to reduce dependence on black gold.

Azerbaijan takes inspiration from Gulf states, which have worked harder in recent years to diversify their economies and “wean themselves off” fossil fuels. The United Arab Emirates, for example, launched a program last year requiring private companies to employ 6% local workers by 2024 and 10% by 2026. Azerbaijan, on the other hand, does not require companies moving abroad to employ a certain percentage of local workers.

However, IDDA is already training relevant staff, and funding scholarships for over 3,000 students in IT courses. The aim is to train as many young people as possible, so they can join foreign companies. The number of scholarships for local citizens is expected to grow to 5,000 next year.

Pasha Aliyev, IDDA’s regional vice president for startup relocation in Azerbaijan, speaks fluent Hebrew. He tells Globes that the initiative to attract Israeli companies is part of a broader effort to build a strong tech ecosystem in Azerbaijan. “Our young, multilingual population, coupled with a diverse mix of cultures, creates a dynamic and innovative workforce,” he says. “In addition, our advanced infrastructure allows companies moving to the country to quickly settle and integrate into their new home. This combination makes Azerbaijan an ideal location for tech companies looking to grow and innovate in the Asian market.”

Flourishing relations with Israel

Relations between Israel and Azerbaijan have flourished since 1992 on the basis of the sale of Azerbaijani oil to Israel and advanced Israeli weapons systems to Azerbaijan. In the first half of 2024, according to the Baku Customs Office, there was a 55% increase in oil imports to Israel from Azerbaijan, which amounted to $989 million. As Globes revealed, despite the trade embargo imposed by Turkish President Recep Tayyip Erdogan on Israel, Azerbaijani oil continues to flow through the Baku-Tbilisi-Ceyhan pipeline — where it is loaded onto tankers in the Turkish port city of Ceyhan bound for Haifa. The main reason that the oil supply has not been affected is the close relationship between Azerbaijani President Ilham Aliyev and Erdogan.

On the other hand, Azerbaijan is a major customer of the Israeli defense industry. It has purchased, among other things, Spike anti-tank missiles from Rafael, Hermes drones from Elbit, and Harop munitions from Israel Aerospace Industries. Last October, Israel Aerospace Industries signed a deal with Azarcosmos to purchase two OptSat500 satellites, which will replace the Airbus Azarsky satellite, which went offline in April 2023.

Thus, developing the technology sector in Azerbaijan would diversify its economy and trade relations with Israel. “We are focusing on startups that will come to Azerbaijan, employ locals – and create a critical mass,” Aliyev explains. “We are in regular contact with bodies in Israel, such as the Export Institute, and we are in regular contact with similar bodies in other countries as well.”

This article was published in Globes, Israeli Business News – en.globes.co.il – on September 5, 2024.

© Copyright Globes Publisher Itonut (1983) Ltd., 2024.