Azerbaijan: Due Diligence In Mergers And Acquisitions

Last Updated: 13 June 2019
Article by BM Morrison Partners LLC

Mergers and acquisitions are a tool to grow business, to make more money and serve a larger customer base, at a rapid pace (in contrast with organic growth). This notwithstanding, pursuing mergers and acquisitions does not come without, among others, financial and legal challenges. The due diligence process, assessing the financial and legal status of merging companies or target, is arguably the most important part of a merger and acquisition, as it can prevent financial and legal problems in the future.

From the legal point of view, assessing the strengths and weaknesses of merging companies/target, successful tax planning and locating regulatory requirements are among key indicators for success in merging or taking over. For this, good correspondence (timely and detailed communication of relevant information and documents) is vital.

Non-Disclosure Agreements

Companies are, in general, cautious to share information, especially, financial information, important contracts, information on income (salaries, bonuses) and employees' personal data, and often seek reliable tools to protect the sensitive information. Confidentiality of information in Azerbaijan is regulated, among others, by Law No 224-IIQ of the Republic of Azerbaijan, On Commercial Secrecy, dated 4 December 2001, (the "Commercial Secrecy Law") and Law No 998-IIIQ, On Personal Data, dated 11 May 2010.

The Commercial Secrecy Law establishes the list of information, which is open. Information in constitutional documents (excluding a shareholder/participant's share/interest), information in licenses and permits, financial statements (including audit opinion), information on taxpayer (excluding tax secrets), information on salaries and social payments are, among others, open.

An owner of confidential information determines the regime of such information. Persons other than the owner of confidential information may determine the regime of such information based on a non-disclosure agreement entered with the owner. Such agreement embraces provisions, among others, on acquisition and disclosure of confidential information, ways of protection, methods and means of transmission of confidential information and terms of use of confidential information.

Law does not stipulate timeframes for protection of confidential information, nor does it set forth limits on remedies in case of a breach of confidentiality obligation. These are left to parties' sole discretion.

Some Issues to Review

Merger Control

Azerbaijan's merger control is governed by Law No 526, On Antimonopoly Activity, dated 4 March 1993.

Azerbaijani antimonopoly regulations apply to local-to-local transactions, as well as, local-to-foreign and foreign-to-local transactions provided that these transactions impair competition in the relevant Azerbaijani market. The State Service for Antimonopoly Policy and Protection of Consumer Rights under the Ministry of Economy of the Republic of Azerbaijan (to be reorganised into the State Antimonopoly and Control of Consumer Market Agency) extends its reach to also foreign-to-foreign transactions which lead to the restraint of competition in Azerbaijan.

If the restraint of competition is established, the transaction must meet the filing criteria applicable to mergers – acquisition of more than 35 per cent of the relevant market and acquisitions – acquisition of more than 20 per cent of the shares of a company in Azerbaijan or acquisition of assets in Azerbaijan constituting more than 10 per cent of the balance value of the seller. If this criterion is met, further thresholds will apply.

A failure to notify a qualifying transaction is punishable by a financial sanction of up to AZN5,500. The antimonopoly authority is allowed also to impose a sanction for a failure of business subjects to implement its (the Ministry of Economy's) instruction at AZN55 per each day of a failure not exceeding AZN22,000 in total. Upon a failure to pay these for more than 30 days, these are written off in an uncontested manner.


When a company is considering a merger or weighing the idea of an acquisition, it is critical to assess the impact on employment issues, such as transfer of employees to a new company, transfer of the liability of preceding employer to the succeeding employer.

Azerbaijani employment laws are considered generally employee-friendly. A change of ownership of an enterprise does not affect employment agreements of employees (except for the head of an enterprise, his/her deputies, chief accountant, and heads of departments) and they continue in effect. In connection with the change of ownership, employment agreements of the head of an enterprise, his/her deputies, chief accountant and heads of departments can be amended or terminated.

Mass termination of employment agreements within three months of the change of ownership is not allowed without a reasonable ground. Mass termination means termination of: (i) 50 percent of employees in enterprises with 100-500 employees; (ii) 40 percent of employees in enterprises with 500-1,000 employees; and (iii) 30 percent of employees in enterprises with over 1,000 employees.


Uncareful consideration of tax issues in mergers and acquisitions may result in large taxation, thereby, potentially affecting the overall price, at which the transaction was undertaken. Taxwise, an acquisition can take place in various forms, namely, share purchase, enterprise sale, and asset sale.

Share Deal

The major tax implication of share acquisition is liability to a tax on the capital gains. The Azerbaijani Tax Code does not define a capital gain or provide for a capital gains tax. Nevertheless, there is a concept of "out-of-sale" proceeds defined generally as proceeds from transactions not directly related to the production or sale of goods, performance of works, and provision of services; such proceeds include "income from participation in operations of other enterprises, income from taxpayer's shares, bonds, and other securities". There are no rules in the Tax Code in relation to taxation of "out-of-sale" proceeds in the context of the personal income tax.

One issue with the taxation of share sale is valuation of shares when they are sold at a nominal value. When shares are sold at a price higher than the company's net asset value per share, the difference between the intrinsic sale price and the nominal value of the sold shares is taxable. When shares are sold at a price lower than the company's net asset value per share, income received from the difference between the value of respective net assets at a date of contract conclusion and the nominal value of interest/share in the charter capital is taxable.

To view the full article, please click here

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions