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There is no doubt that startup enterprises are substantially increasing as a result of the fundamental impact of technology development. Therefore, the Startup Certificate became an essential aspect for startup entrepreneurs as a demand of the competitive market.

In respect of the Republic of Azerbaijan, entrepreneurs that comply with the respective criteria may obtain a Startup Certificate and its advantage by adhering to a procedure set out in the legislation.

Obtaining the Certificate

As per the Criteria on “Identifying of Startup” confirmed by the Decision of Ministers of Cabinet on 29 January 2021, № 20 (“Decision”), the entrepreneur that meets the following requirements may apply for the obtaining a certificate:

• It must be a micro or small business;
• In the case that it is a founder of a medium or large business, the share of founders in the legal entity should not exceed more than 49 %; and
• It must be a residential taxpayer.

In accordance with the legislation, the criteria for the business subjects are as followed:

Under the Decision, the product (service) submitted by the applicant for a Certificate must meet the criteria as follows:

• It must be produced in order to obtain a profit;
• It must be based on an innovative initiative;
• It must be competitive; and
• It must not be identical to another (different) startup product (service).

In addition, the applicant must predict the increase in demand with respect to the produced product (service) for the short-term (in 3 years) perspective in a justified form.

The applicant may apply with the application along with the documents as follows:

• The presentation that includes a name and detailed content of the project for obtaining the certificate, prepared in the respective software;
• The industrial sample or design of the product;
• Business plan;
• Information about employment resources;
• Information about a grant, investment and loan that were obtained for the startup (if any);
• Patent or an application for the patent on a startup product (if any); and
• Certificate on registration of technological business incubator (if any).

The applicant may apply with the documents to the Small and Medium Business Development Agency of Azerbaijan (SMBDA) (the “Agency”) in written form or via e-mail. There is no fee requirement for obtaining a Certificate under the legislation.

The Agency reviews the application within 30 days after receiving it. In the case that the Agency detects a deficiency in the application, it will inform the applicant within 5 days upon the registration date of an application. The applicant must solve all deficiencies stated by the Agency within 10 days after receiving the information, otherwise, the Agency adopts a decision on keeping the application pending. The solving of the deficiency by the applicant stops the flow of execution time until the deficiency is completely and duly resolved.

If the Agency did not detect any deficiency in the submitted application along with the required additional documents (information), the Agency submits the documents to the Expert Council for consideration. Depending on the justified decision of the Expert Council, the Agency decides whether to issue a Startup Certificate or not.

In the following events, the application for obtaining the Startup Certificate is rejected by the Agency:

• The information given in the application for obtaining a certificate is not proper; and
• The criteria for the applicant and product (service) do not meet the requirements set forth in the Decision.

The applicant may challenge such decision by filing an administrative and (or) judicial complaint.

The Advantage of the “Startup” Certificate

In the case that the Certificate is obtained by the applicant, it will be valid for 3 years. The owners of the “Startup” Certificate are exempt from income tax arising out of the innovation activity for 3 years from the effective date of the Startup Certificate.

Recommendation

In practice, entrepreneurs face some challenges when they apply for obtaining the Certificate.

It should be noted that the applicant should make sure that it and its product (service) meet the criteria set forth in the Decision before applying to the Agency. Then the applicant should adhere to all requirements set out in the Decision. Otherwise, the Agency may refuse to issue the Startup Certificate as previously noted and it requires extra time for re-application. Therefore, it is advisable to consult with experienced professionals in this procedure.

About the author: Imamverdi Novruzlu is a lawyer with over 2 years of experience in the area of law. He graduated from the «Faculty of Law» at the Academy of the State Customs Committee of the Republic of Azerbaijan with a bachelor's degree in 2020.

He specializes in dispute resolution, corporate, contracts, intellectual property and especially customs law. Currently, he is a lawyer at Legalize Law Firm. For more information about the author please see the following link:

https://www.legalize.az/en/team/imamverdi-novruzlu

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