Full exemptions from corporate tax, purchase tax, real estate taxes and dividends for ten years are among the incentives on offer to Israeli startups that choose to relocate to Azerbaijan, "Globes" can exclusively reveal.
The decision by a country with a Shiite Muslim majority to make such a move during the current war, despite the wave of anti-Israel sentiment, is exceptional and surprising. The move follows the launching of a tech park currently under construction in Baku although the incentives being offered by the Azari government are available for Israeli tech companies that set up anywhere in the country. Sources have told "Globes" that several Israeli tech companies are already in talks over relocation to Azerbaijan.
Above and beyond the incentives listed above, company employees will pay 0% personal income tax on monthly salaries up to $4,700. In order to qualify for these incentives, companies must have been operating for at least one year or have ten or more full time employees, or annual revenue of at least 200,000 manat (NIS 430,000).
As part of the program, support is provided for immigration to the country, which includes exemptions from work permits, assistance in issuing residence permits and arranging logistical issues such as finding offices and accommodation.
Azerbaijan is striving to become the technology hub of the Euro-Asian region, and a gateway to the Turkic countries. Baku's relationship with Ankara is based on the idea of "one nation, two countries." Therefore, companies that seek broad operations in Turkey, when relations between Israel and Turkey are at an unprecedented low, will be able to benefit from the depth of the relations between Turkey and Azerbaijan.
Time to be weaned from oil
The program is led by the Innovation and Digital Development Agency of Azerbaijan (IDDA), with the main aim of diversifying the economy. The oil and gas sector accounted for 47.8% of Azerbaijan's GDP, 52.7% of budgetary sources and 92.5% of exports in 2022. Baku, they is aware that the world is weaning itself from oil, and preparations are required to reduce dependence on the black gold.
Azerbaijan draws inspiration from the Gulf countries, which have been working harder in recent years to diversify their economies and "wean" off fossil fuels. The UAE, for example, launched a program last year in which private companies were required to employ 6% local workers in 2024 and 10% by 2026. Azerbaijan, on the other hand, does not oblige the companies that relocate to employ a certain percentage of local workers.
However, IDDA is already working to train relevant personnel, and funds scholarships for more than 3,000 students for IT courses. The aim is to train as many juniors as possible, so that they will join the foreign companies. Next year, the number of scholarships for locals is expected to grow to 5,000.
IDDA regional VP soft landing Pasha Aliyev, who is in charge of relocating startups 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. He says, "Our young and multilingual population, combined with a variety of different cultures, creates a dynamic and innovative workforce. In addition, our advanced infrastructure allows companies relocating to the country to settle and integrate quickly in their new home. This combination makes Azerbaijan an ideal location for tech companies looking for growth and innovation in the Asian market."
Flourishing relations with Israel
Israel-Azerbaijan relations has flourished since 1992 based on the sale of Azerbaijani oil to Israel and advanced technology Israeli weapons systems to Azerbaijan. In the first half of 2024, according to the Baku Customs Bureau, there was a 55% jump in the import of oil to Israel from Azerbaijan, amounting to $989 million. As revealed in Globes, despite the trade embargo imposed by Turkish President Recep Tayyip Erdogan on Israel, 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 bound for Haifa. The main reason for the lack of damage to the oil supply is the close relationship of Azerbaijan President Ilham Aliyev and Erdogan.
In the other direction, Azerbaijan is a major customer of Israel's defense industries. It has procured, among other things, Spike anti-tank missiles from Rafael, Hermes UAVs from Elbit, and Israel Aerospace Industries (IAI) Harop loitering munitions. Last October with the Azarcosmos agency signed a deal with IAI for two OptSat500 satellites, which will replace the Azarsky satellite manufactured by Airbus, with which communication was lost in April 2023.
Thus the development of the tech sector in Azerbaijan will diversify both its economy and its trade relations with Israel. "We are focused on scale-up companies that will come to Azerbaijan, recruit local people - and create a critical mass," Aliyev explains. "We are in regular contact with bodies in Israel, such as the Export Institute, and manage regular communications with similar bodies in other countries too."
Published by Globes, Israel business news - en.globes.co.il - on September 5, 2024.
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