One of the main goals at the heart of the Action Plan for Accelerating Digital Development for 2026–2028 is to make Azerbaijan one of the most attractive countries in the region for the establishment, financing and development of technology companies.
This was stated by Deputy Minister of Digital Development and Transport Rashad Hasanov at today's meeting of the Committee on Economic Policy, Industry and Entrepreneurship of the Milli Majlis - during the discussion of the draft law "On Crowdfunding", as well as on amendments to a number of laws.
"To achieve this goal, we must first eliminate existing problems. Many financing instruments used by young innovative companies today either do not exist in Azerbaijani legislation or their legal status is unclear. A complete legal framework for the activities of venture capital funds has not been formed. There is no crowdfunding mechanism. The provision of company shares to employees, which startups use to connect talented employees to the company, is not regulated from a legal perspective. Instruments such as SAFE (Simple Agreement For Future Equity) and convertible debt, which are widely used in financing innovative companies, are not recognized in the legislation. As a result, entrepreneurs and investors are often forced to turn to foreign jurisdictions. We want Azerbaijani entrepreneurs to establish their companies not abroad, but in Azerbaijan. To conclude an investor agreement relying on Azerbaijani law, not foreign law," he noted.
The Deputy Minister said that the package of legislative amendments covers three main areas: "The first area is related to the creation of a venture capital and crowdfunding ecosystem. One of the biggest problems facing innovative companies today is access to finance. An Azerbaijani startup may have a brilliant idea, a working product, or even registered intellectual property. However, if the necessary financing for development is not found, all this potential may remain unrealized. Bank loans are not always a suitable mechanism for financing innovation and technology projects. This is because most new technology companies do not have assets to pledge, a long-term financial history, or stable income. Grants, although useful at a certain stage, cannot finance the company's sustainable growth. The missing element here is a financial mechanism that believes in the company's growth potential and invests in its development.
In the world's leading innovation centers, this role is performed by venture capital funds and crowdfunding platforms. However, in Azerbaijan, a complete and modern legal framework for the development of this area has not yet been formed. The purpose of the changes we propose is to eliminate this gap. This package creates a clear legal framework for the activities of venture capital funds. At the same time, crowdfunding activities are regulated at the legislative level. At the same time, serious security mechanisms are applied to protect the rights of investors. The Central Bank of Azerbaijan will exercise control, formulate the necessary rules for the reliable development of the market and ensure investor protection.
According to him, the second direction is the creation of legal foundations for innovation financing: "Today, Azerbaijan does not have clear and flexible legal mechanisms used in international practice for attracting initial investment by an innovative company. Existing corporate and financial relations are formed more for traditional business models. However, startups operate on different principles. When a company is still at the initial stage of development, it is difficult to determine its exact market value. Therefore, both the investor and the founder need more flexible tools that take into account future development opportunities.
This problem was solved many years ago in the world's leading innovation centers and standard instruments of innovation financing have been formed. Although some of these instruments are used in practice in Azerbaijan, their legal status is not clearly defined. This creates additional legal uncertainty for both entrepreneurs and investors. The legislative package we propose eliminates this gap. With this package, for the first time, SAFE agreements, convertible debt mechanisms, employee share participation programs - the ESOP system and corporate agreements are established in Azerbaijani legislation. These tools allow entrepreneurs to attract finance faster and more flexibly will provide. Investors' rights will be more reliably protected. Companies will be able to keep talented employees on their teams for a longer period by making them partners in their development".
"The third direction is the promotion of innovation activity. An important difference of the technology sector from other areas is that both capital and human resources are extremely mobile here. Investor
can direct their investment to another country in a few days. A highly qualified programmer, engineer or researcher can operate anywhere in the world. In such a situation, countries are no longer competing not only to protect their resources, but also for global capital and talent. Our goal is not only not to lose our talents and investments. Our goal is to make Azerbaijan an attractive place for both local and foreign technology companies, investors and highly qualified specialists. However, today's existing tax, migration and public procurement rules do not create sufficient incentives for technology companies to establish operations in Azerbaijan, invest or hire specialists.
As a result, we have to compete for talent and capital not only with regional centers, but also on a global scale. The legislative package we have introduced serves to strengthen Azerbaijan's position in this competition. More specifically, in this direction, long-term tax and customs incentives are applied for individuals operating in the fields of digital technologies, artificial intelligence, development of innovative products and cybersecurity. New opportunities are being created for highly qualified specialists, researchers, returning professionals and digital travelers. Investments in scientific research are being further stimulated. Mechanisms are being introduced to encourage the use of cloud services and other digital technologies. New tools are being created to increase the participation of innovative products in public procurement. The goal of all this is to make it more profitable and attractive for a technology company to operate in Azerbaijan," R. Hasanov added.
According to him, the beneficiaries of this package are not only startups: "This includes innovative entrepreneurs, investors, venture funds, crowdfunding platforms, highly qualified specialists, digital travelers, universities, scientific research institutes, government agencies and, ultimately, all our citizens who use innovative services. As I mentioned, as a result of these changes, we expect that local and foreign investors will direct more funds to the Azerbaijani innovation market. We expect that international technology companies will evaluate Azerbaijan not only as a market, but also as a regional center of activity and innovation. "These changes will allow activities currently carried out abroad or informally to be regulated within the framework of Azerbaijani legislation. I believe that, with the support of the Milli Majlis, these reforms will make a significant contribution to Azerbaijan becoming one of the leading technology and innovation centers in the region."
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