Deputy minister: Azerbaijan aims to attract tech firms, investors

One of the main goals at the center of the Action Plan for Accelerating Digital Development for 2026-2028 is to turn Azerbaijan into one of the region's most attractive countries for establishing, financing and developing technology companies.

Report informs that Deputy Minister of Digital Development and Transport Rashad Hasanov said this at today's meeting of the Milli Majlis Committee on Economic Policy, Industry and Entrepreneurship during discussions on the draft law "On Crowdfunding" and amendments to a number of laws.

"To achieve this goal, we must first eliminate existing problems. Many financing instruments used today by young innovative companies either do not exist in Azerbaijani legislation or have an unclear legal status. A full legal framework has not been formed for the activities of venture capital funds. There is no crowdfunding mechanism. The granting of company shares to employees, which startups use to retain talented staff, is not legally regulated. Instruments widely used in the financing of innovative companies, such as SAFE - Simple Agreement for Future Equity - and convertible debt, are not recognized in legislation," he said.

Hasanov noted that, as a result, entrepreneurs and investors are often forced to turn to foreign jurisdictions.

"We want Azerbaijani entrepreneurs to establish their companies in Azerbaijan, not abroad. We want investors to sign agreements based on trust in Azerbaijani law, not foreign law," he said.

The deputy minister said 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 faced by innovative companies today is access to finance. An Azerbaijani startup may have a bright idea, a working product and even registered intellectual property. However, if the funding needed for development is not found, all this potential may remain unrealized," he said.

According to Hasanov, bank loans are not always a suitable mechanism for financing innovation and technology projects, as most new technology companies do not have assets to pledge, a long-term financial track record or stable revenues.

"Grants can be useful at a certain stage, but they cannot finance a company's sustainable growth. The missing element here is a financial mechanism that invests in a company's development by believing in its growth potential," he said.

He noted that in leading innovation hubs around the world, this role is played by venture capital funds and crowdfunding platforms.

"In Azerbaijan, however, a complete and modern legal framework for the development of this area has not yet been formed. The purpose of the proposed amendments is precisely to eliminate this gap. This package creates a clear legal framework for the operation of venture capital funds. At the same time, it ensures the regulation of crowdfunding activities at the legislative level," Hasanov said.

He added that strict security mechanisms would also be introduced to protect investors" rights.

"The Central Bank of Azerbaijan will exercise supervision, form the necessary rules for the reliable development of the market and ensure investor protection," he said.

According to the deputy minister, the second area is the creation of the legal foundations for innovation financing.

"Today, Azerbaijan does not have clear and flexible legal mechanisms used in international practice for an innovative company to attract initial investment. Existing corporate and financial relations were formed more for traditional business models. Startups, however, operate on different principles. When a company is still at an early stage of development, it is difficult to determine its precise market value. For this reason, both investors and founders need more flexible tools that take into account future development opportunities," he said.

Hasanov noted that this problem was solved many years ago in the world's leading innovation hubs and standard instruments of innovation financing have been formed.

"In Azerbaijan, some of these tools are used in practice, but their legal status has not been clearly defined. This creates additional legal uncertainty for both entrepreneurs and investors. The proposed legislative package eliminates this gap," he said.

He said the package would, for the first time, enshrine SAFE agreements, convertible debt mechanisms, employee share participation programs - the ESOP system - and corporate agreements in Azerbaijani legislation.

"These tools will allow entrepreneurs to attract financing more quickly and flexibly. Investors' rights will be protected more reliably. Companies will be able to retain talented employees in their teams for longer by making them partners in their development," Hasanov said.

"The third area is the promotion of innovation activity. The important difference between the technology sector and other sectors is that both capital and human resources are extremely mobile here. An investor can redirect capital to another country within a few days. A highly qualified programmer, engineer or researcher can work from anywhere in the world. In such conditions, countries are now competing not only to protect their own resources, but also for global capital and talent," he said.

The deputy minister said Azerbaijan's goal is not only to avoid losing its talent and investments.

"Our goal is to turn Azerbaijan into an attractive place for both local and foreign technology companies, investors and highly qualified specialists. However, today's tax, migration and public procurement rules do not create sufficient incentives for a technology company to establish operations, invest or hire specialists in Azerbaijan," Hasanov said.

As a result, he said, Azerbaijan has to compete not only with regional centers, but also globally for talent and capital.

"The legislative package we are presenting serves precisely to strengthen Azerbaijan's position in this competition. More specifically, long-term tax and customs incentives will be applied for persons operating in the fields of digital technologies, artificial intelligence, the development of innovative products and cybersecurity. New opportunities will be created for highly qualified specialists, researchers, professionals returning to the country and digital nomads," he said.

Hasanov added that investments in research and development would receive additional incentives, while mechanisms would be introduced to encourage the use of cloud services and other digital technologies.

"New tools will be created to increase the participation of innovative products in public procurement. The purpose of all this is to make it more profitable and more attractive for technology companies to operate in Azerbaijan," he said.

According to him, the beneficiaries of this package will not be limited to startups.

"This includes innovative entrepreneurs, investors, venture funds, crowdfunding platforms, highly qualified specialists, digital nomads, universities, research institutes, state bodies and, ultimately, all our citizens who use innovative services," Hasanov said.

He noted that the authorities expect the changes to encourage local and foreign investors to allocate more funds to Azerbaijan's innovation market.

"We expect international technology companies to view Azerbaijan not only as a market, but also as a regional operations and innovation hub. These changes will make it possible to regulate activities currently carried out abroad or informally within the framework of Azerbaijani legislation. I believe that, with the support of the Milli Majlis, these reforms will make an important contribution to turning Azerbaijan into one of the region's leading technology and innovation centers," he said.