Europe: Issues in Charity Regulation

Charity in Azerbaijan: Prospects for Developing Legislation and Practice

The International Journal
of Not-for-Profit Law

Volume 11, Issue 3, May 2009

Mahammad Guluzade and Natalia Bourjaily1

People of all walks of life are engaged in charity in Azerbaijan, businessmen and regular people alike. In spite of the existing traditions and the presence of political will to promote the development of philanthropy, however, there exist a number of serious legislative obstacles hindering charitable activities. Speaking of the issues related to charity in March 2008, Mrs. Mehriban Aliyeva, the First Lady of Azerbaijan, specifically emphasized “the lack of comprehensive legal and regulatory base governing charitable activities and the absence of an adequate mechanism providing for a partnership cooperation in the field of philanthropy between public agencies functioning on various levels of government, the private sector and civil society institutions.”2

In this article we attempted to provide an overview of the currently effective legislation and underscore certain pivotal issues which should be resolved. Although the Azerbaijani legislation declares support for philanthropy, it contains very limited incentives for charitable activities. A number of non-government organizations,3 including charitable ones, are funded by foreign grants, with a limited support provided by the local business community. The lack of interest in charity on the part of local businesses can be explained by a complete absence of tax benefits that would encourage such activities.

We hope that this article and the analysis carried out by the International Center for Not-for-Profit Law will help to improve the legislation regarding philanthropy and will assist in creating a national concept of developing charity in Azerbaijan.

History of formation of the charity-related legislation in Azerbaijan

In the very first years after the collapse of the Soviet Union, when Azerbaijan attained its independence, the state started paying attention to issues related to charity. The Decree by the President of the Republic of Azerbaijan “On the establishment of the President’s Fund” (1992) also set up a special award of the President’s Fund to bestowed “for charitable activities and philanthropy.”4 The Law “On political parties” (1992) tried to separate charity from politics by imposing a ban on charitable organizations’ donations to political parties.5 The Law on entrepreneurial activities (1992) established the right of business entities to “make gratuitous contributions to public foundations, healthcare, charities, educational, research and civic purposes….”6 while the Decree of the Cabinet of Ministers of the Republic of Azerbaijan “On international humanitarian organizations and their affiliates in Azerbaijan” (1994) established regulatory provisions for the status of international humanitarian organizations engaged in charitable activities in Azerbaijan. The Resolution “On the social and economic situation in the Republic” passed by the Milli Majlis in 1994 even stipulated the development by the government of the draft law “On charity and sponsorship,”7 which, regrettably, has not materialized.

Article 38 of the Constitution of Azerbaijan (1995) establishes that the State shall provide for “the development of charity work, voluntary social insurance, and other forms of social security.”8 In part, the State has fulfilled this obligation by having included certain provisions regarding charitable activities into the Tax Code of Azerbaijan (2000).

While paying due respect to the existing legislative base pertaining to charity, we have to emphasize that many unresolved issues preclude the development of charitable activities. Below we shall address the ones that we deem most essential.

The currently effective legislation of Azerbaijan regarding charity

The main standards regulating charity are prescribed by the TC. The TC defines charitable activity as “activity performed by a natural person and/or charity organization, which consists of rendering direct assistance, to include the transfer of monies, without compensation, to physical persons in need of material or other assistance (aid), or to organizations and charitable organizations that directly provide such assistance (aid), including charity organizations, or scientific, educational or other activities performed in the public interest except where otherwise stipulated in this Code.”9

It is worth noting that rendering “direct assistance without compensation” to individuals in need or to charitable organizations by legal entities other than NGOs is not perceived as charity in accordance with the definition above. Nevertheless, such exclusion of legal entities does not entail any real legal consequences for said entities, because of the absence of any meaningful tax benefits as a result of charitable activities, or a legislative ban on both natural persons and legal entities engaging in charitable activities.

The legislation applies the notion of “sponsorship” to “other” legal entities, which de facto are engaged in philanthropy. Thus, for instance, “provision of non-commercial (charitable) assistance to the development of sports” is defined as a type of sponsorship.10 The legislation fails to establish any real incentives for either sponsorship or charitable activities except for a few benefits for NGOs, which we shall address below.

Natural persons may be engaged in charitable activities and support individuals in need and philanthropic organizations but, just like legal entities, they are not eligible for any tax benefits which would provide incentives for their charity work.

The TC defines a charity organization as “non-commercial organization which conducts charitable activities.”11 The legal framework in Azerbaijan does not provide for any separate legal regime and procedures/criteria that would single out a charitable organization from other NGOs.

There is a special procedure for registration of “international humanitarian organizations and other branches of foreign entities engaged in charitable activities.” In order for such an organization to commence its activities in Azerbaijan, it must obtain consent of the Cabinet of Ministers, which would provide grounds for the registration with the Ministry of Justice. Regular NGOs do not need such approval in order to register with the Ministry of Justice.

Tax benefits are believed to be the most ubiquitous and effective means of the government support of philanthropy. Regrettably, there are virtually no tax benefits that can be utilized in Azerbaijan at the moment. Taking into account the importance of tax preferences, we shall review the legislation of Azerbaijan governing the tax regime for a party implementing charitable activities in some detail. We shall focus on the situation of NGOs, including charitable organizations, and other legal entities and natural persons providing support to NGOs and individuals in need.

A number of NGOs, including charitable organizations, exist at the expense of foreign grants; consequently, they are exempt from several taxes, including taxation of their revenues acquired as part of a foreign grant, VAT, and social tax. Additionally, all NGOs are free from income tax on the revenues obtained from sources that are traditional for NGOs, such as gratuitous transfer of property, membership fees, and donations and grants from local sources. Revenues obtained from fundraising events, such as charitable balls or auctions, are treated as contributions and are free from income tax.

The Tax Code establishes that a charitable organization shall be free from taxation on all income12 except for income acquired as a result of entrepreneurial activities. Nevertheless, as mentioned above, there does not exist a procedure or criteria that would differentiate a charitable organization from other NGOs. Proceeding from this, in practical terms, an exemption from income tax may only be utilized to the extent it is applicable to all NGOs.

Revenues from entrepreneurial activities of NGOs including those of charitable organizations are subject to income tax. As the Tax Code tends to define entrepreneurial activities in very broad terms,13 even a nominal entrance fee to a museum that is used to maintain the museum is subject to income tax.

Revenues from investments (for instance, gains on bank deposits) acquired by an NGO or other subjects of taxation are taxed at the rate of 10%14 at source, and no preferences are stipulated for NGO in regard of this source of income.

Neither legal entities nor natural persons are eligible for any privileges in regard to donations and grants they extend to charitable organizations or individuals in need.

The Tax Code also establishes a list of goods and services exempt from VAT irrespective of whether they are provided by non-profits or by commercial entities.15 Such goods and services exempt from VAT include procurement of goods, performance of jobs, and provision of services financed by the resources of foreign loans, foreign governments, and organizations pursuant to international agreements Azerbaijan is a party to. Also exempt are editing, publishing, and printing textbooks and literature for children and some other types of activities.16

Tax preferences aside, the legislation of Azerbaijan contains several non-tax incentives designed to encourage charity, including visa support and exempting foreign humanitarian organizations and their employees from the payment of state duties.17 Relevant Ministries and government agencies were mandated to provide assistance to foreign humanitarian organizations without any delays.18 Media outlets are mandated to provide 5% of broadcast time and advertisement space to advertising materials pursuing charitable purposes.19

Major issues regarding the charity-related legislation in Azerbaijan

Resolution of at least three major issues would allow for a considerable improvement of the legal environment and make it more conducive for the development of charity in Azerbaijan:

1. The procedure and criteria for distinguishing charitable organizations from other NGOs

The only difference between charitable organizations and other NGOs, as defined by the Tax Code, lies in the fact that the basis of activities of the former shall pursue public interests. In our experience, we have never encountered an NGO whose charter stipulates carrying out activities against public interests. Taking into account the fact that the legislation does not provide a definition of “public interests,” all NGOs at their own discretion may call themselves charitable ones: a club of beer friends, a paid aerobics club, a museum, or a homeless shelter. Within the framework of the existing legislation, all of them may qualify as charitable organizations. Meanwhile, in terms of public good, there certainly is a difference between a museum and a private membership-based club or an aerobics club where membership fees should actually be construed as payment for services. The State cannot afford to exempt all organizations from taxation. This said, there exists a widespread practice when the state grants wider benefits to certain organizations, usually defined as “public good” or “charitable,” than those enjoyed by other NGOs. A definition of activities implemented for the good of the public is important but not the only prerequisite for a precise and lucid differentiation of charitable organizations from other NGOs. The procedure and the criteria for establishing whether an organization qualifies as charitable are pivotal for enabling the State to consider the issue of granting special privileges to qualifying charitable organizations, avoiding abuse of privileges and decrease in taxes collected for the state.

2. Benefits for natural persons and legal entities making contributions and providing grants to charitable organizations

People tend to do good—for instance, give contributions to the poor—for purposes other than acquiring tax privileges. Although benefits in regard of income tax do not necessarily make people more generous, the findings of international research suggest that privileges do impact the volume of donations, which is especially true in the case of wealthier individuals and larger business entities. There is logic behind the fact that most countries established a benefit for natural persons and legal entities that envisages deduction of the sum of donation from the taxable profit. For instance, in the United States, an individual may deduct the value of his/her donation to a charitable organization in the amount of up to 50% of his/her annual net profit. In the event the sum of donations exceeds 50% of the annual net profit, such individual may get a tax credit for the sum not eligible for deduction this year and deduct it in the future fiscal years. It is not for nothing that philanthropy is widely spread in the US where there are numerous foundations with multimillion assets, which were endowed by rich philanthropists to support universities, schools, museums and theaters.

3. Partial tax exemption of revenues from entrepreneurial activities of charitable organizations allocated to pursuing constituent goals

Exemption of profits from entrepreneurial activities utilized for pursuing constituent goals of a charitable organization would provide for greater sustainability of this charitable organization, decrease its dependency on foreign financing, foster its ties with the population, and allow for a better concentration of efforts on the needs of the poor and a better quality of services provided to the population. In its turn, the acquired revenues would promote attaining the charitable goals of the organization. Fees for participation in a seminar may be allocated to carrying out free-of-charge workshops aimed at retraining the unemployed who do not have resources to pay tuition.


This article did not attempt to provide a detailed analysis of the legislation pertaining to charity in Azerbaijan. The format of this article does not allow for any comprehensive suggestions in regard to the elimination of the existing obstacles and improvement of the charity-related legislation. Unfortunately, there does not exist an unequivocal and simple solution to any of the aforementioned problems. All of these issues are difficult to resolve, and each country approaches them differently. Luckily, international practice has accumulated substantial experience in addressing these issues, and ICNL stands ready to share its expertise with all of the interested parties in Azerbaijan.


1 Mahammad Guluzade is Legal Adviser in Azerbaijan for the International Center for Not-for-Profit Law (ICNL). Natalia Bourjaily is Vice President, Newly Independent States, ICNL. In Azerbaijan, ICNL implements a technical assistance project in partnership with Counterpart International (USA), which is funded by the US Agency for International Development (USAID) and aimed at improving the NGO legislation.

The original article is posted in Russian at

2 See

3 Note that the Law “On non-government organizations (public associations and foundations)” (2000; hereinafter “the Law on NGOs”) and the Tax Code of the Republic of Azerbaijan (2000) (hereinafter “TC”) use different terminology. Consequently, the term “non-government organization” is used in the Law on NGOs while the TC refers to “non-commercial organization.” In actuality, both denote the same type of organizations. For the purposes of this article, we shall use the term “non-government organization” or “NGO.”

4 Decree of the President of the Republic of Azerbaijan “On the establishment of the President’s Fund,” Para 1.2, 1992.

5 The Law on political parties, 1992.

6 Art. 6 of the Law of Azerbaijan «On entrepreneurial activities,» 1992.

7 Resolution of the National Assembly of the Republic of Azerbaijan «On the social and economic situation in the Republic,» № 937, 1994.

8 Constitution of Azerbaijan, Art. 38.

9 Art. 13.2.35 of the Tax Code.

10 «On the fundamentals and rules of sponsorship in the sphere of physical culture and development of sports in Azerbaijan,» 2000.

11 Art. 13.2.36 of the TC.

12 Art. 106.1.1 of the TC.

13 Art. 13.2.37 of the TC.

14 Art. 123 of the TC.

15 Art. 164 of the TC.

16 Id.

17 Decree of the Cabinet of Ministers of Azerbaijan «On international humanitarian organizations and their affiliates in the Republic of Azerbaijan,» №, 1994.

18 Id.

19 Art. 19 of the Law of Azerbaijan «Оn advertisement,» 1997.