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LAW OF THE AZERBAIJAN REPUBLIC

of February 2, 2009 No. 766-IIIG

About application of special economic regime to export oil and gas activities

(as amended on 29-10-2021)

This Law establishes bases of creation and application of special economic regime for export oil and gas activities in the Azerbaijan Republic in connection with the oil and gas transactions performed outside the Azerbaijan Republic including out of the sector of the Caspian Sea (lake) belonging to the Azerbaijan Republic, governs the relations arising in this industry between the state, legal entities and physical persons.

Article 1. Basic concepts

1.0. The basic concepts used for the purpose of this Law express the following values:

1.0.1. oil and gas transactions - transactions on investigation, assessment, development, extraction, production, stabilization, preparation, conversion, awakening, giving under pressure, to accumulating, storage, placement, loading, transportation, purchase and sale of crude oil and natural gas and/or liquidating transactions with respect thereto;

1.0.2. export oil and gas activities - performance of works, rendering services, making of import and export transactions and provision of any related goods, works, services in connection with the oil and gas transactions performed outside the Azerbaijan Republic including out of the sector of the Caspian Sea (lake) belonging to the Azerbaijan Republic and with any activities connected with these transactions;

1.0.3. crude oil - crude mineral oil, condensate, asphalt, ozokerite and all types of the solid or liquid hydrocarbons and bitumen which are in natural form or received from natural gas by extraction regardless of specific weight, including gas-condensate liquids in the conditions of the normal temperature and pressure;

1.0.4. natural gas - all hydrocarbons which in the conditions of the normal temperature and pressure are in gaseous state (phase), including, without being limited to it, gas remaining balance after extraction or separation of liquid hydrocarbons from associated gases and fat gases, and also other substances (including, without being limited to it, carbon dioxide, sulfur and helium) which are extracted together with all gases of not hydrocarbon origin or gaseous hydrocarbons (except for the condensed or extracted liquid hydrocarbons);

1.0.5. the contractor (contractors) - legal entities, including legal entities formed with the assistance of foreign investors created on the basis of the legislation of the Azerbaijan Republic having in the Azerbaijan Republic the appropriate territorial, infrastructure, technical means, labor power, necessary technical, technological, administrative and management skills and experience, financial provisions performing the projects in connection with export oil and gas activities having the direct contract with the foreign customer outside the Azerbaijan Republic;

1.0.6. subcontractor (subcontractors) - legal entities and/or physical persons which provide goods perform works or render services to the contractor under the direct or adjacent agreement in connection with export oil and gas activities;

1.0.7. foreign subcontractor (subcontractors) - the foreign legal entities or foreigners and persons without citizenship who are engaged in business activity being subcontractors;

1.0.8. local subcontractor (subcontractors) - the legal entities who are subcontractors created according to the legislation of the Azerbaijan Republic or engaged in business activity citizens of the Azerbaijan Republic;

1.0.9. the adjacent agreement - the agreement signed between the subcontractor and any person (except for the contractor) providing goods, performing works and rendering services in connection with export oil and gas activities;

1.0.10. person (persons) - any legal entity or the physical person who is engaged in business activity without formation of legal entity;

1.0.11. the certificate - the document issued by relevant organ of the executive authority of the Azerbaijan Republic, certifying distribution of the special economic regime applied by this Law on contractors or subcontractors.

Article 2. Scope of the Law

2.1. This Law is applied to export oil and gas activities of contractors and subcontractors.

2.2. This Law does not extend to the activities performed on the basis of the agreements on joint development and equity distribution of production approved and permitted to Millie's accomplishment by Majlis of the Azerbaijan Republic on deposits of crude oil and natural gas in the territory of the Azerbaijan Republic, including in the sector of the Caspian Sea (lake), agreements on the pipeline belonging to the Azerbaijan Republic and other agreements and laws of this sort. This Law also does not extend to performance of works, rendering services and making of import and export transactions in connection with any oil and gas transaction on the deposits which are in the territory of the Azerbaijan Republic including in the sector of the Caspian Sea (lake) belonging to the Azerbaijan Republic.

Article 3. Tax regime of export oil and gas activities

3.1. Contractors and subcontractors pay taxes in connection with export oil and gas activities according to the procedure and at the rates provided by this Law. The taxes provided by the Tax code of the Azerbaijan Republic and not covered by this Law are applied according to the procedure, provided by the Tax code of the Azerbaijan Republic.

3.2. In case of the first address for receipt of the certificate specified in article 7.1 of this Law, contractors have the right to choose one of the following tax regimes on the income tax of legal entities and cannot change this tax regime during effective period of this Law:

3.2.1. the income tax of legal entities established by the Tax code of the Azerbaijan Republic. If afterwards the rate of the income tax of legal entities established by the Tax code of the Azerbaijan Republic is raised, the rate of the income tax of legal entities operating on date of issue of the certificate specified in article 7.1 of this Law will be applied to contractors;

3.2.2. the income tax of legal entities at the rate of 5 (five) interests from paid to contractors of total amounts. In case of payment of this tax of the obligation on the income tax are considered as completely executed.

Contractors shall estimate the income tax of legal entities specified in this Article from the amounts which arrived or considered arrived into their accounts in connection with representation of goods, performance of works and rendering services and to pay to the government budget to the 20th of the month following every quarter.

3.3. The legal entities who are foreign subcontractors are exempted from payment of the income tax of legal entities provided by the Tax code of the Azerbaijan Republic, and the income tax of legal entities, stipulated in Article is applied to them

3.2.2 this Law. When carrying out payments to the physical persons which are foreign subcontractors, collection of the income tax from physical persons at source of payment is made according to the procedure, established by the Tax code of the Azerbaijan Republic.

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