Cryptocurrency Legislation in Azerbaijan Prior to 2024

As we approach 2024, the Republic of Azerbaijan’s stance on cryptocurrency regulation reveals a landscape of cautious but not prohibitive attitudes. The country’s approach to blockchain technology and cryptocurrency is notable for its lack of direct regulatory acts, yet it does not entirely disregard the concept within its legal framework.

Regulatory Overview

Cryptocurrency activities, including bitcoin mining, are permissible in Azerbaijan for both national and foreign entities. However, it’s crucial to note that this does not equate to the recognition of cryptocurrencies as legal tender within the country. The legal framework surrounding cryptocurrencies is relatively novel and largely unregulated. There is no specific law, decree, order, or regulation directly governing this domain. The only reference to cryptocurrency in Azerbaijani legislation is found in the “Regulations on margin trading” approved by the Central Bank of Azerbaijan, which addresses contract for difference (CFD) transactions involving cryptocurrencies as a digital currency​

​Alignment with Existing Laws

Cryptocurrency activities align with several existing Azerbaijani laws, including the Law on E-commerce, the Law on Currency Regulation, the Law on the Securities Market, and the Civil Code (Chapter 54). These laws, however, primarily govern their respective areas, such as e-commerce and investment securities, and do not specifically regulate cryptocurrencies. As per the Azerbaijani Constitution, activities like bitcoin mining are not considered illegal since the internet space is not recognized as part of the Republic of Azerbaijan’s territory. Therefore, the activities in the cryptocurrency field are considered unregulated but not against any laws​

​Taxation and Legitimacy

The legitimacy of cryptocurrency activities in Azerbaijan is further supported by the tax authority’s clarification. These activities are subject to taxation as e-commerce transactions, suggesting their recognition within the legal framework. If such activities were illegal, they would be taxed under the provisions for illegal income rather than e-commerce transactions​

​Tax Implications

Regarding taxation, cryptocurrency transactions are subject to various taxes. Value Added Tax (VAT) is applicable on the purchase of cryptocurrencies from abroad as e-commerce transactions. Additionally, Withholding Tax (WHT) is levied on transfers to non-resident e-purse accounts, and Profit Tax applies to the profits derived from cryptocurrency transactions. These taxes are directly deducted by banks during transaction processing​

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​Conclusion

In summary, as of the period leading up to 2024, Azerbaijan presents a unique scenario where cryptocurrency activities are neither regulated by specific cryptocurrency laws nor prohibited. This allows for the involvement in cryptocurrency activities while adhering to existing legal and taxation frameworks. The country’s approach suggests a cautious but open stance towards emerging digital financial technologies.