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Any individual or legal entity should analyze the Cryptocurrency rules and laws of the Republic of Azerbaijan before starting cryptocurrency activities (blockchain technology, bitcoin mining, etc.). As far as the Azerbaijan Cryptocurrency Regulations are concerned, any local or foreign person can engage in cryptocurrency activities, i.e. bitcoin mining or cryptocurrency acquisition simply because they are not prohibited by law. However, certain legal restrictions will apply to the use of cryptocurrencies in Azerbaijan, as they are not accepted as legal tender in Azerbaijan.
Sometimes we are asked whether citizens of Azerbaijan or foreign citizens in Azerbaijan have the right to buy cryptocurrency online. The type of cryptocurrencies used in these services is obtained according to the mining country. Payments from Azerbaijan will be made through licensed banks in Azerbaijan. Such transactions are not prohibited by law and the account holder is free to use the funds in the bank account as other forms of disposal of property. It should be noted that certain tax implications of buying and selling cryptocurrency online will apply.
Now let's talk a little more about the Cryptocurrency laws of the Republic of Azerbaijan. The concepts of blockchain technology and cryptocurrency are new in the legal field, and in this regard there is no direct regulatory act (law, Cabinet of Ministers decision, order or regulations) regulating this area. However, the concept of cryptocurrency is not completely alien to the legislation of the Republic of Azerbaijan. So, in the legislation, this concept is referred to only in the rules defined as "Rule of Margin Trading" approved by the Central Bank of the Republic of Azerbaijan. Article 7.2 of this Regulation states that the maximum credit limit offered by the investment company to its clients (except for institutional and professional investors) under the contract for difference is determined as follows: ... 7.2.4.
The regulation defines a contract for difference as follows: an agreement that provides for the payment to the contracting party of the difference between the opening and closing prices of the position on the purchase/sale of the underlying asset.
The only reference to Azerbaijan's cryptocurrency regulation under the regulations (albeit implicitly) defines cryptocurrency as a digital currency and thus a type of currency, although not equivalent to official tender or currency in the traditional sense.
Taking into account the above, cryptocurrency activity (bitcoin mining) is in compliance with the "On Electronic Commerce" and "On Currency Regulation", "On the Securities Market", "Civil Code" (Chapter 54). However, these laws regulate e-commerce in the Republic of Azerbaijan and currency regulation in the Republic of Azerbaijan, investment securities in the Republic of Azerbaijan, respectively. According to Clause 2 of Article 11 of the Constitution of the Republic of Azerbaijan, the internal waters of the Republic of Azerbaijan, the part of the Caspian Sea (lake) belonging to the Republic of Azerbaijan, the airspace above the Republic of Azerbaijan are part of the territory of the Republic of Azerbaijan. So,
Regarding the legality of the mentioned activity, it should be noted that according to the following provisions of the Constitution of the Republic of Azerbaijan, cryptocurrency activity in the field of bitcoin/bitcoin mining is legal:
Article 59. The right to free entrepreneurship, everyone can engage in free entrepreneurship activity or other type of economic activity not prohibited by law, using their opportunities, abilities and property, alone or together with others; Article 71.9. Inadmissibility of performance of duties contrary to law, everyone can do actions not prohibited by law and no one can be forced to do actions not provided by law.
As for the legality of the activity, let's note that appropriate sanctions are defined in the Codes of Criminal and Administrative Offenses for sports and betting games conducted over the Internet. In comparison, the aforementioned Codes do not specify any restrictions or prohibitions for cryptocurrency exchange operations over the Internet.
Regarding the legality of payments to be made abroad from the bank accounts of customers in Azerbaijan, according to the cryptocurrency laws of the Republic of Azerbaijan, such transactions are regulated by Article 4.3 of the "Rules for transactions of residents of the Republic of Azerbaijan in foreign currency, as well as non-residents in national and foreign currency" approved by the Central Bank and allowed is given. In conclusion, there is no case law that has established a different rule in this regard.
Finally, note that although bitcoin mining or any other cryptocurrency activity is not regulated by the Cryptocurrency laws of the Republic of Azerbaijan, such activity is not prohibited by any law of the Republic of Azerbaijan.
In the field of tax, the Cryptocurrency Rules of Azerbaijan are as follows:
Value Added Tax (VAT): The purchase of cryptocurrencies from abroad, such as e-commerce, is considered a taxable transaction for VAT purposes under Article 169.3 of the Tax Code of the Republic of Azerbaijan. Article 169.3 also states that when payments are made by persons who are not registered with the tax authorities for providing works and services to a non-resident who is not registered for VAT purposes, VAT must be calculated on the amount to be paid to the non-resident in accordance with this article. and must be paid. VAT must be calculated and deducted from the buyer's account by local banks or branches of foreign banks in the Republic of Azerbaijan that carry out the transaction. Tax at source: When transferring money to an account created in an e-wallet owned by a non-resident by residents of the Republic of Azerbaijan to a local bank or a branch of a foreign bank carrying out operations, the resident must charge 10% of the amount transferred from that resident. Income tax: According to Article 99.3.8 of the Tax Code, any other income (except wages) that shows an increase in the initial value of the taxpayer's assets is considered income from non-entrepreneurial activities. In this case, the person making profit from such transactions should be registered as a taxpayer and pay 14 percent profit tax by March 31 of the following year in accordance with Article 101.2 of the Tax Code.
As a result, let's note that 18% VAT and 10% VAT are charged directly from the bank while conducting banking operations, and Profit tax arises when a person sells his cryptocurrencies in accordance with the current Cryptocurrency laws of the Republic of Azerbaijan.
An additional argument regarding the legality of this activity is that, according to the declaration of the tax authority, such activity will be subject to taxation as an electronic commerce transaction. If the activity was considered illegal according to the Azerbaijan Cryptocurrency Regulations, the corresponding taxation on illegal income (Article 66 of the Tax Code) would be applied. Finally, there is no relevant case law on this.
It should be emphasized that this article does not constitute legal advice or reflect an official legal position regarding the regulation of cryptocurrency in Azerbaijan and therefore cannot be referred to as our legal opinion. Certain exceptions and different interpretations of the law may apply in different cases. For this reason, it is recommended that you contact us for legal opinion requests or clarification of legal questions related to cryptocurrency rules and laws of Azerbaijan.
