Any physical or legal person must analyse the Cryptocurrency laws of the Republic of Azerbaijan before starting a cryptocurrency activity (block chain technology, bitcoin mining, etc.). With respect to the regulation of cryptocurrency in Azerbaijan or cryptocurrency laws of Azerbaijan (hereinafter "Azerbaijan Cryptocurrency Regulations" or "Cryptocurrency laws of Azerbaijan"), at the outset, it must be noted any national or foreign person can involve in cryptocurrency activity, namely bitcoin mining in Azerbaijan. This, however, does not amount to implying that crypto money is a legal tender in Azerbaijan.
Regarding specific issues related to the Cryptocurrency laws of the Republic of Azerbaijan, it must be noted that it is a novel and unregulated matter. Block chain technology and cryptocurrency concepts are modern in legal field and in this regard, there is no direct regulatory act (law, decree of the Cabinet of Ministers, orders or regulations) in this field. However, the concept of cryptocurrency is not completely unknown to the legislation of the Republic of Azerbaijan. Thus, the legislation refers to this concept in an only one piece of legislation and determines a specific related matter, which is specified as “Regulations on margin trading”, approved by the Central Bank of the Republic of Azerbaijan. Article 7.2 of this regulation and reads: “the maximum amount of the credit provided by the investment company to its customers (except for institutional and professional investors) under the contract for difference (CFD) is determined as follows: … 7.2.4. 2:1 on CFDs whose underlying asset is cryptocurrency (digital currency).”
The said Regulation defines CFD as follows: a contract providing for payment of the difference between opening and closing prices of the position on buy/sell of the underlying asset to the contracting party.
Accordingly, Azerbaijan cryptocurrency laws define cryptocurrency as a digital currency, without empowering it as a means of legal tender.
Given the above, the cryptocurrency activity (bitcoin mining) in Azerbaijan is in line with “the Law on E-commerce” and “the Law on Currency Regulation”, “the Law on the Securities Market”, “Civil Code” (chapter 54). However, these laws regulate e-commerce in the Republic of Azerbaijan and the currency regulation in the Republic of Azerbaijan, investment securities in the Republic of Azerbaijan, respectively. According to Article 11.2 of the Constitution of the Republic of Azerbaijan, the internal waters of the Republic of Azerbaijan, the section of the Caspian Sea (lake) belonging to the Republic of Azerbaijan, the airspace over the Republic of Azerbaijan are an integral part of the territory of the Republic of Azerbaijan. Thus, the Internet space is not part of the Republic of Azerbaijan and the current issue is not regulated by these laws. With respect to the legitimacy of the given activity, it must be noted that, according to the following provisions of the Constitution of the Republic of Azerbaijan, the cryptocurrency activity in the field of bitcoin/bitcoin mining is unregulated and not against any laws, e.g. Article 59. Right to free entrepreneurship, “everyone may, using freely his/her possibilities, abilities and property, engage individually or together with others in entrepreneurial activity or other kinds of economic activity not prohibited by the law”, e.g. Article 71.9. Inadmissibility of fulfillment of duties contradicting the law, “everyone can take actions that are not prohibited by law, and no one can be forced to do actions that are not provided by law.”
Regarding the legitimacy of the activity, it should be noted that sports and betting games that take place over the Internet have been included in the Criminal and Administrative Offenses Codes and the relevant sanctions have been established. For comparison, the said Codes do not define any sanctions or bans for cryptocurrency exchange transactions over the Internet.
Regarding the legitimacy of payments to be made from clients' bank accounts in Azerbaijan to abroad, based on the Cryptocurrency regulations in Azerbaijan, such operations is regulated and allowed under Article 4.3 of “Rules for conducting operations by residents of the Republic of Azerbaijan in foreign currency, as well as by non-residents in national and foreign currencies”, approved by the Central Bank of the Republic of Azerbaijan. Lastly, no adverse case law exists in this regard.
An additional argument regarding the legitimacy of the given activity is that, according to clarification of tax authority, such activity will be subject to taxation as an e-commerce transaction. If the activity was illegal under the Azerbaijan cryptocurrency regulations, the relevant taxation would be applied under the illegal income (Article 66 of the Tax Code), not as an activity classified as e-commerce. Lastly, no relevant case law exists in this regard.
To conclude, although bitcoin mining or any other cryptocurrency activity is not regulated by Cryptocurrency laws in Azerbaijan, such activity is not prohibited by any law of the Republic of Azerbaijan and is not accepted as a means of legal tender. Moreover, no prohibition exists regarding the trade in cryptocurrencies via the internet.
Azerbaijan Cryptocurrency Regulation in the tax field is as follows:
In conclusion, 18% VAT and 10% WHT are deducted from the bank directly while the bank proceeds the operations, and Profit tax is arising while a person sells his/her cryptocurrencies under the applicable Cryptocurrency laws of Azerbaijan.
Special Note: This article may not be referred as legal advice or opinion and Caspian Legal Center carries no liability for any damage resulting from the actions taken by relying on the information specified herein. For legal opinion, advice and recommendations, please contact us via: [email protected] or call 00994 50 289 89 73