Crypto Regulations in Azerbaijan
There is currently no specific regulation of virtual or cryptocurrencies in Azerbaijan. While no statutory regime applies to cryptocurrencies, existing regulatory provisions may apply.
The Banking Law provides that monetary transmission (money transfer services or payment instruments) is subject to licensing requirements. [1]. In addition, the Law on Currency Regulation provides that foreign currency exchange activities (i.e., engaging in the business of buying or selling foreign currencies) are subject to licensing requirements.
The Law on Currency Regulation provides a definition for foreign currencies. While it does not appear likely that cryptocurrencies fall within the such definition, those engaging in such activities should consult with legal counsel.[2]
Source: Freeman Law
Virtual currencies are not legal tender in Azerbaijan. The 1995 Azerbaijan Constitution provides that the Azerbaijani manat is the official currency of Azerbaijan. The Constitution vests exclusive authority with the Central Bank of Azerbaijan to mint legal tender. Moreover, the Civil Code requires that contractual obligations be denominated in Azerbaijani manatees.
Source: Freeman Law
Under the Law on Currency Regulation, residents may carry out currency operations related to the movement of capital (such as, for instance, the purchase of securities expressed in foreign currency), subject to the Currency Regulations specified by the Central Bank. These rules apply to both residents (generally, legal entities registered in Azerbaijan and Azerbaijani citizens) and non-residents (generally, legal entities registered outside Azerbaijan and their branches and representative offices in Azerbaijan), and they set out an exhaustive list of grounds for remittances in foreign currency, as well as related documentary requirements. Because, under rules adopted by the Central Banks, every credit or debit card issued by a local bank is tied to a bank account, the provisions of the Currency Regulations would also apply to outbound foreign currency transfers by residents and non-residents using credit and debit cards. Although the Currency Regulations expressly permit residents and non-residents to remit funds for the purposes of investing in securities (including those denominated in foreign currency they may hinder the ability of Azerbaijani residents to invest in virtual currency because no express permission exists in relation to remittances for the purposes of investing in virtual currency.
Source: The Law Reviews
Despite the growing demand for cryptocurrencies in 2017, Azerbaijan does not have laws to regulate cryptocurrency activity. In other words, Bitcoin and altcoins are in the grey area. At the same time, the authorities of Azerbaijan are taking steps to solve issues connected with the legal status of the field.
Source: Bitcoinist
Digital financial assets are defined in the Draft Law as property in electronic form, created using cryptographic means, including cryptocurrencies and tokens. The ownership of this property is evidenced by digital entries (records) in the register of digital transactions. The Draft Law further clarifies that digital financial assets are not a legal means of payment in the territory of the Russian Federation,21 which makes this approach to the regulation of virtual currencies rather compelling for Azerbaijan, given the similar restriction in the 1995 Constitution of the Republic of Azerbaijan. The Draft Law expressly recognizes the right of holders of digital financial assets to trade their digital financial assets for other digital financial assets, for fiat currency (Russian roubles or foreign currency), or for other property, through the intermediation of the operators of digital financial assets exchanges.22 Finally, the Draft Law, once adopted, will expressly legalize mining activities as entrepreneurial activities aimed at creating cryptocurrency, validation activities for the purposes of receiving compensation in the form of a cryptocurrency, or both.
Source: Dentons
Revenues from crypto transactions are subject to taxation in Azerbaijan, said Nidjat Imanov, deputy director of the Department of Tax Policy and Strategic Studies at the Ministry of Taxes. Imanov clarified his department’s position during the Financial and Investment Forum held in the capital Baku this Saturday, the Trend news agency reported.
“Incomes from operations with cryptocurrencies will be taxed. Formally, this means – corporate profit tax for legal entities and personal income tax for individuals,” the Tax Ministry’s representative stated. “If someone bought cryptocurrency and then sold it at a higher price, that amount must be reported as income and subjected to taxation,” Imanov explained.
The profits of all resident enterprises in Azerbaijan are taxed under the country’s tax code. Currently, the corporate profit tax rate stands at 20 percent. The personal income tax is progressive and money earned by residents both at home and abroad is taxed by the government. Incomes of less than 2,500 AZN a month (~$1,500) are taxed at 14 percent, and a 25 percent tax is imposed on the amount exceeding that limit.
Source: News Bitcoin
Operators of digital financial assets exchanges are defined under the Draft Law as legal entities established in Russian law that carry out transactions for the exchange of one type of digital financial asset for another, as well as the exchange of financial assets for fiat currency. The business of operators of digital financial assets exchanges may be carried out by professional participants in the securities markets or legal entities that are organizers of trade.24 Further, under the Draft Law, an electronic wallet – defined as a software and hardware tool that allows the storage of information about digital records and provides access thereto may be opened by the operator of a digital financial assets exchange only after the relevant identification procedures for the wallet owner have been duly completed in accordance with the applicable Russian anti-money laundering legislation.25 Again, this approach to the regulation of virtual currency would fit rather neatly into the existing Azerbaijani legal framework. This is because there are similarly regulated entities in Azerbaijan operating under the Securities Market Law26 (such as for instance, investment companies), the concept of electronic money wallets have already been introduced in relatively recent amendments to the Electronic Trading Law, 27 and, finally, relevant identification procedures are already in place under the Law on the Prevention of the Legalization of Criminally Obtained Funds or Other Property and the Financing of Terrorism.
Source: Dentons
In January 2018, it was reported that a working group had been established in Azerbaijan to develop a draft law on the regulation of trade in virtual currencies. However, it seems that no progress has been made to date. In all likelihood, and on the basis of various public statements by local officials, Azerbaijani regulators are likely to continue to monitor the virtual currency space and assess regulatory measures adopted by other countries before any specific regulations are adopted.
The experiences of countries that share a common legal heritage with Azerbaijan, such as other (larger) countries in the Commonwealth of Independent States, are closely monitored. It is possible that Azerbaijan will follow the lead of Russia and adopt legislation similar to the Russian Federal Law on Digital Financial Assets and Cryptocurrency. This Law is expected to, among other things:
- regulate relations arising out of the creation, issuance, storage, and circulation of digital financial assets, digital tokens, and the specific activities of the operators of information systems (within which digital financial assets are issued) and those of the operators of digital financial asset exchanges, as well as circulation of the cryptocurrency in Russia; and
- provide detailed definitions of cryptocurrency and certain other cryptocurrency-related terms, including for digital financial assets, digital tokens, and distributed ledgers, and classify them.
The absence of specific regulations on virtual currencies and their underlying technology in Azerbaijan may contribute to uncertainty and potentially stifle innovation in their implementation. For this reason, and in the interest of encouraging innovation in this sphere, the adoption of a separate law would be a welcome legislative development.
Source: The Law Reviews
Notable Hacks / Frauds / Scams
When it comes to money laundering and terrorism financing, Azerbaijani law does not seem to make any material distinction between transactions carried out using a fiat currency or a virtual currency (although the latter is not specifically mentioned). For instance, any transactions involving funds received from or transferred to anonymous accounts located outside Azerbaijan or transactions where the parties cannot be accurately identified, or in cases where the submission of identification information about a customer or beneficiary is denied, as well as where identification information about a customer or beneficiary is discovered to be false, are required to be reported to the Financial Monitoring Service.
The current anti-money laundering regime in Azerbaijan covers, among other regulated entities, monitoring subjects, the definition of which includes financial institutions, institutions engaged in money transmission services, investment companies, investment funds, and investment fund managers. It is these monitoring subjects that have the obligation to report the foregoing transactions.
Source: The Law Reviews
In cooperation with the Financial Monitoring Service of Azerbaijan (FMS), the Council of Europe organized a two-day training course for 42 representatives of banks and investment companies, and FMS staff members, to introduce them to key concepts on virtual assets and virtual asset service providers, draw their attention to associated money laundering and terrorism financing threats and demonstrate ways to improve cyber security and mitigate such risks.
The training offered a combination of national and international interventions, presenting technical specifics of digital and virtual assets, basics of blockchain technologies, cryptocurrencies, wallets, and tokens, as well as focusing on the international standards of the Financial Action Task Force (FATF) in relation to virtual assets and their implementation mechanisms for reporting entities, including red flag indicators related to virtual assets and virtual asset service providers. The training sessions allowed me to reiterate the importance of a robust compliance program, aiming to determine virtual asset risk exposures and take necessary regulatory enforcement actions.
Source: COE
The Central Bank of Azerbaijan has undertaken various digital money-focused initiatives, including the launch of a regulatory sandbox for fintech companies (a sandbox was also mentioned by Prieto in Colombia), while the Central Asian country has also implemented a blockchain-based digital identity solution.
The government is expected to confirm a new law on digital payments by the end of this year while the central bank itself is running an initiative, alongside Mastercard, called ‘Cashless Azerbaijan’.
“Without a proper regulatory framework, you can’t establish the sustainable development of digital payment services,” said Osmanov, who was positive about digital payments’ potential to help financial inclusion.
Source: Global Government Fintech
