The Azerbaijani legislation does not regulate the virtual currency (also referred to as the so-called “crypto currency”) or any transactions involving such currencies. Thus, there is no legal definition of crypto currency in the Azerbaijani legislation and there are also no laws, public policy, court practice on crypto currencies and they are not regulated by any state, quasi-state or any private institution.
Further, there are no provisions in the legislation of Azerbaijan expressly prohibiting the Azerbaijani residents to acquire and/or trade in crypto currencies outside the borders of the Republic of Azerbaijan.
If a foreign company uses foreign digital wallet (i.e. an account into which users deposit funds for purchasing crypto currency) for conducting its crypto currency activities, then users must comply with local currency control regulatory requirements in order to transfer funds to the digital wallet outside of Azerbaijan. The requirements may include, in particular, compliance with the “Rules on conducting foreign currency operations by residents, as well as national and foreign currency operations by non-residents of the Republic of Azerbaijan”, as approved by the Central Bank on 28 November 2016 (the “Currency Regulations”). Under the Currency Regulations, transfer of funds for such personal purposes is limited up to USD 1,000 (or equivalent amount of other currency) per day and USD 10,000 (or equivalent amount of other currency) per month. Transfer of funds to foreign digital wallet is also subject to 10% withholding tax under the Tax Code of the Republic of Azerbaijan which shall be automatically withheld by the local banks of the users.
However, if the users can directly purchase crypto currencies without firstly depositing their fund into any account (i.e. digital wallet), then the Currency Regulations require that a document confirming the provision of services (import customs declaration of the purchased goods) must be submitted to the local bank within 2 years after making advance payment in foreign currency by residents and non-residents (i.e. users) in respect of payment for imported services (goods) to Azerbaijan, provided that such purchase is not for personal purposes and does not exceed the limits envisaged for personal purposes by the Currency Regulations specified in the previous paragraph above. If the relevant services (goods) are not rendered (imported) within 2 years, then the relevant amount of advance payment must be returned to Azerbaijan. An administrative sanction can be imposed to payers (i.e. users) for the violation of this rule, if the amount of outstanding amount which has not been returned to Azerbaijan is more than USD 10,000.
It should also be noted that those requirements under the Currency Regulations shall not apply to the crypto currency activities of foreign companies. Instead, they shall apply to Azerbaijani users’ foreign currency transfers outside of Azerbaijan.
This article was prepared as general information by the attorneys of Baku Attorneys & Consultants (BAC), Azerbaijani law firm. BAC is a full service law firm based in Baku and it has a strong team of highly experienced attorneys and consultants, specialized in rendering various expert services to foreign and local clients in Azerbaijan. Please, feel free to reach us via www.batco.az.