The rise of virtual currencies and the underlying blockchain technology in recent years have presented regulators around the world with an interesting challenge: striking a delicate balance between regulating this nascent phenomenon of decentralised currency, while avoiding overzealous regulation so as not to stifle innovation. Azerbaijani regulators are no exception.

Although it has been recognised that the use of virtual currencies and blockchain technology represents an emerging global trend,2 and despite real concerns about fraud, money laundering and other illicit activities potentially involving the use of virtual currencies, there is no specific regulation of virtual currencies in Azerbaijan. There are, of course, regulations in place that would potentially be applicable to virtual currencies, but the real challenge seems to be how to classify virtual currencies, as they possess the characteristics of various types of assets (e.g., a unit of account, a commodity or a security), thus eluding traditional regulatory definitions.

For this reason, any discussion on how virtual currencies ultimately will be regulated in Azerbaijan inevitably becomes an exercise in educated conjecture, taking into account the current understanding on the classification of virtual currencies and regulatory parameters. Depending on how virtual currencies are ultimately classified by the Azerbaijani regulators (as a unit of account, a commodity or a security), different regulations may potentially be applicable, as outlined below.


Generally, the Banking Law attributes the activity of monetary transmission (money transfer services or payment instruments) to be a licensable banking activity.3 Further, the Law on Currency Regulation regards foreign currency exchange activities (i.e., engaging in the business of buying or selling foreign currencies) as an additional licensable activity in Azerbaijan in which only local banks, branches of foreign banks, certain licensed post offices and entities holding foreign currency exchange licences may engage.4

The Law on Currency Regulation defines foreign currencies as money in the form of banknotes, treasury notes and coins in circulation that are legal tender in the territory of a foreign state or group of states. Although unlikely, it is possible that virtual currencies will be classified as a foreign currency, especially if they are recognised as legal tender in a foreign country.5

Therefore, entities wishing to engage in the above-mentioned activities involving a virtual currency within Azerbaijan or, potentially, Azerbaijani residents, are likely to be prevented from doing so, unless the relevant licence has been obtained.


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.6

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.7 It is these monitoring subjects that have the obligation to report the foregoing transactions.

Given the potential for abuse of the anonymity present in transactions using virtual currencies and the possible implications for the enforcement of anti-money laundering legislation, this is an area where specific regulations are very likely to be enacted.


Given the broad definition of income under the Azerbaijani Tax Code, revenues generated by residents from trading virtual currencies are likely to be subject to taxation. As no special regime for the taxation of capital gains exists in Azerbaijan, these revenues are likely to be subject to personal income tax at a 14 per cent marginal rate (in relation to individuals not registered as entrepreneurs), simplified tax (applicable to certain individual entrepreneurs) or corporate profit tax (applicable to certain individual entrepreneurs, enterprises with revenues exceeding a certain threshold and those not qualified to become simplified taxpayers). General taxation principles would apply to transactions using a virtual currency.8

It is not clear what the tax authorities' approach to enforcement would be given that, currently, the assessment of taxes on income received from abroad is largely dependent on self-declaration. However, there is a general, and rather vague, provision in the Law on Currency Regulation requiring residents of Azerbaijan to repatriate earned foreign currency reserves received from foreign economic activities, which are likely to include funds received from virtual currency trading once they are converted into fiat currency.9

Failure to comply with the repatriation rules may result in significant administrative fines (of an amount equivalent to 30 to 50 per cent of the foreign currency reserves)10 or, potentially, criminal liability for the management officials of the company where the funds exceed the equivalent of 20,000 Azerbaijani manats.11


i Legal tender

The 1995 Azerbaijan Constitution (the Constitution), which was adopted in a nationwide referendum, proclaims the Azerbaijani manat as the official currency of Azerbaijan and the only monetary unit that is recognised as legal tender within the territory of Azerbaijan.12 The Constitution recognises the exclusive authority of the Central Bank of Azerbaijan (the Central Bank) to issue banknotes and mint coins.13

The Civil Code, the cornerstone of commercial law, goes even further by requiring that contractual monetary obligations between residents be denominated in Azerbaijani manats.14 Finally, wages may also only be paid in Azerbaijani manats.15

As such, virtual currencies are not, and are very unlikely to become, legal tender in Azerbaijan. In fact, recognising them as such would likely require amendments to the Constitution to be adopted in a nationwide referendum. It is not clear that the authority of the Central Bank to issue banknotes and mint coins would include minting electronic coins for a cryptocurrency protocol backed by the Central Bank. So far, the Central Bank has not expressed any intention to engage in the minting of electronic coins, and has described its position regarding the virtual currency as conservative. In fact, the First Deputy Chair of the Central Bank, Mr Alim Guliyev, has indicated that the Central Bank does not intend to issue a state-backed cryptocurrency, also known as a central bank digital currency.16 Further, in remarks made during discussions on the 2018 State Budget in Parliament, the Chair of the Central Bank, Mr Elman Rustamov, described cryptocurrencies as an instrument for investing rather than an alternative means of payment.17

ii Currency controls

Under the Law on Currency Regulation,18 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 regulations19 specified by the Central Bank. These rules apply both to 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 forth an exhaustive list of grounds for remittances in foreign currency, as well as related documentary requirements.

These regulations may hinder the ability of Azerbaijani residents to invest in virtual currency as, even though they expressly permit residents and non-residents to remit funds for the purposes of investing in securities (including those denominated in foreign currency),20 no express permission exists in relation to remittances for the purposes of investing in virtual currency.


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.21 However, it seems that no progress has been made to date. In all likelihood, and based on various public statements of local officials, Azerbaijani regulators are likely to continue to monitor22 the virtual currency space and assess regulatory measures adopted by other countries before any specific regulation is 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 Federal Law on Digital Financial Assets and Cryptocurrency (which, at the time of writing, has just been adopted by the Russian parliament).23 This Law is expected to, among other things:

  1. 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
  2. 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.

A great deal of care should be given to striking the correct balance in regulating virtual currency-related activities and providing clear guidance to market players, while at the same time avoiding unintended consequences of overzealous regulation, which is a difficult, but not impossible, task. It remains to be seen if the Azerbaijani regulators will take up this challenge any time soon.


1 Ulvia Zeynalova-Bockin is partner at Dentons. The author would like to acknowledge the invaluable editorial guidance of James E Hogan, managing partner at Dentons.

2 The State Programme on the Expansion of Digital Payments in the Republic of Azerbaijan for 2018–2020, approved by Decree of President of the Republic of Azerbaijan, No. 508, dated 26 September 2018, Republic of Azerbaijan Collection of Legislation 2018, No. 09, Item 1893 (in Azerbaijani), Article 4.6. Available at http://e-qanun.gov.az/framework/40164.

3 Law of the Republic of Azerbaijan 'On Banks', No. 590-IIQ, dated 16 January 2004, Republic of Azerbaijan Collection of Legislation 2004, No. 03, Item 130 (in Azerbaijani), Article 32. Available at http://e-qanun.gov.az/framework/5825.

4 Law of the Republic of Azerbaijan 'On Currency Regulation', No. 910, dated 21 October 1994, Supreme Council of the Republic of Azerbaijan Information [Bulletin] 1995, No. 07, Item 116 (in Azerbaijani) (Law on Currency Regulation), Article 3. Available at http://e-qanun.gov.az/framework/9238.

5 id., Article 1.7-1 and 1.7-2, and Article 3.

6 Law of the Republic of Azerbaijan 'On the Prevention of the Legalization of Criminally Obtained Funds or Other Property and the Financing of Terrorism', No. 767-IIIQ, dated 10 February 2009, Republic of Azerbaijan Collection of Legislation 2009, No. 02, Item 58 (in Azerbaijani) (Law on the Prevention of the Legalization of Criminally Obtained Funds or Other Property and the Financing of Terrorism), Article 7. Available at http://e-qanun.gov.az/framework/16347.

7 id., Article 4.

8 Tax Code of the Republic of Azerbaijan, approved by Law of the Republic of Azerbaijan No. 905-IQ, dated 11 July 2000, Republic of Azerbaijan Collection of Legislation 2000, No. 08, Item 583 (in Azerbaijani). Available at http://e-qanun.gov.az/code/12.

9 Law on Currency Regulation, Article 7.2.

10 Code of Administrative Offenses of the Republic of Azerbaijan, approved by Law of the Republic of Azerbaijan No. 96-VQ, dated 29 December 2015, Republic of Azerbaijan Collection of Legislation 2016, No. 02, Item 202 (in Azerbaijani), Article 483. Available at http://e-qanun.gov.az/code/24.

11 Criminal Code of the Republic of Azerbaijan, approved by Law of the Republic of Azerbaijan No. 787-IQ, dated 20 December 1999, Republic of Azerbaijan Collection of Legislation 2000, No. 04, Item 251 (in Azerbaijani), Article 208. Available at http://e-qanun.gov.az/code/11.

12 Constitution of the Republic of Azerbaijan, adopted at a nationwide referendum on 12 November 1995, Republic of Azerbaijan Collection of Legislation 1997, No. 03, Item 159 (in Azerbaijani), Article 19.I and 19.III. Available at http://e-qanun.gov.az/framework/897.

13 id., Article 19.II.

14 Civil Code of the Republic of Azerbaijan, approved by Law of the Republic of Azerbaijan No. 779-IQ, dated 28 December 1999, Republic of Azerbaijan Collection of Legislation 2000, No. 04, Item 250 (in Azerbaijani), Article 439.1. Available at http://e-qanun.gov.az/code/8.

15 Labour Code of the Republic of Azerbaijan, approved by Law of the Republic of Azerbaijan No. 618-IQ, dated 1 February 1999, Republic of Azerbaijan Collection of Legislation 1999, No. 04, Item 213 (in Azerbaijani), Article 174.4. Available at http://e-qanun.gov.az/code/7.

16 David Hundeyin, 'Central Bank of Azerbaijan Rules Out Issuing Cryptocurrency', CCN (16 November 2018), accessed on 25 July 2020, https://www.ccn.com/central-bank-of-azerbaijan-rules-out-issuing-cryptocurrency/ (citing Taleh Mursagulov, 'Central Bank of Azerbaijan talks possibility of issuing its cryptocurrency', Trend News Agency (15 November 2018), accessed on 25 July 2020, https://en.trend.az/business/economy/2980140.html).

17 Anvar Mammadov, 'CBA head comments on use cryptocurrency in Azerbaijan', Trend News Agency (21 November 2017), accessed on 8 August 2018, https://en.trend.az/business/economy/2824191.html (in Azerbaijani).

18 Law on Currency Regulation, Article 8.2.

19 Rules of the Central Bank of the Republic of Azerbaijan 'On Conducting Foreign Currency Transactions by Residents and Transactions of Non-Residents in Foreign and National Currency in the Republic of Azerbaijan' No. 45/1, dated 28 November 2016 (in Azerbaijani) (Currency Regulations), Article 4.3. Available at http://e-qanun.az/framework/34248.

20 Currency Regulations, Article

21 Lada Evgrashina, 'Azerbaijan takes up crypto-currencies: the bill is being prepared, the country will be visited by co-founder Ethereum', 1news.az (29 January 2018), accessed on 12 July 2019, http://www.1news.az/news/azerbaydzhan-vzyalsya-za-kriptovalyuty-gotovitsya-zakonoproekt-stranu-posetit-so-osnovatel-ethereum (in Russian).

22 Samuel Haig, 'Azerbaijan rejected Crypto as means of Payment', Cryptofame (4 December 2017), accessed on 12 July 2019, https://news.bitcoin.com/azerbaijan-rejects-crypto-as-means-of-payment/.

23 Federal Law of the Russian Federation 'On Digital Financial Assets, Cryptocurrency, and Introducing Amendments to Certain Legislative Enactments of the Russian Federation', dated 24 July 2020 (published on 31 July 2020, Publication No. 0001202007310056; effective as of 1 January 2021, with certain provisions becoming effective on 10 July 2021) (in Russian) (Federal Law on Digital Financial Assets and Digital Currency). Available at http://publication.pravo.gov.ru/Document/View/0001202007310056?index=0&rangeSize=1.