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Edit: Azerbaijan

Retail_Trading_Status

Current: Gray-Zone

High Confidence

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Status & Confidence

Regulatory Status

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Executive Summary

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Landmark Laws

**Tax Code of the Republic of Azerbaijan**
  - Establishes the general framework for taxation. While not explicitly naming 'crypto' in a dedicated chapter, authorities apply Articles 99 and 101 to tax income from 'other sources' (including crypto trading) and Article 169 for VAT on digital services purchased from non-residents.
  - [Source](https://www.taxes.gov.az/en/page/ar-vergi-mecellesi)

**Regulations on Margin Trading**
  - A Central Bank regulation that explicitly defines cryptocurrency as a 'digital currency' for the purpose of setting leverage limits (2:1) on Contracts for Difference (CFDs) involving crypto assets.
  - [Source](https://www.cbar.az)

**Law on the Prevention of the Legalization of Criminally Obtained Funds or Other Property and the Financing of Terrorism** (AML/CFT Law) - Enacted: 2023-02-01
  - Imposes due diligence and reporting obligations on financial monitors, which extends to virtual asset transactions deemed suspicious.
  - [Source](https://fiu.gov.az/en/legislation)

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As of December 2025, the regulatory status of retail cryptocurrency trading in Azerbaijan is classified as 'Gray-Zone' due to the reliance on a regulatory sandbox and the absence of a permanent, enacted licensing regime for Virtual Asset Service Providers (VASPs). While the activity is not illegal—citizens are free to buy, sell, hold, and mine cryptocurrencies—the government has not yet finalized the comprehensive 'Law on Virtual Assets' that was anticipated by the end of the year. Instead, the Central Bank of Azerbaijan (CBA) manages the sector through a 'Special Regulatory Regime' (sandbox), which completed its first testing phase in August 2025. This phase included successful pilots for integrating local payment systems (like Pasha Pay's m10) with global exchanges such as Binance.

The legal foundation for crypto assets remains fragmented. There is no explicit prohibition on trading, but cryptocurrencies are not recognized as legal tender. The primary legal reference to crypto exists in the CBA's 'Regulations on Margin Trading,' which acknowledges them as digital currencies for derivative trading limits. For general retail trading, the lack of a specific licensing law means that local exchanges cannot yet obtain a permanent license, forcing them to either operate in the gray market or participate in the CBA's sandbox. International exchanges are generally accessible, though users may face scrutiny from local banks regarding transfers.

Taxation is a key area of enforcement despite the regulatory lag. The State Tax Service considers income from cryptocurrency trading as taxable under the general provisions of the Tax Code. Individuals are expected to report capital gains as part of their annual income, subject to standard income tax rates. Additionally, the purchase of cryptocurrency services or digital goods from foreign entities is treated as an e-commerce transaction, potentially attracting an 18% Value Added Tax (VAT) reverse charge, which banks may deduct automatically during the transaction.

The Financial Monitoring Service (FMS) actively monitors the sector for money laundering risks. Under the AML/CFT framework, any financial operation involving virtual assets that raises suspicion must be reported. The government's approach is cautious but progressive, aiming to transition from this 'Gray-Zone' to a fully 'Allowed-Regulated' status once the draft legislation is enacted and permanent licenses are issued to market participants.

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