Edit Analysis - Azerbaijan

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Executive Summary

Key Pillars

Landmark Laws

**Constitution of Azerbaijan & Civil Code:** Vest exclusive authority with the CBA to issue legal tender (the Azerbaijani manat) and require contractual obligations to be denominated in manats, meaning cryptocurrencies are not legal tender.
**Azerbaijani Tax Code:** Establishes the general framework for taxation. Revenue from trading or selling virtual currency is considered taxable income under general provisions (e.g., Articles 99, 101). Purchasing crypto services from foreign entities may also trigger VAT obligations under e-commerce rules (Article 169).
**Law on the Prevention of the Legalization of Criminally Obtained Funds or the Financing of Terrorism (AML/CFT Law):** Enacted February 1, 2023. Imposes due diligence and reporting obligations on financial monitors, extending to suspicious virtual asset transactions.
**Central Bank's Regulations on Margin Trading:** Explicitly defines cryptocurrency as a 'digital currency' for the purpose of setting leverage limits (2:1) on Contracts for Difference (CFDs) involving crypto assets.

Considerations

Notes

Detailed Content

Detailed Explanation

As of December 2025, retail cryptocurrency trading in Azerbaijan is officially categorized as 'Allowed-Unregulated.' This status means that citizens and residents face no prohibition on buying, selling, or holding cryptocurrencies; however, there is no comprehensive, enacted legal framework specifically governing these activities. The regulatory environment is characterized by a cautious approach from authorities, particularly the Central Bank of Azerbaijan (CBA), which holds primary regulatory oversight. The CBA has repeatedly warned the public about the risks associated with cryptocurrencies and maintains that they are not legal tender, a position reinforced by the Constitution and Civil Code, which vest exclusive authority for legal tender in the Azerbaijani manat. While no specific licensing regime exists for Virtual Asset Service Providers (VASPs), the CBA has initiated a 'Special Regulatory Regime' or sandbox to explore crypto-fiat integrations, with a successful pilot involving Pasha Pay and Binance completed in August 2025. A comprehensive 'Law on Virtual Assets' is in the draft stage but not yet finalized. Despite the lack of a bespoke framework, certain existing laws impose obligations on market participants. Revenue from cryptocurrency trading is subject to taxation under the general provisions of the Azerbaijani Tax Code, with income tax rates for individuals ranging from 14% to 25%. Furthermore, the Law on the Prevention of the Legalization of Criminally Obtained Funds or the Financing of Terrorism (AML/CFT Law), enacted on February 1, 2023, extends due diligence and reporting obligations to suspicious virtual asset transactions, enforced by the Financial Monitoring Service (FMS). The CBA has also used its regulatory authority to define cryptocurrency as a 'digital currency' within its Regulations on Margin Trading, setting leverage limits for crypto-based Contracts for Difference (CFDs). Notably, while not banned, bank transfers to crypto exchanges may be scrutinized, and domestic financial institutions do not offer crypto buying, selling, or custody services. The overall trajectory points toward future regulation, with the CBA actively developing a framework and the FATF/MONEYVAL evaluations of Azerbaijan's AML/CFT regime ongoing.

Bullet Points

**I. Regulatory Status**
*   As of December 2025, cryptocurrency trading is *Allowed-Unregulated*.
*   Retail trading is not prohibited, but there is no comprehensive, enacted legal framework specifically for virtual assets.
*   The Central Bank of Azerbaijan (CBA) is actively developing a regulatory framework, which remains in draft stage.

**II. Key Regulatory Bodies**
*   **Central Bank of Azerbaijan (CBA):** Primary regulator; oversees financial system, issues warnings, manages a regulatory sandbox, and is drafting the virtual assets framework.
*   **Financial Monitoring Service (FMS):** Enforces Anti-Money Laundering and Counter-Financing of Terrorism (AML/CFT) compliance for suspicious transactions involving virtual assets.
*   **State Tax Service:** Administers taxation of cryptocurrency profits under the general Tax Code.

**III. Important Legislation**
*   **Constitution of Azerbaijan & Civil Code:** Establish that only the CBA can issue legal tender (Azerbaijani manat); cryptocurrencies are *not legal tender*.
*   **Azerbaijani Tax Code:** Provides the general framework for taxation.
    *   Articles 99 and 101: Revenue from trading virtual currency is considered taxable income.
    *   Article 169: Purchasing crypto services from foreign entities may trigger Value-Added Tax (VAT) obligations.
*   **Law on the Prevention of the Legalization of Criminally Obtained Funds or the Financing of Terrorism (AML/CFT Law):** Enacted February 1, 2023; imposes due diligence and reporting obligations on financial monitors for suspicious virtual asset transactions.
*   **Central Bank's Regulations on Margin Trading:** Explicitly defines cryptocurrency as a 'digital currency' for setting leverage limits (2:1) on crypto-based Contracts for Difference (CFDs).

**IV. Compliance Requirements**
*   **Taxation:** Profits from cryptocurrency trading are subject to income tax for individuals (14-25%).
*   **AML/CFT:** Obligations under the 2023 AML/CFT Law apply to suspicious virtual asset transactions.
*   **Licensing:** No specific VASP licensing regime exists. Entities may participate in the CBA's regulatory sandbox for testing.

**V. Notable Restrictions or Limitations**
*   Cryptocurrencies are *not legal tender* and cannot be used to fulfill contractual obligations denominated in manats.
*   Bank transfers to cryptocurrency exchanges may be subject to scrutiny.
*   Financial institutions in Azerbaijan (banks) do not sell, buy, or offer custody services for crypto-assets.
*   The CBA and other authorities have issued repeated public warnings about the volatility and risks of cryptocurrencies.

**VI. Recent Developments or Notes**
*   The CBA established a working group to draft regulations in 2018, but significant public progress was delayed for several years.
*   In late 2024, reports indicated the CBA had begun issuing licenses to companies applying for cryptocurrency operations.
*   By late 2025, a comprehensive 'Law on Virtual Assets' was in draft stage with expectations for finalization.
*   The CBA's regulatory sandbox saw a successful pilot completed in August 2025, involving Pasha Pay's m10 wallet integration with Binance.
*   The Financial Action Task Force (FATF)/MONEYVAL evaluations of Azerbaijan's AML/CFT regime are ongoing.
*   Historically, in 2017-2018, the CBA described cryptocurrencies as a 'dangerous instrument for investing' and stated it had no plans for a central bank digital currency (CBDC).

Full Analysis Report

Complete markdown report for this analysis

**Report on the Current Status of Retail Cryptocurrency Trading in Azerbaijan**

**Date:** 2025-12-12

**Topic:** Retail_Trading_Status

**Description:** Assess whether individual citizens and residents in the country are legally permitted to buy, sell, and hold cryptocurrencies. Detail the regulatory environment surrounding this activity.

**1. Identified Current Status:**
Allowed-Unregulated

**2. Detailed Narrative Explanation:**
As of December 2025, retail cryptocurrency trading in Azerbaijan is best described as "Allowed-Unregulated." This classification means that individuals are free to engage in buying, selling, and holding cryptocurrencies, as there is no legal prohibition against these activities. However, Azerbaijan lacks a specific, comprehensive, and enacted legal framework dedicated to regulating cryptocurrencies or Virtual Asset Service Providers (VASPs).

The Azerbaijani manat is the sole legal tender, as mandated by the Constitution and Civil Code, which explicitly exclude cryptocurrencies from this status. Consequently, using crypto for direct payments for goods and services is not officially supported, though private transactions are not criminalized.

The regulatory approach is characterized by the application of existing general laws. The **Azerbaijani Tax Code** is actively enforced, requiring individuals and entities to declare and pay taxes on profits from cryptocurrency trading. The **Law on the Prevention of the Legalization of Criminally Obtained Funds or the Financing of Terrorism (2023)** establishes AML/CFT obligations, requiring reporting of suspicious transactions, which extends to virtual assets. A notable specific reference exists in the Central Bank's **Regulations on Margin Trading**, which defines cryptocurrency as a 'digital currency' for setting leverage limits on crypto CFDs.

The **Central Bank of Azerbaijan (CBA)** is the primary financial regulator. It maintains a historically cautious public stance, having issued warnings about the volatility and risks of cryptocurrencies. However, the CBA is actively working on developing a future regulatory regime. It has established a 'Special Regulatory Regime' or regulatory sandbox. The first phase of testing in this sandbox concluded in August 2025, successfully piloting integrations like that between Pasha Pay's m10 application and the Binance platform. Furthermore, the CBA is drafting a comprehensive "Law on Virtual Assets," which was reported to be in development throughout 2025. Until this law is enacted and a permanent licensing system is established, the market operates without crypto-specific regulation.

In practice, Azerbaijani residents can and do access international cryptocurrency exchanges. Local banks do not offer crypto-related services and may scrutinize transfers to crypto exchanges, but such transfers are not banned. The government's current strategy is one of cautious exploration, allowing activity while building a regulatory framework, which solidifies the 'Allowed-Unregulated' status.

**3. Specific, Relevant Text Excerpts:**
*   **Freeman Law:** "There is currently no specific regulation of virtual or cryptocurrencies in Azerbaijan. While there is no statutory regime applicable to cryptocurrencies, existing regulatory provisions may apply."
*   **Caspian Legal Center (2022):** "no prohibition exists regarding the trade in cryptocurrencies via the internet."
*   **News.az (Sep 2024):** "Nevertheless, Azerbaijani citizens can own cryptocurrencies. They can purchase them online and use them through international online stores. Currently, there are no restrictions on this."
*   **Central Bank of Azerbaijan (Aug 2025):** "The Central Bank... has completed the testing period of innovative products selected under the first stage of the regulatory sandbox regime... Integration of Pasha Pay LLC's m10 application into the Binance platform."
*   **Azerbaijan Tax Code:** "Buying cryptocurrencies from abroad as e-commerce is considered taxable operations for VAT purposes according to article 169.3 of the Tax Code."
*   **Regulations on Margin Trading (CBA):** Explicitly defines cryptocurrency as a 'digital currency' for setting CFD leverage limits.
*   **FATF/MONEYVAL Report (2023):** "FIs [Financial Institutions] do not sell or buy crypto-assets, and do not currently offer crypto-asset-denominated investment products or crypto-asset custody services."

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Edit: Azerbaijan

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