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Nazrin Abdul

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The growing development of digital technologies worldwide is increasing the demand for cryptocurrency, which is a profitable segment of the cashless payment system and online money market. Since cryptocurrency is a virtual currency, it is primarily acquired through cryptocurrency exchanges and services operating globally. It is not an official payment instrument regulated by central banks. To obtain virtual money, individuals must register with various companies, exchanges, and exchange services. After registration, users can buy cryptocurrency according to the balance in their accounts and conduct transactions.

Cryptocurrency is increasingly used as a means of payment, and the global market recognizes it as a medium of exchange. However, in Azerbaijan, there is no legal framework governing the cryptocurrency market, and current legislation does not officially support the circulation of virtual money.

The digital economy remains a government priority. On September 10-11, the "Chain Reaction 2024" forum was held in Baku, focusing on blockchain, Web3, artificial intelligence, and digital assets.

Speaking at the conference, Angelica Lair, Deputy Director of the Liechtenstein Government's Financial Innovation Office, stated that governments should lay the groundwork for the successful implementation of blockchain and digital assets.

“Our task is to create a conducive environment. We need to prepare the ground so that participants can operate freely within this framework. That’s exactly what we did in Liechtenstein with blockchain and digital assets. Initially, we considered: what do we need? The primary issue is regulation, which can be both beneficial and problematic. We believe it is important to engage with the public and companies because understanding the technologies and innovations is crucial for adapting them to state decisions,” she said.

A key topic discussed was the development of new tax regulations for individuals earning income from cryptocurrency activities in Azerbaijan.

In his comment to Azernews, economist Vugar Bayramov highlighted that the Central Bank’s monetary policy includes exploring blockchain technology and virtual currency circulation. Historically, the Central Bank has considered these technologies in its policies.

"Since the Central Bank has previously incorporated blockchain technology and virtual currency into its policy, and since both Azerbaijani law and international practice require individuals who earn income to pay taxes, entrepreneurs should be taxed if no specific exemptions apply," Bayramov said.

He emphasized that taxing virtual or online transactions aims to formalize these transactions and increase transparency.

Bayramov also explained another goal of taxing online transactions.

"Another objective is to regulate online payments, including income generated from cryptocurrencies, and to boost budget revenues. This approach aligns with international practices, where individuals who earn income, whether online or offline, are subject to taxation."

The expert noted that this matter is also related to social responsibility.

"Every entrepreneur and income earner has obligations to the budget. This reflects the increasing number of people and entrepreneurs earning income through cryptocurrency in Azerbaijan. It confirms that the use of cryptocurrency has become a priority in Azerbaijan, with our people actively investing in these innovative assets."

Approaches to cryptocurrency in other countries:

United States: The U.S. has a relatively well-developed regulatory framework for cryptocurrency. The Internal Revenue Service (IRS) treats cryptocurrencies as property for tax purposes, meaning that capital gains taxes apply. Additionally, the U.S. Securities and Exchange Commission (SEC) regulates certain aspects of cryptocurrency transactions and Initial Coin Offerings (ICOs).

European Union: The EU is working towards a comprehensive regulatory framework for cryptocurrencies and digital assets. The European Commission's Markets in Crypto-Assets (MiCA) proposal aims to create a single market for digital assets, ensuring investor protection and market integrity. Member states have varying regulations, with some, like Germany, recognizing cryptocurrencies as units of account.

China: China has taken a restrictive approach to cryptocurrency. The country has banned cryptocurrency trading and Initial Coin Offerings (ICOs) but is actively developing its own central bank digital currency (CBDC), the Digital Currency Electronic Payment (DCEP), to enhance control over the financial system.

Japan: Japan has embraced cryptocurrencies and has established a regulatory framework to support their use. The Financial Services Agency (FSA) regulates cryptocurrency exchanges, requiring them to register and comply with anti-money laundering (AML) regulations. Japan recognizes Bitcoin as a legal tender.

In conclusion, as the global landscape for cryptocurrency evolves, Azerbaijan is beginning to explore regulatory frameworks to support and govern its use. This move aligns with international trends and aims to formalize the digital economy, ensuring transparency and contributing to the national budget.

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