Fighting Financial Sanctions, Russia Promotes Legalization of Crypto-Assets

Author: TaxDAO

Russia is the third largest Bitcoin “mining” country in the world, and its cryptocurrency usage has a high penetration rate. According to government data, Russia has more than 12 million cryptocurrency accounts and crypto assets worth about 2 trillion rubles ($26.7 billion) among its roughly 144 million people. Affected by the international situation, the Russian government is increasingly paying attention to the field of cryptocurrency and has increased its efforts in establishing cryptocurrency infrastructure. This article analyzes Russia’s general and crypto tax systems, the tariff policies involved in crypto mining companies, and the transformation process of Russia’s supervision of crypto assets under the international situation.

1. Russian basic tax system

1.1 Overview of Russian general tax system

Russian tax law The system consists of the Tax Code of the Russian Federation (referred to as the Tax Code) and other regulations promulgated thereunder. According to the Tax Code, Russian taxes are levied at three levels: the Russian Federation, federal subjects (also translated as "regions") and localities. Federal taxes and fees are determined in accordance with the Tax Code and federal laws, federal subject taxes are determined in accordance with the Tax Code and federal subject laws, and local taxes are determined in accordance with the Tax Code and municipal authority regulations. Federal subject legislation and local legislation can determine tax deductions and exemptions for federal subjects and localities according to the provisions of the Tax Code, determine tax rates within a specific range, tax payment procedures and deadlines, etc. Therefore, taxpayers registered in different regions of Russia have different tax burdens.

The Russian Federal Tax Service is affiliated with the Ministry of Finance of the Russian Federation and is the main department responsible for tax collection and administration in Russia. It supervises the implementation of tax laws and whether taxes and fees levied by other countries are accurate and in accordance with relevant laws and regulations. Full and timely payment and other functions.

1.2 Three-level taxation system

According to the provisions of the Tax Code and federal laws, federal taxes include value-added tax, consumption tax, personal income tax, There are 10 taxes and fees in total, including corporate income tax, mineral resource extraction tax, water resources use tax, additional income tax from hydrocarbon mining, wildlife and aquatic biological resource use fees, government fees and social insurance fees. In addition, local governments have certain taxing powers.

Federal subject taxes are paid within the corresponding federal subject scope, including corporate property tax, gaming tax and transportation tax. Local taxes and fees are paid within the corresponding city and district, and mainly include land tax, personal property tax (real estate tax), and transaction fees.

1.3 Basic tax system

1.3.1 Personal income tax

Current Russian personal income tax taxpayers It is divided into two categories, one is the resident taxpayer, that is, an individual who is a permanent resident of Russia, and the other is a non-resident taxpayer, that is, an individual who is not a permanent resident of Russia and obtains income from Russia.

(1) Taxation system for resident taxpayers

Russian resident individuals refer to Russian citizens and foreign citizens or stateless persons who have resided in the Russian Federation for at least 183 days in any 12 consecutive months. sky. Among them, overseas travel, short-term overseas treatment or training of less than 6 months, and working or providing services overseas due to employment contracts or other responsibilities will not suspend the calculation of residence time. According to the progressive tax rate, a 15% personal income tax rate is applicable to residents whose annual income exceeds 5 million rubles, and a 13% personal income tax rate is applicable to residents whose annual income does not exceed 5 million rubles.

The scope of personal income tax for resident taxpayers includes four parts: first, salary, in-kind allowances and pension income from employment; second, business income and professional income; third, investment income ( Dividends and interest); fourth, capital gains (such as proceeds from the sale of shares and securities). Except for special circumstances, a 13% personal income tax rate applies to all types of income. There are two special circumstances: first, the tax rate on interest on mortgage bonds issued before January 1, 2007 is 9%; second, the tax rate on specific types of non-employment income is 35%.

(2) Taxation system for non-resident taxpayers

Russian non-resident personal income tax taxpayers refer to those who have lived in the Russian Federation for less than 183 days in 12 consecutive months, but have sources in Russia For natural persons with taxable income, including overseas travel, short-term overseas treatment or training of less than 6 months, and situations such as working or providing services overseas due to employment contracts or other responsibilities, the calculation of residence time will not be suspended. The scope of personal income tax for non-resident taxpayers is based on the scope of taxation for resident taxpayers, but it is only taxed based on the income of non-resident taxpayers from Russia.

The applicable personal income tax rates for non-resident taxpayers are divided into four situations. Scenario 1 refers to the income earned by foreign employees with the status of highly qualified experts from employment in Russia, as well as non-resident foreigners who stay in Russia without a visa and individuals who work with special permits for personal, family and similar needs. The tax rate on employment income is 13%. Scenario 2 refers to the tax rate on dividend income received by non-resident individuals from Russian companies, which is 15%. Scenario 3 refers to the tax rate on Russian-sourced income for non-resident individuals except for Scenario 1 above, which is 30%. Situation 4 refers to a specific type of non-employment income tax rate of 35%.

1.3.2 Corporate Income Tax

Russian corporate income tax is paid by all legal entities that obtain taxable income in the tax year. The profit of Russian corporate income tax (the Sino-Russian tax treaty is translated as "group corporate income tax") is the balance calculated based on the income calculated in accordance with the tax law minus the deductible expenses stipulated in the tax law, which is basically consistent with the income accounting principle in my country's corporate income tax. The statutory corporate income tax rate is 20%. Between 2017 and 2020, 3% of corporate income tax revenue is paid to the federal budget and 17% to the budget of federal entities (before 2017 it was 2% and 18%). Each federal subject has the right to implement preferential tax rates for specific taxpayers through legislation, and the minimum preferential tax rate shall not be less than 12.5%. The taxable subjects of Russian corporate income tax are divided into resident enterprises and non-resident enterprises.

(1) Resident enterprises

Russian resident enterprises refer to companies registered in Russia and with actual management institutions in Russia. For Russian resident companies, taxation is imposed on profits minus the expenses listed in Chapter 25 of the Tax Code. The tax period for corporate income tax is one calendar year. Resident enterprise taxpayers are required to prepay corporate income tax monthly, but they can prepay quarterly when certain conditions are met.

(2) Non-resident enterprises

Russian non-resident enterprises refer to foreign companies that carry out activities in Russia through permanent establishments or receive income from Russia. For Russian non-resident companies, corporate income tax is levied on the income attributable to the permanent establishment less the expenses listed in Chapter 25 of the Tax Code. The corporate income tax liability and tax management of foreign enterprises that engage in business activities in Russia through a permanent establishment are similar to those of resident enterprises; income from sources in Russia that is not related to the permanent establishment is subject to source tax jurisdiction, governed by Withholding and payment agents in Russia withhold and pay corporate income tax.

1.3.3 Value-Added Tax

The value-added tax implemented in Russia is a consumption-based value-added tax, which applies the destination principle, that is, the tax is based on the final consumption of goods and services. Location, this system brings all industries of the national economy into the scope of VAT, which means that income from the sale or provision of goods, services and services within Russia is subject to VAT, but for exported goods or services used outside Russia Exempted from the collection of value-added tax. The tax base of VAT is taxable sales, which is determined based on the value of the goods sold (labor and services). This value is calculated as a price excluding VAT. Starting from January 2019, the value-added tax rate will be divided into three levels: 0, 10% and 20% (the tax rate before January 1, 2019 was 0%, 10% and 18%). The tax rates implemented in practice are divided into: There are five types of tax rates: zero tax rate, standard tax rate, lower than standard tax rate, settlement tax rate and special tax rate. The settlement tax rate is derived from the basic tax rate. Based on the basic tax rate, the tax rate is deduced based on the income including value-added tax. For example, the settlement tax rate of 20% tax rate is 16.67%. The special VAT rate is numerically consistent with the settlement rate, but is substantially different from the settlement rate. It is applicable to the taxation of fines, late payment fees, and liquidated damages for breach of obligations stipulated in the supply contract.

1.3.4 Tariffs

Russian import tariffs are generally levied ad valorem, but clothing, shoes and hats, bags, plastic products, records, video tapes, and some household items About 10% of imported goods such as electrical appliances are still subject to specific taxes or compound taxes. At present, Russia's ad valorem tariff rates are mainly divided into five levels: 0%, 5%, 10%, 15% and 20%, with an average tax rate of approximately 12.4%.

Russia's "Customs Tariff Regulations" stipulate that Russia will levy tariffs at the most-favored-nation rate on goods imported from countries that enjoy most-favored-nation treatment. Goods imported from other countries are subject to tariffs at twice the most-favored-nation rate. At the same time, Russia also implements preferential tariffs for the Generalized System of Preferences countries, the least developed countries and the CIS countries that have signed free trade agreements with Russia. Goods imported into the country are exempt from tariffs, and goods imported from countries that enjoy GSP treatment are subject to tariffs at 75% of the most-favored-nation rate.

In terms of imports, since 1993, the Russian trade management system has gradually relaxed restrictions on imported goods. At present, except for a small number of goods that require import licenses, national registration, compulsory certification and health and epidemic prevention identification, the rest of the goods can be imported freely. In terms of exports, Russia has implemented export restrictions, mainly including some raw materials and resource-based products. Measures to restrict exports mainly include export bans, export quotas, export licenses, and export tariffs.

2. Russian Crypto Tax System

Russia’s regulatory policies on digital assets have changed at different times, starting from the initial proposal to strengthen supervision in 2007 , to the subsequent revision of taxation policies and the Digital Currency Act, after many revisions to the measures, the Russian government tried to find a balance between supervision, taxation and market protection. In recent years, as the world's third largest Bitcoin "mining" country, Russia is trying to provide more complete regulations to regulate the rapid development of the crypto-asset industry.

2.1 Russian crypto-asset taxation methods

Compared with other countries, Russia’s crypto-asset tax system is relatively simple, and the taxes related to cryptocurrency are mainly It is levied from two sources, namely taxes on legal entities such as cryptocurrency exchanges and service providers and taxes on individuals investing in cryptocurrencies. Among them, for cryptocurrency exchanges and service providers, income obtained from the sale of cryptocurrencies is included in corporate income tax. The applicable tax rate for Russian domestic companies is 13%, and the applicable tax rate for foreign companies is 15%, and the value-added of cryptocurrency issuers is exempted. Tax. For Russian citizens, income derived from the sale of cryptocurrencies is included in personal income tax and the applicable rate is 13%. Gains from investing in cryptocurrencies are taxed according to capital gains tax at a rate of 13%. Although the Russian crypto tax system is relatively simple, the government may levy up to 1 trillion rubles (approximately $13 billion) in crypto taxes annually, and even the most direct tax collection can generate 146 billion rubles to 1 trillion rubles in crypto tax revenue. income.

2.2 Tariff policies involved in crypto mining companies

With the legalization of crypto assets in Russia, more and more cryptocurrency mining companies have begun Set your sights on the Russian market. Crypto miners need to use cryptocurrency mining machines to obtain cryptocurrency. Cryptocurrency mining machines are computers used to earn cryptocurrency, referred to as "mining machines", such as ASIC mining machines, graphics card mining machines, and exclusive mining machines (PFS mining machines) for some currencies. According to Russia's current policy, the import of cryptomining machines is not prohibited, but the Russian Federal Customs Service states that mining machines fall into the category of cryptographic equipment, so the legal import of mining machines should follow the customs rules for the import of cryptographic equipment.

Currently, the Russian Federal Customs Service implements non-tariff supervision measures on the import and export of encryption equipment in accordance with the "Eurasian Economic Union Regulations on the Import and Export of Encryption Equipment". According to the regulations, if the imported encryption equipment products fall into the list of category products in Section 2.19 of the regulations, the following documents are required: (1) Notification from the Federal Security Service (Нотификация ФСБ). The Russian government has included the mining machines that can currently be imported into Russia into the notified list of encryption equipment products. If they are not in this list, you need to apply; (2) Federal Security Service Appraisal Certificate (Заключение ФСБ). The appraisal certificate is divided into two categories: one is the appraisal of imported equipment for self-use (note: even if it is for self-use, an import declaration is required); the other is the appraisal of imported equipment for general commercial use. If the above-mentioned Federal Security Service notification and identification certificate are missing, direct use of relevant equipment for mining carries extremely high risks of administrative and criminal liability. Based on the law enforcement records and current penalty regulations of Russian local customs, those who import and use mining machines in violation of regulations can be fined up to double the value of the mining machine and have the mining machine confiscated.

The Russian Federal Customs Service issued an open letter explaining the import of mining machines (ASIC) in April 2018, which clearly stated that mining machines imported to Russia are subject to two technologies of the Eurasian Economic Union. Regulate the constraints of the "Technical Specifications on the Safety of Low-Voltage Equipment" and the "Technical Specifications on the Electromagnetic Compatibility of Technical Equipment". Customs officials mainly rely on these two technical specifications to evaluate whether the mining machine meets the requirements. Only mining machines that pass the assessment can obtain the mandatory product circulation unified label for circulation in the Eurasian Economic Union market.

The Russian Federal Customs Service (RFCS) strictly monitors the tariffs payable for the import and export of mining machines. Russia conducts price reviews and levies import tariffs based on the contract price of imported mining machines, that is, the transaction value, and conducts price reviews and levies export tariffs on the basis of the sales price of exported mining machines minus export taxes. According to CoinDesk, in July 2019, the RFCS launched a criminal investigation into a Bitcoin mining machine importer because the importer underpaid customs fees (import duties) by $1.2 million. Therefore, when enterprises are engaged in the import and export business of mining machines, they should strengthen daily trade compliance management to avoid legal risks.

3. The regulatory history of crypto assets in Russia

In May 2017, the Central Bank of Russia stated: “Since virtual currencies have been released on the market and due to It has no gold reserves and the quantity is not controlled, so virtual currencies should be more closely regulated. If people participate in them, then they have to pay money for it," but no specific tax policy has yet been proposed.

In early 2018, the first bill in Russian history to tax digital assets was submitted to the State Duma, the Russian legislative body, but there was no clear tax framework for cryptocurrencies. On May 17, the Russian Ministry of Finance released a document stating that Russian citizens should declare capital gains from investing in cryptocurrencies. In Russia, capital gains are included in personal income and the personal income tax rate is 13%.

On July 23, 2020, the Russian State Duma passed the "Digital Financial Assets Act" (DFA) bill, which represented the Russian legislature's agreement to give digital assets legal status. The bill was implemented in January 2021 Effective on the 1st. The DFA bill provides a legal definition for digital assets in Russia and legalizes cryptocurrency trading in Russia, but still prohibits the use of cryptocurrencies such as Bitcoin as a method of payment. On December 10 of the same year, Russian President Vladimir Putin signed a decree requiring Russian officials or individuals holding public offices to disclose their own digital assets, as well as those of their spouses and children, and prohibited certain Russian officials from To hold any cryptocurrency, the decree has been added as part of the DFA Act. The new decree is designed to ensure that the government complies with local financial reporting rules like ordinary citizens, embodying Russia's anti-corruption measures.

Before the conflict between Russia and Ukraine, the Russian Central Bank, Ministry of Finance and government and other departments had not reached a unified concept on the supervision of cryptocurrency, and the central bank had always been skeptical of cryptocurrency. In December 2021, the Central Bank of Russia issued a report banning mutual funds from investing in cryptocurrencies, warning of the risks associated with digital assets, and even proposing a complete ban on the mining and trading of cryptocurrencies. After the conflict between Russia and Ukraine broke out, in the face of multiple rounds of Western sanctions, the Russian Central Bank, Ministry of Finance, and government departments began to adopt a unified attitude, embrace the field of cryptocurrency, and implement a series of measures to support cryptocurrency. In 2022, Putin denied the Russian Central Bank's ban plan, believing that Russia has some advantages in cryptocurrency mining and that cryptocurrency mining should be taxed and regulated, and supported restricting mining to areas with excess power, such as Irkutsk, Krasnoyarsk and Karelia.

On February 13, 2022, Russia revised the "On Digital Currency" bill, placing restrictions on the purchase of cryptocurrencies by non-qualified investors, stipulating that they need to pass an exam before purchasing, and qualified persons can purchase up to Cryptocurrency worth US$7,000, purchase limit for those who are not qualified is US$600. The bill also defines digital currencies as property, providing a legal basis for cryptocurrency payments. In addition, the bill stipulates that platforms operating digital currencies need to meet certain capital requirements. Exchanges must retain at least 30 million rubles of capital, and digital trading platforms or organized auction platforms must retain at least 100 million rubles of capital.

On June 28, 2022, the lower house of the Russian Federation Parliament approved a draft bill that would exempt cryptocurrency issuers from value-added tax (VAT) and also regulate income obtained from the sale of cryptocurrencies. a more favorable tax rate. The current tax rate for such transactions is 20%, but according to the bill, the new tax rate will be reduced to 13% for Russian companies and 15% for foreign companies. The bill must be approved by the upper house of the Federal Parliament and must be approved by President Putin before it can be passed. become law.

On April 20, 2023, Elvira Naiullina, Governor of the Central Bank of Russia, stated that the Russian Central Bank is formulating a bill that will introduce an “experimental legal system” that would allow cryptocurrencies to be used exclusively for investment purposes. For export transactions, special organizations may be established to be responsible for cryptocurrency mining and processing cross-border trade payments, but crypto transactions and payments within Russia will still be prohibited. Altukhov, a member of the Russian parliament’s economic policy committee, added that the Russian government is also working on a bill that would create a state agency to license and supervise cryptocurrency platforms operating in Russia. Additionally, new tax laws will be introduced for miners as part of the regulation.

To sum up, the Russian government has been regulating the digital asset market, promoting legal taxation, and encouraging the development of digital assets. This policy evolution is a response to the growing interest and adoption of digital assets around the world. But at the same time, policies will also be adjusted accordingly according to the continuous changes in the market and technology. Investors should pay close attention to the international situation and policy trends and make reasonable investment decisions.