To combat financial sanctions, Russia pushes for legalization of crypto assets
Written by: TaxDAO
Russia is the world's third largest Bitcoin mining country.cryptocurrencyAccording to government data, more than 12 million of Russia’s approximately 144 million people usecryptocurrencyaccounts and crypto assets worth about 2 trillion rubles (about 26.7 billion U.S. dollars). Affected by the international situation, the Russian government has paid more and more attention to the field of cryptocurrency and stepped up its efforts to build cryptocurrency infrastructure. This article analyzes Russia's general and crypto tax system, the tariff policy involving crypto mining companies, and Russia's regulatory transformation of crypto assets under the international situation.
1. Basic tax system in Russia
1.1 Overview of Russia’s general tax system
The Russian tax law system consists of the Tax Code of the Russian Federation (hereinafter 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 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 regulations of municipal authorities. Federal subject legislation and local legislation may determine tax exemptions and reductions for federal subjects and localities, determine tax rates within a specific range, and tax payment procedures and deadlines in accordance with the provisions of the Tax Code. Therefore, taxpayers registered in different regions of Russia have different tax burdens.
The Federal Tax Service of Russia is affiliated to the Ministry of Finance of the Russian Federation and is the main department in Russia responsible for tax collection and management. It performs the functions of supervising the implementation of tax laws and whether taxes and fees levied by other countries are paid accurately, in full and on time in accordance with relevant legal provisions.
1.2 Three-tier taxation system
According to the Tax Code and federal laws, federal taxes include 10 items of taxes, including value-added tax, consumption tax, personal income tax, corporate income tax, mineral resource extraction tax, water resource use tax, additional income tax on hydrocarbon extraction, wildlife and aquatic biological resource use fees, government fees, and social insurance premiums. In addition, local governments have certain taxation powers.
Federal subject taxes are paid within the scope of the corresponding federal subject, including three types of taxes: corporate property tax, gambling tax and transportation tax. Local taxes are paid within the corresponding cities and districts, mainly including three types of taxes: land tax, personal property tax (property tax) and transaction fees.
1.3 Basic tax system
1.3.1 Personal income tax
Currently, Russian personal income tax payers are divided into two categories: one is resident taxpayers, i.e. individuals who are permanent residents in Russia, and the other is non-resident taxpayers, i.e. individuals who are not permanent residents in Russia but receive income from Russia.
(1) Tax system for resident taxpayers
Russian permanent residents refer to Russian citizens and foreign citizens or stateless persons who have lived in the Russian Federation for at least 183 days in any consecutive 12 months. The calculation of residence time is not suspended for overseas travel, short-term overseas treatment or training of less than 6 months, and working or providing services abroad due to employment contracts or other responsibilities. According to the progressive tax rate, the resident individual income tax rate of 15% applies to the part of the annual income exceeding 5 million rubles, and the resident individual income tax rate of 13% applies to the part of the annual income not exceeding 5 million rubles.
The scope of personal income tax collection for resident taxpayers includes four parts: first, salary, allowances in kind and pension income from employment; second, business income and professional income; third, investment income (dividends and interest); fourth, capital income (such as gains from the sale of shares and securities). Except for special circumstances, all types of income are subject to the personal income tax rate of 13%. There are two special circumstances: first, the interest on mortgage bonds issued before January 1, 2007 is taxed at 9%; second, the tax rate for certain types of non-employment income is 35%.
(2) Tax system for non-resident taxpayers
Russian non-resident individual income tax payers refer to natural persons who have resided in the Russian Federation for less than 183 days in 12 consecutive months, but have taxable income from within Russia. The calculation of residence time is not suspended for overseas travel, short-term overseas treatment or training of less than 6 months, and working or providing services abroad due to employment contracts or other responsibilities. The scope of personal income tax collection for non-resident taxpayers refers to the scope of taxation for resident taxpayers, but only based on the income of non-resident taxpayers from within Russia.
The applicable tax rates for personal income tax of non-resident taxpayers are divided into four situations. Situation 1 refers to the income earned by foreign employees with the status of highly qualified experts from employment in Russia, as well as the income earned by non-resident foreigners staying in Russia on a visa-free basis and individuals who work for personal, family and similar needs with special permits from employment in Russia, which is 13%. Situation 2 refers to the tax rate on dividend income received by non-resident individuals from Russian companies, which is 15%. Situation 3 refers to the tax rate on income from Russia sourced from non-resident individuals except for Situation 1 above, which is 30%. Situation 4 refers to the tax rate of specific types of non-employment income at 35%.
1.3.2 Corporate Income Tax
Russian corporate income tax is paid by all legal entities that obtain taxable income during the tax year. The profit of Russian corporate income tax (translated as "group corporate income tax" in the China-Russia tax agreement) is the balance calculated by deducting the deductible expenses stipulated in the tax law from the income calculated according to the tax law, which is basically consistent with the income accounting principle in my country's corporate income tax. The statutory tax rate of corporate income tax is 20%. From 2017 to 2020, 3% of corporate income tax revenue will be paid to the federal budget.Xiaobai Navigation17% is paid to the budget of the federal subject (2% before 2017, 18%). Each federal subject has the right to implement preferential tax rates for specific taxpayers through legislation, and the lowest preferential tax rate shall not be less than 12.5%. The taxable entities of Russian corporate income tax are divided into resident enterprises and non-resident enterprises.
(1) Resident enterprises
Russian resident companies are companies registered in Russia and whose actual management is in Russia. Russian resident companies are taxed on their profits after deducting the expenses listed in Chapter 25 of the Tax Code. The tax period for corporate income tax is one calendar year. Resident corporate taxpayers are required to prepay corporate income tax monthly, but they can prepay quarterly if certain conditions are met.
(2) Non-resident enterprises
Russian non-resident companies are foreign companies that conduct activities in Russia through permanent establishments or receive income from Russia. For Russian non-resident companies, corporate income tax is levied on the profits attributable to the permanent establishment minus the expenses listed in Chapter 25 of the Tax Code. The corporate income tax obligations and tax management of foreign companies engaged in business activities in Russia through permanent establishments are similar to those of resident companies; income from Russia that is not related to the permanent establishment is subject to source tax jurisdiction, and corporate income tax is withheld and paid by withholding agents in Russia.
1.3.3 Value Added Tax
The VAT implemented in Russia is a consumption-based VAT, which applies the destination principle, that is, the tax is based on the final consumption location of goods and services. This system includes all industries in the national economy in the scope of VAT collection, which means that the income from the sale or provision of goods, labor and services in Russia is subject to VAT, but the VAT is exempted for exported goods or services used outside Russia. The tax base of VAT is the taxable sales, which is determined by the value of the goods (labor, services) sold, which is calculated at a price excluding VAT. From January 2019, the VAT rate is divided into three tiers: 0, 10% and 20% (the tax rates before January 1, 2019 were 0%, 10% and 18%). The tax rates implemented in practice are divided into five types: zero tax rate, standard tax rate, tax rate below the standard, settlement tax rate and special tax rate. The settlement tax rate is derived from the basic tax rate. It is a tax rate based on the income including VAT, which is inferred from the basic tax rate. For example, the settlement tax rate of the 20% tax rate is 16.67%. The special VAT rate is the same as the settlement tax rate in value, but it is different from the settlement tax rate in substance. 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 on the basis of value, but imports of about 10%, such as clothing, shoes and hats, luggage, plastic products, records, videotapes, and some household 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 rate of about 12.4%.
According to the Russian Customs Tariff, Russia will impose tariffs at the most-favored-nation rate on goods imported from countries enjoying most-favored-nation treatment. Tariffs are levied at twice the most-favored-nation rate on goods imported from other countries. At the same time, Russia also implements preferential tariffs on GSP countries, least developed countries and CIS countries that have signed free trade agreements with Russia. Among them, goods imported from CIS countries and least developed countries that have signed free trade agreements with Russia are exempt from tariffs, and goods imported from GSP countries are levied at the most-favored-nation rate of 75%.
In terms of imports, since 1993, Russia's 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 sanitary and epidemic prevention appraisal, 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. The export restriction measures mainly include export bans, export quotas, export licenses and export tariffs.
2. Russian Crypto Taxation
Russia's regulatory policies on digital assets have changed over time, from the initial proposal to strengthen regulation in 2007 to the subsequent taxation policy and revision of the digital currency bill. After many revisions, the Russian government has tried to find a balance between regulation, 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 method
Compared with other countries, Russia's crypto asset tax system is relatively simple, and cryptocurrency-related taxes are mainly levied from two sources, namely,exchangeThe taxation of legal entities such as banks and service providers, as well as individuals investing in cryptocurrencies.exchangeFor Russian citizens, the income from the sale of cryptocurrencies is included in personal income tax at a rate of 13%. Gains from investing in cryptocurrencies are taxed at a rate of 13%. Although Russia's crypto tax system is relatively simplified, the government could collect up to 1 trillion rubles (about $13 billion) in crypto taxes each year, and even the most straightforward tax collection could generate between 146 billion rubles and 1 trillion rubles in crypto tax revenue.
2.2 Tariff policies related to crypto mining companies
As the legalization of crypto assets in Russia progresses, more and more cryptocurrency mining companies are beginning to turn their attention to the Russian market. Crypto mining companies need to use cryptocurrency mining machines to obtain cryptocurrencies. Crypto mining machines are computers used to earn cryptocurrencies, referred to as "mining machines", such as ASIC mining machines, graphics card mining machines, and some currency-specific mining machines (PFS mining machines). According to Russia's current policy, the import of crypto mining machines is not prohibited, but the Russian Federal Customs Service has stated that mining machines belong to the category of crypto equipment, so the legal import of mining machines should follow the customs rules for the import of crypto equipment.
Currently, the Russian Federal Customs Service implements non-tariff regulatory measures on the import and export of encryption equipment in accordance with the "Regulations on the Import and Export of Encryption Equipment of the Eurasian Economic Union". According to the provisions of the regulations, if the imported encryption equipment products fall into the list of products in category 2.19 of the regulations, the following documents are required: (1) FederalSafetyThe Russian government has included mining machines that can currently be imported into Russia in the list of cryptographic equipment products. If they are not included in this list, an application is required; (2) FederalSafetyThere are two types of certificates: one is for the import of equipment for personal use (note: even for personal use, an import declaration is required); the other is for the import of equipment for general commercial use.SafetyIf the notification and appraisal of the customs authorities are not available, then directly using the relevant equipment for mining will be subject to extremely high administrative and criminal liability risks. Based on the law enforcement records of local customs in Russia and the current penalty regulations, those who illegally import and use mining machines may be fined up to twice the value of the mining machines, and the mining machines may be confiscated.
The Russian Federal Customs Service issued an open letter in April 2018 to explain the import of mining machines (ASIC), which clearly stated that mining machines imported into Russia are subject to two technical regulations of the Eurasian Economic Union: "On Low-voltage Equipment" and "On Low-voltage Equipment".SafetyCustoms officials mainly evaluate whether mining machines meet the requirements based on these two technical specifications. Only mining machines that pass the evaluation can obtain the mandatory unified product circulation 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 collects import tariffs based on the contract price of imported mining machines, i.e. the transaction value, and conducts price reviews and collects export tariffs based on the sales price of exported mining machines minus the export tax. According to CoinDesk, in July 2019, RFCS launched a criminal investigation into a Bitcoin mining machine importer because the importer underpaid $1.2 million in customs fees (import tariffs). Therefore, when engaging in the import and export of mining machines, companies should strengthen daily trade compliance management to avoid legal risks.
3. Russia’s Crypto Asset Regulatory History
In May 2017, the Russian Central Bank stated: "Since virtual currencies have been released on the market and because they have no gold reserves and their quantity is not controlled, virtual currencies should be more strictly regulated. If people participate in them, they must pay money for them", but no specific tax policy has been proposed.
In early 2018, the first bill in Russian history to tax digital assets was submitted to the State Duma, the Russian legislature, but there was no clear tax framework for cryptocurrencies. On May 17, the Russian Ministry of Finance issued 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 (DFA) bill, which represents the Russian legislature's agreement to give digital assets legal status. The bill came into effect on January 1, 2021. The DFA bill provides a legal definition for digital assets in Russia and legalizes cryptocurrency transactions 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 office to disclose their digital assets, as well as the digital assets of their spouses and children, and prohibiting certain Russian officials from holding any cryptocurrencies. The decree has been added as part of the DFA bill. The new decree aims to ensure that the government abides by local financial reporting rules like ordinary citizens, reflecting Russia's anti-corruption measures.
Before the Russian-Ukrainian conflict, the Russian Central Bank, the Ministry of Finance, the government and other departments had not reached a unified concept on the regulation of cryptocurrencies, and the central bank had always been skeptical of cryptocurrencies. In December 2021, the Central Bank of Russia issued a report prohibiting 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 outbreak of the Russian-Ukrainian conflict, facing multiple rounds of Western sanctions, the Russian Central Bank, the Ministry of Finance, the government and other departments began to take 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 cryptocurrency mining should be taxed and regulated, and supports limiting mining to areas with excess electricity, such as Irkutsk, Krasnoyarsk and Karelia.
2022 年 2 月 13 日，俄罗斯修订了「关于数字货币」的法案，对非合格投资者购买加密货币进行了限制，规定购买前需通过考试，合格者每年最多可购买价值 7,000 美元的加密货币，不合格者限购 600 美元。法案还定义数字货币为财产，为加密货币支付提供法律依据。此外，该法案规定数字货币运营的平台需要满足一定资本要求，交易所至少保留 3000 万卢布的资本，数字交易平台或组织拍卖平台至少保留 1 亿卢布的资本。
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 provide for more favorable tax rates on income from the sale of cryptocurrencies. The current tax rate for such transactions is 20%, but under the bill, the new tax rate for Russian companies will be reduced to 13% and for foreign companies to 15%. The bill must be approved by the upper house of the Federal Parliament and agreed to by President Putin before it can be passed into law.
On April 20, 2023, Elvira Naiullina, Governor of the Central Bank of Russia, said that the Central Bank of Russia is drafting a bill that will introduce an "experimental legal system" that will allow cryptocurrencies to be used exclusively for import and export transactions, or will establish a special organization 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 drafting a bill that will create a state agency to license and supervise cryptocurrency platforms operating in Russia. In addition, as part of the regulation, new tax laws will be introduced for miners.
In summary, 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 application of digital assets around the world. But at the same time, policies will also be adjusted accordingly based on 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.
The article comes from the Internet:To combat financial sanctions, Russia pushes for legalization of crypto assets
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