The advancement of the cryptocurrency taxation bill indicates that the Russian government's regulatory attitude towards cryptocurrency mining is becoming increasingly clear and standardized.
Written by: TaxDAO
Related News: Russia Approves Cryptocurrency Tax Framework
Author: Andrey Sergeenkov
According to Izvestia, the Russian government's legislative activity committee advanced a bill on November 11 aimed at taxing cryptocurrency businesses through corporate income tax and personal income tax systems. These provisions follow the new mining regulatory rules implemented in Russia since November 1.
The regulation was originally drafted in 2020 but has been delayed until now. It classifies cryptocurrency as property and sets tax requirements for individual and corporate miners. Companies need to register with the Federal Tax Service to mine legally, while individuals can mine without registration as long as their monthly electricity consumption is below 6000 kWh (about six times the average electricity consumption of Russian households).
Russia implements a two-stage taxation model for mining businesses. In the first stage, companies pay an initial tax when cryptocurrency enters their wallet, with the tax base calculated based on the closing price on the main exchange on the deposit date. Companies can choose the most suitable price source on the exchange, and all foreign currency values will be converted to rubles at the official exchange rate of the central bank. In the second stage, during the cryptocurrency sale phase, if the sale price exceeds the initial taxable value, additional taxes must be paid, while price drops can be deducted as losses. To prevent tax evasion, the law stipulates that the minimum taxable value should be 80% of the market price, meaning that any appreciation in Bitcoin's value between acquisition and sale will be subject to taxation.
Starting in 2024, individual traders and miners with annual income exceeding 2.4 million rubles will pay a progressive tax ranging from 13% to 22%, while the corporate tax rate will increase to 25% in 2025.
Companies can reduce their tax base through verifiable operating costs (including electricity fees, mining equipment procurement, maintenance, facility leasing, and employee wages). The tax base for mining businesses remains separate from other business activities and requires separate accounting and reporting. Tax authorities have the right to request bank statements for cryptocurrency-related accounts if they suspect violations, and regulatory agencies can also monitor cryptocurrency transactions to legal tender through banks.
Compliance Requirements:
Mining infrastructure operators must report all service provision data to the Federal Tax Service, and late or unreported submissions will incur a fine of 40,000 rubles (approximately $417). This new oversight scope is not limited to individual miners but also includes hosting service providers and mining pools.
There are some notable exceptions in this framework - cryptocurrency businesses will not need to pay value-added tax (VAT). The government rejected earlier proposals to impose a special excise tax on electricity consumption used for mining.
According to industry representatives quoted by Izvestia, taxable income should only be recognized upon the sale of cryptocurrency, not at the time of mining, due to concerns about investment attractiveness.
Source: https://www.forbes.com/sites/digital-assets/2024/11/13/russia-approves-cryptocurrency-tax-framework/
TaxDAO Brief Commentary
The advancement of the cryptocurrency taxation bill indicates that the Russian government's regulatory attitude towards cryptocurrency mining is becoming increasingly clear and standardized. First, the bill explicitly defines cryptocurrency as property, providing a legal basis for cryptocurrency payments. Second, the bill requires companies to register with the Federal Tax Service to mine legally, while individuals have electricity consumption limits; those exceeding the limit need to register as individual entrepreneurs. This regulation not only curbs illegal mining activities but also ensures tax compliance.
The Russian government's advancement of the cryptocurrency taxation bill is motivated by various factors. First, with the growing global attention on digital currencies, Russia's cryptocurrency market has also experienced explosive growth, with the market size expected to reach $18 billion by 2023. This rapid growth has prompted the Russian government to formulate corresponding tax policies to adapt to the fast development and widespread application of digital currencies. Second, in the face of international political tensions and sanctions against Russia, increasing tax transparency and combating tax evasion remain global issues. The Russian government hopes to enhance tax transparency through legislation and take effective measures to address these challenges. Russian President Putin has stated that the government will regulate cryptocurrency transactions to ensure market stability and protect investors, which includes formulating relevant regulations to standardize cryptocurrency transactions and ensure compliance with the national financial regulatory framework. Third, the Russian government also hopes to increase national fiscal revenue through the cryptocurrency taxation bill. Analysis suggests that Russia could collect up to 1 trillion rubles (approximately $13 billion) in taxes annually from legitimate cryptocurrency exchanges and investment in cryptocurrencies. However, the current tax law framework in Russia has some issues, such as ordinary taxpayers facing challenges related to paying taxes in foreign currencies, understanding complex tax laws, and independently calculating and paying taxes. These issues not only increase the burden on taxpayers but may also affect national fiscal revenue. Therefore, centralizing the cryptocurrency transaction tax mechanism and delegating the responsibilities of calculating and paying taxes to professional participants in the financial market—tax agents—has become a solution. Through these measures, the Russian government hopes to improve tax transparency, combat tax evasion, and ensure that cryptocurrency transactions comply with the national financial regulatory framework.
Compared to cryptocurrency tax policies in other parts of the world, Russia's new regulations not only reflect a deep understanding of this emerging market but also showcase innovative thinking in tax policy. The bill introduces a two-stage taxation model: the first stage is the initial tax paid when cryptocurrency enters a wallet, and the second stage involves additional taxes or loss deductions during the sale phase based on market price changes. This design aims to prevent tax evasion and ensure fairness in taxation. Notably, the bill also stipulates that starting in 2024, progressive taxes will be levied on individual traders and miners with annual income exceeding 2.4 million rubles, while the corporate tax rate will rise to 25% in 2025. This indicates that the Russian government aims to control the volatility of the cryptocurrency market through tax measures and increase national fiscal revenue.
Overall, the news of Russia approving the cryptocurrency tax framework reflects significant progress in the country's digital economy and cryptocurrency sector. This move not only marks further advancement towards the legalization of cryptocurrency in Russia but also demonstrates its strategic intentions in the global digital economy. However, this policy also faces many unresolved challenges, such as the volatility of the cryptocurrency market and the high energy consumption associated with mining activities, which could negatively impact the Russian economy. Whether this policy can effectively navigate these challenges and ensure the sustainable development of the industry will require time for verification and in-depth assessment. In this process, the wisdom and decisiveness of the Russian government will be tested, and the effectiveness of its policies will provide valuable experience and insights for global cryptocurrency regulation.