New crypto haven or US competitor: Russia approves crypto taxation

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In simpler terms, the Russian government has given its approval to a law that governs how cryptocurrency transactions are taxed. This means there could be some modifications in the way the nation’s total taxable income is calculated, taking into account crypto transactions as well.

The Russian administration has enacted legislation that governs the taxation of cryptocurrencies. Originating from the Ministry of Finance, this legislation considers cryptocurrencies as property for tax purposes. Therefore, businesses are now required to pay taxes on crypto transactions, and individuals will have to declare their crypto earnings as part of their personal income tax.

Starting next year, the tax rate for Russian citizens will change based on their income levels, ranging from 13% to 22%. It’s important to note that crypto transactions won’t be subject to value-added tax. However, individuals and businesses are required to report any crypto transactions if the total receipts and write-offs surpass 600,000 rubles annually (approximately $6,000 at the time of publication), to the Federal Tax Service.

Operators of cryptocurrency mining facilities must submit reports detailing their services to the tax authorities. Failing to do so within the given timeframe could result in a fine amounting to approximately $400. This regulation was initially drafted in December 2020, but its progression was halted at that time. However, with the legalization of crypto mining in Russia scheduled for November 1, 2024, this provision has now been adopted. Once registered with a special tax service registry, businesses and self-employed individuals can engage in cryptocurrency mining activities, such as Bitcoin.

How will the tax on profits from crypto be paid?

The mining profit tax has a two-part structure:

– When miners receive their cryptocurrency rewards in their wallets, they’ll need to make an initial payment.
– Later, when these digital assets are sold, an additional tax will be levied.

If the value of the mined coins rises after the first payment, miners will owe more tax. However, if the value decreases, any excess paid can be claimed as a loss.

As a researcher, I’m sharing an update regarding potential tax changes on cryptocurrency sales in Russia. According to the latest proposal from the Ministry of Finance, starting from 2025, the tax rate could be set at 13%. However, if an individual’s annual income exceeds approximately $24,000 (2.4 million rubles), the tax rate may increase to 15%. Notably, digital currencies are being recognized as property under the Tax Code, as reported by Russian state-controlled media Interfax.

1) The bill, initially passed over three years ago, originally contained this same rule. Starting in 2025, earnings from digital currency transactions will be treated the same as income from share sales, bond sales, investment unit sales, repo transactions involving securities, and income generated through transactions with securities in personal investment accounts and Russian bank deposits, all of which will be part of the overall tax base.

If an individual’s combined annual income from all sources doesn’t surpass 2.4 million rubles, their personal income tax rate is 13%. However, if their income exceeds this amount, they will be charged 15% on the excess above 2.4 million rubles, and a fixed tax of 312,000 rubles (approximately $3,100), which represents 13% of 2.4 million rubles. Furthermore, the ministry calculates the tax by considering the current market value of digital currency at the time of receiving income as the taxable base.

Market prices (the closing prices) are determined by international trading entities, which are organizations whose daily trade volume in digital currencies surpasses 100 billion rubles ($1 billion).

When you conduct transactions for a single cryptocurrency across multiple international crypto exchanges, you have the flexibility to determine the market price yourself. In such instances, the value derived from selling your cryptocurrency will be computed based on the actual sale price, but it must not be less than 80% of the market price.

Russia follows North America’s path

The media pointed out that the system for taxing cryptocurrencies follows a North American style or methodology.

According to Oleg Ogienko, who serves as deputy director general for communications at BitRiver, the miner’s profit tax is applied when cryptocurrency is received in a wallet, but after deducting allowable and substantiated expenses. Miners can even recover some of the paid tax if they can demonstrate that these costs were essential.

It appears that the suggested system follows the North American methodology. This means, when a miner receives cryptocurrency, an income tax is applied on this profit (less any proven and reasonable expenses). Later, when the miner decides to sell the cryptocurrency from its initial wallet, a capital gains tax is imposed.

Oleg Ogienko

Unlike Russia, in the U.S., the taxation of cryptocurrency depends on its holding period. If held for a short term (usually under a year), the tax rate ranges from 10% to 37%, which increases with income. However, if you hold it for a long term (over a year), you may be eligible for lower rates such as 0%, 15%, or 20%.

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2025-01-06 15:06