Russia’s Crypto Tax: A New Haven for Investors or a US Rival?
Exciting news from Russia! The government has just greenlit a groundbreaking bill to regulate the taxation of crypto transactions. What does this mean for the future of digital currencies in the nation?
In a significant move, the Russian government has officially passed a bill that sets the stage for cryptocurrency taxation. Crafted by the Ministry of Finance, this bill grants crypto property status, as local media is buzzing about. Companies will now be required to pay income tax on their crypto dealings, while individuals are set to face personal income tax obligations.
From next year onwards, the tax rates for Russian citizens will vary based on income — ranging from 13% to 22%. However, crypto transactions won’t fall under value-added tax. Notably, if individuals or businesses exceed 600,000 rubles in receipts and write-offs annually (roughly $6,000), they will need to report these transactions to the Federal Tax Service.
Additionally, crypto mining operations will have a new requirement: they must relay information about their services to the tax service. Failing to comply could result in a hefty fine of 40,000 rubles (about $400). This legislation, initially drafted back in December 2020, has finally seen the light of day following the legalization of crypto mining in Russia on November 1, 2024. After registering with the tax service, both companies and individual entrepreneurs can officially mine cryptocurrencies like Bitcoin.
Navigating Taxes on Crypto Profits
So, how will the tax on mining profits work? It’s a two-step process. First, miners will pay an advance tax upon receiving cryptocurrency in their wallets. Then, an additional tax will kick in when they decide to sell their digital assets. If the value of the mined coins appreciates after the initial payment, miners will owe more tax. Conversely, if the value drops, they can record the overpayments as losses.
According to the latest proposals from the Russian Ministry of Finance, starting in 2025, the tax rate for selling cryptocurrencies might be set at 13%, with a rise to 15% for anyone earning over 2.4 million rubles (approximately $24,000) annually. State-controlled media outlet Interfax reports that digital currency is now recognized as property under the Tax Code.
This principle was part of the bill during its first reading over three years ago. Now, income from transactions involving digital currency will be aggregated into the general tax base, alongside earnings from shares, bonds, investment units, and securities transactions. This new approach is expected to take effect in 2025.
If an individual’s total annual income from all these sources doesn’t exceed 2.4 million rubles, their personal income tax will remain at 13%. However, exceeding that threshold will result in a 15% tax on the amount above 2.4 million rubles, plus a fixed fee of 312,000 rubles (around $3,100) equivalent to 13% of 2.4 million rubles. Additionally, the ministry will determine the tax based on the market price of the digital currency at the time income is received.
Foreign trading organizations will set the market price based on daily transaction volumes exceeding 100 billion rubles ($1 billion). If transactions for the same cryptocurrency occur on multiple foreign exchanges, taxpayers can choose the market price themselves. In such cases, the proceeds from the sale will be determined by the actual selling price, not dropping below the market price minus 20%.
Russia Takes Cues from North America
Interestingly, the media has pointed out that this new tax mechanism aligns with the North American model.
As Oleg Ogienko, deputy director general for communications at BitRiver, explains, the miner’s profit tax is assessed when cryptocurrency is received in a wallet, deducting reasonable and documented expenses. Miners can also reclaim certain taxes if they can substantiate their necessary expenses.
“It’s clear that the proposed mechanism is reflecting the North American approach. First, the miner’s profit tax is applied upon receiving cryptocurrency in their wallet, minus documented expenses. Then, a capital gains tax is applied when the cryptocurrency is disposed of.”
— Oleg Ogienko
Unlike Russia, U.S. tax regulations vary significantly based on how long cryptocurrency is held. Short-term holders see tax rates fluctuate between 10% to 37%, depending on income levels, while long-term holders can benefit from lower rates of 0%, 15%, or 20%.
