The Russian government approves a cryptocurrency taxation bill, exempting value-added tax and integrating trading income into securities income

According to reports, the Russian Ministry of Finance has approved a draft amendment to the law on taxation of cryptocurrency transactions and mining revenues. The highlights include exempting cryptocurrency transactions from value-added tax, and including cryptocurrency transaction income in the same tax base as securities transaction income. The maximum personal income tax rate on this part will not exceed 15%, which is much lower than the rates of up to 40% in countries like Japan and Italy, indicating a more lenient regulatory stance of the Russian government towards cryptocurrencies.

Russian Ministry of Finance Approves: Cryptocurrencies Taxed at Up to 15% Income Tax

In this version of the draft, cryptocurrencies are defined as a type of property. Income from mining cryptocurrencies will be calculated based on their market value, but expenses related to mining can be deducted from the income. Cryptocurrency transactions will be exempt from value-added tax, and cryptocurrency transaction income will be included in the same tax base as securities transaction income. This means the maximum personal income tax rate on cryptocurrencies will not exceed 15%.

The amendment also requires mining operators to submit personal information reports on the use of their infrastructure to ensure the compliance of mining facilities.

The Russian government first submitted the cryptocurrency taxation bill (No. 1065710-7) to the parliament in December 2020, which was passed in the first reading in 2021.

The Ministry of Finance also stated: "Based on discussions with businesses, we believe that taxing the financial condition of mining facilities is the fairest decision. This bill will maintain a balance between the interests of businesses and the state."

FTS Two-Stage Taxation Law: Taxation Starts from Deposit Address, Transaction Taxed Accordingly

It is worth noting that the Federal Tax Service (FTS) had previously made a move to tax the unrealized gains of the mining industry. However, the exemption from value-added tax and the disclosure of the identities of mining personnel have also been carried over to the new amendment. At the time, the FTS believed that there was no need to introduce a special regime for the mining industry, and Alexey Katyaev, the head of the 7th Taxpayer Region Inspection of the FTS, stated: "For companies, traditional income tax will be levied, and for individuals, personal income tax will be levied."

At the time, the FTS proposed a classical two-stage taxation to manage the cryptocurrency industry, where the first stage is to start taxation when cryptocurrencies are transferred to a registered taxpayer's address, which the FTS calls a prepayment for cryptocurrency mining.

The second stage of the tax rate is levied at the time of the transaction. For example, if the currency price has risen since the first tax payment, the company will pay tax on the profit. But if the price has fallen, the difference will be recorded as a loss.