Russia lmplements Two-Stage Taxation on Cryptocurrency Mining Income

News Update: Russia Approves Cryptocurrency Tax Framework
Author: Andrey Sergeenkov

The Russian Government Commission on Legislative Activities advanced a bill on November 11 to tax cryptocurrency operations through corporate profit tax and personal income tax systems, Russian newspaper Izvestia reported. The rules follow Russia’s new mining regulations that started on November 1.

The legislation, first drafted in 2020 but delayed until now, classifies crypto as property and sets tax requirements for individual and corporate miners. Companies need Federal Tax Service registration to mine legally, while individuals can mine without registration when using under 6,000 kilowatt-hours monthly – about six times the average Russian household consumption.

Tax and Mining Framework Details

The law establishes cryptocurrency as property, creating a split tax system: personal income tax for individuals and corporate profit tax for businesses. The framework extends to small businesses and self-employed individuals, while requiring miners to register with tax authorities.

Russia introduces a two-stage taxation model for mining operations. At Stage 1, companies pay initial tax when crypto arrives in their wallet, with the tax base calculated using major exchange closing prices on the deposit date. Companies can choose the most appropriate price source among exchanges, while all foreign currency values convert to rubles at the Central Bank’s official rate.

During Stage 2, which occurs at cryptocurrency sale, an additional tax applies if the sale price exceeds the initial taxed value, while price drops qualify as deductible losses. To prevent tax avoidance, the law sets the minimum taxable value at 80% of the market price, meaning Bitcoin price appreciation between mining and selling faces taxation.

Starting in 2024, individual traders and miners will pay progressive tax rates ranging from 13% to 22% for annual incomes above 2.4 million rubles, while the corporate tax rate increases to 25% in 2025.

Companies can reduce their taxable base with documented operational costs, including electricity expenses, mining equipment purchases and maintenance, facility rentals, and staff salaries. The tax base for mining operations remains separate from other business activities, requiring distinct accounting and reporting.

Tax authorities gained the power to request bank statements for crypto-related accounts if they suspect violations, while regulators monitor crypto-to-fiat transactions through banks.

Mining infrastructure operators must report all service provision data to the Federal Tax Service, with a 40,000 ruble ($417) fine for missed deadlines or failure to report. This new oversight extends beyond individual miners to include hosting providers and mining pools.

Notable exceptions exist in the framework: crypto operations won’t face value-added tax (VAT). The government rejected earlier proposals for electricity consumption-based taxation through special excise taxes on power used for mining.

According to the Industrial Mining Association’s estimates, these tax measures could generate annual budget revenues of 50 billion rubles ($521 million). However, industry representatives argue that taxable income should only be recognized at cryptocurrency sale rather than at mining, citing concerns about investment attractiveness, according to Izvestia.

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TaxDAO Commentary

The progress of the cryptocurrency tax bill demonstrates the Russian government’s step-by-step approach toward regulating the crypto mining industry. First, the bill formally classifies cryptocurrency as property, providing a legal basis for cryptocurrency payments. Additionally, the requirement for companies to register with the Federal Tax Service for legal mining, with an electricity cap for individuals, aims to limit illegal mining activities and ensure tax compliance.

Russia’s approach to taxing cryptocurrency has multiple motivations. First, as global attention on digital currencies intensifies, Russia’s cryptocurrency market has experienced explosive growth, projected to reach $18 billion by 2023. This rapid expansion has driven the Russian government to establish tax policies to keep up with the fast-developing digital currency market. Second, in light of international political tensions and sanctions on Russia, tax transparency and anti-tax-evasion measures remain global concerns. Russian President Vladimir Putin has stated that the government will regulate cryptocurrency transactions to ensure market stability and investor protection, which includes establishing related regulations to bring cryptocurrency trading in line with national financial oversight.

Lastly, through this cryptocurrency tax bill, the Russian government hopes to boost national revenue. Analysts estimate that Russia could collect up to 1 trillion rubles ($13 billion) annually from legal cryptocurrency trading and investment. However, Russia’s current tax framework presents some challenges, such as requiring ordinary taxpayers to pay taxes in foreign currencies, interpret complex tax laws, and independently calculate and remit taxes, which increases taxpayer burdens and may impact national revenue. Therefore, centralizing the tax mechanism for cryptocurrency exchanges and assigning the responsibilities of tax calculation and payment to professional financial market participants (tax agents) has become a proposed solution. Through these measures, the Russian government aims to enhance tax transparency, curb tax evasion, and ensure cryptocurrency transactions comply with national financial regulations.

Compared to cryptocurrency tax policies in other regions, Russia’s new regulations not only reflect a profound understanding of this emerging market but also demonstrate innovation in tax policy. The bill’s two-stage tax model, with an initial tax at the point of wallet deposit and an additional tax or loss deduction based on market fluctuations, sets a precedent for how other countries might approach cryptocurrency taxation.

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