Crypto or cryptocurrency is a digital currency that does not use banking organizations to verify transactions. In fact, this is electronic money that does not have a physical form; it exists exclusively in the digital space in the data format. The main unit of measurement for cryptocurrency is considered to be «coins». At the heart of any cryptocurrency there is a complex cryptographic algorithm, and the principle of operation of electronic finance is built on an open information transfer protocol. Absolutely all processes, including the issuance of new coins or transaction processing, are carried out by the network participants together. Due to decentralization (storing data on many different devices), banking organizations cannot manage the crypto. The information is safe because it cannot be taken over by intruders for profit. In the Russian Federation, using the crypto, it is possible to perform the following transactions: store on the exchange or in a digital wallet, transfer to third parties, give, bequeath, and exchange for fiat money. All known coins (Bitcoin, Ethereum and others), according to the legislation of Russia, fall under the definition of a digital currency.
On the first day of this year, a bill prohibiting the payment of goods and services provided in Russia with cryptocurrency came into force. Advertising for making payments was also banned (that is, if a person publishes an ad that sells a car for crypto – it is illegal). In addition, the crypto has received its own definition. Without going into details, then now it is a digital code used as an investment, the accumulation of finance. However, in Russia, it is prohibited to use it as a means of payment for any product or service. From the point of view of the tax service – this is property that can be given, bequeathed, sold/bought. If a person is the owner of any amount in digital currency, he will need to file a declaration to the tax office. This document is supposed to display the very fact of owning a crypto and all transactions carried out with it. Also, companies are allowed by law to issue their own coins. So, citizens of the Russian Federation can make a purchase or sale of digital money, carry out any other actions with it. But you cannot pay with cryptocurrency for the goods or services you receive. Also, at the level of legislation, it is supposed to regulate mining, organize the issuance of digital money, their turnover and taxation in Russia.
In accordance with the law, which entered into force at the beginning of 2021, the circulation of digital currency in Russia is officially allowed. However, electronic payments cannot be made for goods and services. And what can you do? Cryptocurrency is a property, which means it can be recovered if the owner of digital finance has declared himself/herself bankrupt or is involved in corrupt transactions, money laundering. In addition, digital currency is allowed to be inherited, bequeathed, given, sold and bought. Many citizens of the Russian Federation actively use crypt as collateral. Cryptocurrency is an investment, and legal one. Investing in coins is available to both individuals and legal entities. But the purchase of cryptocurrency issued outside the law of the Russian Federation is available only on foreign trading platforms. And, of course, mining. The legislation of the Russian Federation does not prohibit the mining of cryptocurrency. The law does not even have such a definition yet. Mining is spoken about in the context of issuing digital money. In the future, of course, the law will be amended, but it is unlikely that they will prohibit mining for cryptocurrency. Most likely, miners will not be able to take cryptocurrency as a reward in the future. According to forecasts, they will have to immediately exchange the mined coins for fiat money.
Digital money holders will be forced to pay taxes. If violators choose not to provide information about their electronic currency, they will be obliged to pay a fine in the amount of 10% of the amount hidden from the state tax authority. In the second half of February 2021, the State Duma of Russia adopted a bill on taxing transactions with cryptocurrency. This law amends the Tax Code. It requires both individuals and legal entities to submit reports to the tax service regarding the fact of possession of electronic finance and to pay taxes when transactions for 600,000 rubles or more were made during the year. Profits from cryptocurrency transactions will be subject to personal income tax or income tax. In addition to a fine of 10% of the amount concealed from the state authorities in cryptocurrency, the legislation proposes to recover 50,000 rubles from individuals and legal entities that did not provide the required information on obtaining the right to dispose of electronic assets in a timely manner.
In 2021, individuals must declare profits from the sale of digital money. To do this, it was necessary to submit a declaration for the previous year by the end of April. This was required to be done either in the personal account of the website of the Federal Tax Service, or by submitting documents (personally or by mail) to the appropriate authority at the place of registration. Due to the fact that in accordance with the current draft law, the crypt is equated with property, the profit from its sale is subject to personal income tax. The tax rate is 13%, but if the income is more than 5 million rubles, the rate is 15%. If the tax is not paid, then the law provides for sanctions. In the event that taxation is not paid intentionally, the amount of liability is 40% of the total amount of unpaid tax. When the illegal act is unintentional – 20%. In addition to the total amount of the fine, the taxpayer is also required to pay the amount of tax and penalty. In addition, you can get criminal prosecution for tax evasion. When the amount of personal income tax for 3 financial years is more than 2.7 million rubles, the offender may face punishment up to imprisonment for 1 year (over 13 million rubles – up to three years in prison).
The Digital Asset Bill, passed in early 2021, does not include a definition of mining. Therefore, there are no separate provisions regarding its taxation yet. Back in 2018, the Ministry of Finance made a statement that the taxation of crypto mining can be considered only after the creation of special regulation. The adopted bill says only about the ban on accepting digital money as payment for goods or services provided. There is nothing said about crypto mining and making a profit from mining. However, in the initial versions of the law, the mining of digital currency was called for to be equated with entrepreneurship. This initiative was not included in the document that entered into force. But if the transactions for the sale of electronic money become permanent, they will be considered nothing more than an entrepreneurial activity. So, in accordance with the general rule, the profit from crypto mining will be taxed, as well as other transactions with digital money (personal income tax or income tax). While in the Russian Federation there is no practice with the procedure for taxation of these transactions, as well as clear explanations of the tax service.
The Professional association and market participants have created a method to help establish the official value of the cryptocurrency. This is required for the payment of taxes and court proceedings, the subject of which is electronic finance. The essence of the method is as follows: for 24 hours, every half minute, the BTC rate is requested from several cryptocurrency exchanges. The received information is analyzed, at the end of 24 hours the average value is fixed and the exchange rate against the ruble and the dollar is calculated. The quotes of other digital currencies that are traded in pairs with BTC are determined in a similar way. The law on digital assets came into force at the beginning of this year, and, according to the adopted document, individuals and legal entities are required to pay taxes on income from the crypto. This method will help them calculate the amount of taxation and pay the required tax. As for legal proceedings, the digital currency is increasingly featured in disputes. Especially after the cryptocurrency is recognized as property that can be sold, bought, given, or inherited. It is also possible to recover it if the company is declared bankrupt or became involved in a corruption case, etc. Therefore, this technique will also be very useful here.
Despite the fact that at the legislative level the rules of transactions related to the sale and purchase of cryptocurrency have not yet been approved, it is possible to sell and acquire it. Most likely, in the future, the state will adopt special rules for the exchange of electronic money, for example, exclusively through official operators (as in the case with digital financial assets). Today, the purchase and sale of cryptocurrency is identical to the purchase or sale of property. The buyer agrees with the seller, and the transaction is concluded. When the proposed additional requirements appear, they are unlikely to come into force after the fact. That is, there will be no punishment or penalties for transactions that have already been made. But in Russia, there is a risk of bank control when a financial institution considers an transaction as suspicious (money laundering). Then it will simply block the account with the requirement to document the transaction, which in the case of cryptocurrency can be quite difficult.
Despite the fact that from the beginning of 2021, citizens of the Russian Federation can carry out legal transactions with digital currency, it is prohibited to sell, as well as buy any goods or services at the legislative level. The use of cryptocurrency as a means of payment is not allowed due to the fact that it threatens the Russian monetary system. The ban also includes advertising that says that it is possible to pay with the help of electronic finance. From the point of view of legislation, cryptocurrency is property that can be given, accumulated, exchanged, mined, sold and bought, as well as bequeathed. It is not allowed to pay for goods or services in Russia.
Russian legislation does not prohibit the mining of cryptocurrency within the country. In addition, according to the rules, digital money will be considered issued in the Russian Federation if the mining equipment is located in Russia, or the miner uses a connection through Russian network addresses or domains. So far, the taxation of mining is not yet clear. In the draft law on digital assets, which came into force at the beginning of the year, crypto mining is defined as the issue of electronic currency. However, in the future, when amendments are made to the already adopted document regarding crypto mining, this can become an important sign of legal regulation in the taxation of mining. An important nuance can be called the fact that the Ministry of Finance is going to amend the bill, according to which miners will not be able to take cryptocurrency as a reward for mining of digital finance. This will significantly complicate mining due to the fact that the received coins will need to be immediately exchanged for fiat funds.
It was planned that the law regarding taxation of transactions with cryptocurrency will come into effect this year. But due to the fact that the legislature has not fully established itself in the essence of the digital currency and the approach to transactions with its participation, the adoption of this law was slightly delayed. However, the legislators have several changes in the projects. For example, if the total amount of transactions for a financial year is equal to or exceeded 600,000 rubles, taxes must be paid from it (otherwise – a fine of 10%). When a person has received the right to manage electronic finances (private key), but is not going to make transactions with them yet, he/she is still obliged to report this to the tax office. Otherwise – a fine of 50,000 rubles. Due to the fact that the cryptocurrency is recognized as property, it is subject to personal income tax for individuals and income tax for legal entities. Here the fine ranges from 20% (unintentional tax evasion) to 40% (intentional one). Among other things, last year, amendments were made to the Criminal Code, according to which failure to report large amounts of cryptocurrency (15 million rubles and more) threatens either with a large fine or even with imprisonment.
The purpose of NFT is to transfer rights to a specific object. It can be an image, a piece of music, etc. This is the main difference between an NFT token and cryptocurrency. The legislation of the Russian Federation regulates the rights to authorship. But the Civil Code does not yet provide for the transfer of these rights using the blockchain. Therefore, if a transaction is carried out through an NFT token, it is considered by law as oral, that is, not supported by documents. Clause 2 of Article 1234 of the Civil Code of the Russian Federation assumes the transfer of copyright in writing and the conclusion of a license agreement (Article 1286, clause 2). If the subject does not have a written agreement, he/she will not only be unable to confirm the costs of taxation, but if something happens, protect his/her intellectual property in court proceedings. Nowadays, there are activists of the cryptocurrency world in the Russian Federation who seek to resolve this issue with the help of an offer agreement on platforms engaged in NFT trading. However, in Russia, this legal practice is still absent, which means that the success of this case is very doubtful. As for the legality of NFT tokens, they are not banned in the Russian Federation, but if a person decides to make a profit from their sale, his/her account may be blocked. And it will be very difficult to prove the origin of the finances.
NFT or Non Fungible Token is a relatively new technology that in the future will certainly have a tremendous impact on all spheres of human life. It makes it possible to transfer into the digital space any interaction not only with virtual, but also with physical objects. In other words, NFT token is a certificate that digitally represents any unique object. For example, it can be applied to any digital product (music, picture, etc.). It is in the NFT that product data will be contained – this is a unique right to an object. When certain actions are performed with the token (sale, purchase, etc.), they also occur with the object. According to the law on DFA, which came into force at the beginning of the year, electronic assets can also be called NFT, because their owner receives certain rights to them. However, everything is not so simple here, because digital assets are present on a non-decentralized blockchain. This means that they cannot fully correspond to the meaning inherent in the NFT, with the help of which the authors of musical and artistic works realize the benefits of their creativity on special, digital trading platforms.
China introduced the digital yuan in 2019. Testing began with several cities in the Middle Kingdom. Electronic money is equivalent to the national currency. Their free circulation around the country is planned by 2022. Experts believe that virtual money will be able to compete with the dollar, but will not compete with bitcoin. As for Russia, there has been talk of creating an electronic ruble for quite some time. For example, the Bank of Russia reported that it was assessing the probability of issuing electronic money in October last year, and although there is no such decision yet, in order to be ready to launch the digital ruble in a timely manner, active study of this issue is required. Speaking of the influence of the electronic ruble on the status of cryptocurrency, it should be understood that these monetary units, except for the blockchain technology, have practically nothing in common. National digital money is not decentralized, its circulation and emission are regulated by the central bank, and instead of the anonymity inherent in cryptocurrency, the use of electronic finance is completely controlled. In fact, the digital ruble is not cryptocurrency, but a method of cashless settlement using the blockchain. So it follows, that the electronic ruble will not have any effect on the cryptocurrency.
In view of the fact that the law on the DFA equated cryptocurrency with property, it is required to pay taxes for it. For individuals, this is personal income tax, the rate at which is 13%. If the annual profit is 5 million rubles or more, then 15%. In accordance with the letter of the Ministry of Finance of the Russian Federation, the cryptocurrency must be taxed on income. However, since the Tax Code does not define the procedure for taxing profits from cryptocurrency transactions, taxes are levied in the general manner:
- the amount of money spent on the purchase of cryptocurrency is deducted from the amount of profit (even if the transaction was carried out more than 12 months ago);
- the resulting amount is multiplied by the amount of personal income tax.
The State Duma adopted a law on taxing cryptocurrency transactions, where virtual money acts as property. For this reason, cryptocurrency owners are required to submit a declaration to the Federal Tax Service in a situation where the total transactions with cryptocurrency over the past financial year amount to 600 or more thousand rubles. Personal income tax will be 13% (if the amount of transactions is 5 million rubles or more, then 15%). The penalties for concealment of cryptocurrency transactions are as follows:
- for concealing transactions with digital money from 15 million rubles or more, the punishment ranges from 100 thousand rubles to imprisonment for up to 6 months;
- for concealing transactions from 45 million rubles or more, the punishment ranges from 500,000 rubles to imprisonment for up to 3 years.
- for individuals – from 20 to 200 thousand;
- for officials – from 50 to 400 thousand;
- for legal entities – from 100 thousand to 1 million.
At the moment, there is no criminal liability for the mining of cryptocurrency. In fact, in the legal space of the Russian Federation there is still no such definition as “mining”, which is why the law enforcement agencies cannot clearly explain their desire to bring cryptocurrency miners under sanctions. In fact, all the charges against the miners are groundless, especially against the background of the adopted bill, according to which cryptocurrency is recognized as property. However, do not forget that against the owner of digital finance, it is possible to use legal acts prohibiting any fraud related to the laundering of funds that are obtained illegally. As for other countries, Abkhazia has already considered laws on sanctions and even criminal liability for mining. However, in this country, there are problems with energy supply, and the power consumed by the equipment can create some difficulties with energy supply to the population. Cryptocurrency is also banned in countries such as Bolivia, Bangladesh and Kyrgyzstan. Let’s see what Russian legislators will take in the future. So far, everything is relatively calm with mining in the Russian Federation.
The Russians began to pay personal income tax from cryptocurrency transactions. Employees of law firms note that residents of the Russian Federation have begun on a voluntary basis to transfer information regarding the availability and transactions with digital money to the tax authorities. This can be explained by the fact that the Federal Tax Service receives detailed information regarding foreign transactions of citizens of the Russian Federation, and the attitude of regulators to cryptocurrency has become more rigid. In addition, the draft law on the DFA states that in the event of legal proceedings, the owners of cryptocurrency can only be protected if they have declared their own finances. However, there is one significant problem – it is not yet very clear how to correctly declare digital money and pay taxes on transactions with it. There are also difficulties with determining the value of a particular coin, because in the Russian Federation there are still no official platforms for cryptocurrency trading. Therefore, now they use the method of determining the value of bitcoin, when during the day every 30 seconds on several exchanges the BTC rate is requested and at the end of 24 hours the average value of the coin is displayed. Soon the draft law on amendments to the Russian Tax Code will be considered on second reading, and then more clarity on this issue should appear.
There are cryptocurrency trading platforms that do not require verification. Moreover, working on them is beneficial for both traders and the exchanges themselves. For example, the Binance platform is rightfully considered one of the most famous trading platforms. This is where the careers of many novice traders start. The exchange is fully adapted for the Russian-speaking user and provides the ability to deposit and withdraw most of the world’s currency, including rubles. Verification is, of course, present here, but this procedure is not required, and a beginner may well do without this procedure. You will need a valid phone number or email to register. There are also a large number of cryptocurrency exchanges that also support the Russian, English and Chinese languages and do not require user verification. To get started, you will need to fill out an elementary form and specify your own email address, choose a username, password. Some representatives of the traditional banking system speak of exchanges as a place where money is laundered. It is probably for this reason that the platforms were obliged to collect data from traders. But the majority of users are more than positive about exchanges that make it possible to work without passing verification. After all, thanks to this, people can carry out transactions that cannot be tracked, or associated with a specific subject.
After the entry into force of the bill prohibiting the sale and purchase of goods or services provided for cryptocurrency, the issue of exchanging digital money for fiat money has become especially acutely. There are several ways to exchange cryptocurrency.Exchangers are the most popular method. Special services offer the user to sell cryptocurrency for rubles or dollars, after which the fiat funds are sent to a bank card or payment system. It is possible to find a suitable exchanger using aggregators, but here you need to exercise maximum caution and common sense so as not to run into scammers. It will not be superfluous to read the reviews of other users, inquire about the reputation of the selected exchanger.An Exchange – most trading platforms allow you to withdraw funds to a bank card. This method is safer due to the fact that the risk of running into an unscrupulous counterparty is less likely. The main thing is to give preference to proven platforms that have been working for more than one year.There are other ways to convert cryptocurrency to fiat money (both legal and illegal), but the two listed above are the safest and fastest.