“Pay taxes, crypto-investor”: briefly about how the state in Russia regulates digital currencies

Legislation in Russia is changing so rapidly that it is useful for crypto investors and miners to check the clock: what is now possible and what is not, what the tax authority has the right to, what restrictions should be expected.

Lawyers from GMT Legal answer questions from readers and editors.

How to pay taxes in Russia Do I need to pay taxes on income from cryptocurrency now and how exactly? For example, if a cryptocurrency was bought, then sold at a profit and converted to fiat?

Any income is taxed in Russia, this is a general rule. In accordance with paragraph 1 of Article 41 and Article 271 of the Tax Code of the Russian Federation, economic benefits in cash or in kind are recognized as income.. Economic benefit refers to the excess of income over expenses.

In order to correctly file and pay tax as an individual, you need to report from January to April for income received in the previous tax period. In the case of January-April 2023 – for income received in 2022.

You should report by filling out a tax return 3-NDFL. You can calculate the tax for a tax return yourself or use various services, such as BitOK. The completed declaration is submitted offline or through the personal account of the taxpayer

In addition, the obligation to pay tax on income from operations with digital currency is provided for in accordance with the letter of the Federal Tax Service of Russia dated 06/04/2018 No. BS-4-11/10685 “On the procedure for taxing personal income”.

How is the tax base for cryptocurrency transactions calculated? When does the obligation to pay tax on such transactions arise?

Now the obligation to pay tax does not apply to income fixed in digital currency. Therefore, the obligation arises only if the digital currency is converted into fiat and income is received in ruble terms.

The tax base for cryptocurrency purchase and sale operations is determined in rubles as the excess of the total amount of income received by the taxpayer from the sale of the relevant cryptocurrency over the total amount of documented expenses for its acquisition (Letter of the Federal Tax Service of Russia dated 04.06.2018 No. BS-4-11 / 10685 ” On the procedure for taxation of income of individuals).

When you definitely don’t need to pay tax Let’s say I received an amount in a crypt, and I need to transfer it to rubles by transferring it to a Russian bank card. How is it tracked? Starting from what amount? In what situation is it absolutely not necessary to pay tax? Should an individual notify the tax office himself? What about a legal entity, individual entrepreneur or self-employed?

The first to check incoming rubles on a Russian card is a bank. Verification in 99% of cases is carried out within the framework of the law on combating the financing of terrorism and laundering of proceeds from crime.

Why are banks hesitant? The answer is very simple:

  1. The Bank of Russia, in accordance with its Regulation No. 375-p dated March 2, 2012, officially recognized that a transaction with digital currencies is a sign indicating laundering of proceeds from crime or financing of terrorism

  2. There are separate methodological recommendations that every cryptocurrency owner must know (the so-called MP No. 16) – on increasing the attention of credit institutions to individual transactions of individual clients.

Here are some recommendations:

  • A short period of time (one minute or less) between crediting funds and debiting;

  • A large number of transfers to accounts of different individuals, for example, more than 10 per day, more than 50 per month;

  • Large money transfers between individuals: more than 100 thousand rubles per day, more than 1 million rubles per month;

  • During the week, the average balance of funds on the bank account at the end of the operating day does not exceed 10% of the average daily volume of transactions on the bank account during the specified period.

We understand that this has nothing to do with taxes.. Here we are talking about the “purity of funds” and countering money laundering.. The bank risks its license if it accepts dirty rubles. Taxes should be separated and considered separately.

As for taxes: banks, for their part, have the right to report data on customer transactions to both Rosfinmonitoring and the Federal Tax Service. These regulatory agencies conduct inspections and send notifications to the name of the client with a request for clarification. The Federal Tax Service has a simple question: “Why didn’t they pay taxes on all incoming amounts?”

Whether this is income or not, it will be necessary to prove the person in whose name the request came. It is important to correctly and legally confirm expenses. If you bought for 30 thousand and sold for 60 thousand, then you will have to pay only from the difference of 30 thousand, and not from all 60 thousand, as the bank sees it and, consequently, the Federal Tax Service. Every citizen of the Russian Federation has such a right.

An individual is obliged to independently notify the tax office of income by timely filing a tax return (as we have already said, usually from January 1 to April 30 of the year following the reporting year). As for legal entities and individual entrepreneurs, it is forbidden to conduct business using crypto in the Russian Federation, and there is nothing to report on taxes.

In what case can assets be taken away from a crypto-investor What is the current procedure for blocking and withdrawing cryptocurrency assets on centralized and decentralized exchanges?

In the case of DEX, there is no possibility to “lock” or “withdraw” cryptocurrency. The fact is that in DEX it is a smart contract (program), which, after launch, goes out of control of the developer, and all decisions on changes are made based on the voting of the participants of the decentralized autonomous organization (DAO) that manages the DEX. Given that there are also no KYC procedures on the DEX, it is impossible to identify assets subject to collection or blocking.

A completely different story with centralized exchanges (CEX). Precisely because of the presence of centralized controls and customer identification (KYC) procedures, CEXs can disclose information about users, including the status of custodial crypto wallets.. Binance even carefully prepared a special guide for the authorities.

To block cryptocurrency, law enforcement officers or officials will need the following procedure:

  1. Submission to the court of an application for the imposition of interim measures in the form of blocking of crypto assets. The plaintiff will have to prove which account and on which exchange is associated with the defendant.

  2. Adoption by the court of a ruling on the imposition of interim measures in the form of blocking crypto assets.

  3. Submitting a definition to the marketplace. To increase the chances of consideration, you will have to notarize the translation of the definition into the language of the exchange and apostille for the country of registration of the exchange.

  4. Hope that the exchange will accept the appeal.

However, there are less elegant ways to block or withdraw crypto.

So, for example, in the bankruptcy case of one Muscovite, the court ordered the debtor to transfer access data to the crypto wallet to the financial manager in the presence of a notary, and also to be personally present at the entrance to the wallet “to draw up an act-acceptance of the transfer of property (bitcoins) for the purpose of inclusion in the bankruptcy estate”. This definition was left unchanged by the appellate and cassation instances.

In general, Russia has not yet formed an unambiguous withdrawal/blocking practice that would take into account all the specifics of cryptocurrencies. However, there is no doubt that in the coming years, a significant part of the gaps in the legislation will be closed.

What awaits clients of crypto-exchanges How will regulators track the transactions of Russians in a situation where foreign sites refuse to work with the Russian authorities? Or is it worth waiting for the emergence of domestic (state) crypto-exchanges?

If we are talking about the blockchain, then anyone with internet access can view all transactions on the blockchain.

The difficulty is that the blockchain does not require identification of a person (full name, passport data, etc.), the counterparties in it are crypto wallet numbers like 12KKDt4Mj7N5UAkQMN7LtPZMayenXHa8KL. This designation makes it difficult for regulators to establish that a wallet belongs to a specific person.. But this can be done by centralized exchanges, which receive data about the user of the wallet at the time of its registration (KYC procedure) and subsequent transactions of the user to the custodial crypto wallet.

Accordingly, the regulator tracks the transactions of Russians only if it receives from the exchange (or other centralized organization) data on the ownership of the crypto wallet by a specific user.

So, if a foreign exchange refuses to work with Russian law enforcement agencies, then it will be extremely problematic for the authorities to establish the ownership of a crypto wallet and track transactions.

What restrictions await in the near future How will the current cryptocurrency policy in Russia affect retail investors, what restrictions should they expect?

So far, there is no firm specifics regarding the regulation of the activities of retail crypto investors.. However, given the state’s past record of regulating digital financial assets, in relation to investment in cryptocurrencies, one can expect a limit on the amount of investment per year, as well as a division into qualified and non-qualified investors.. Naturally, all potential innovations will be explained by concern for the financial well-being of retail investors, 81% of whom are losing money in this year's bear market.

What do you think the state regulation of cryptocurrencies and cryptoassets in Russia will be like in the future?

For several years now, state regulation of cryptocurrencies has been balancing between a complete ban (the position of the Bank of Russia) and partial legalization (the position of the Ministry of Finance). The economic isolation of Russia has become a catalyst for the implementation of the second concept. This can be judged based on the intention to use crypto in international settlements, as well as the potential legalization of mining and the creation of a state crypto exchange.