Russian President Vladimir Putin has signed an important law that officially recognizes cryptocurrencies as legal property. This marks a new milestone in the country's regulation of digital assets. The law will take effect on November 29, 2024, and it will establish a comprehensive tax framework for cryptocurrency transactions and mining operations within the country.
All profit from the sale of these cryptocurrencies will be subject to personal income tax at the 13% to 15% rate as dictated by the newly passed law. This means that any profit less than 2.4 million rubles, which in dollar terms translates to around $28,000, will be subject to a 13% tax while the rest of the profit will attract a 15% tax. Such would be the disciplined and predictable set-up that will affect the manner in which cryptocurrencies would be involved in any kind of transaction.
Not subject to value-added tax Besides direct income tax, the operations of cryptocurrency mining are exempt from other types of taxes. This is being done to encourage a developing business area where the energy cost involved is very low in certain areas. As such, the mining infrastructure operators are legally obligated to present any activities and information of customers being provided with services to the local governing entities; otherwise, they face fines of up to 40,000 rubles- close to $383.
This law classifies cryptocurrencies as property, meaning they are recognized under Russian law. This classification is significant as it clarifies ownership rights and transaction methods involving digital currencies. Additionally, it includes cryptocurrencies used in foreign trade agreements as Russia establishes an experimental legal framework for defining digital assets. Income derived from mining is categorized as "income in kind," and its value is determined based on market conditions. Similar to other types of income, taxpayers receiving income from mining can deduct related expenses from their taxable income.
Additionally, the law prevents miners and traders from accessing certain advantageous tax regimes that could reduce their tax burden. For example, they cannot choose simplified tax systems or benefit from provisions typically available to agricultural enterprises or individual taxpayers.
This new law has another one signed by Putin on August 8, 2024, that made legalization of cryptocurrency mining in Russia. The law, however, only permits large-scale mining to be run through registered Russian legal entities and individual entrepreneurs. Secondly, consumption for Bitcoin mining is allowed to entrepreneurs up to 6,000 kWh a month, but some regions may apply a temporary limit because of energy consumption.
Overall, the moves are likely to make cryptocurrencies easier for miners and traders, which means higher demand for cryptocurrencies in Russia. Traffic towards major crypto exchanges surged over 8% in November 2024, which means that with clearer regulatory frameworks, public interest surges.
As Russia refines its stance on regulating cryptocurrencies, this tax law marks yet another step forward in acknowledging digital currencies within the economic system. Government regulation might even promote more investment and innovation in blockchain technology.
Still, this law is not without its problems. Restrictions on the tax regime might preclude some prospective investors or operators who would like a more lenient tax structure to invest in or operate their mines. This removal of VAT for mining products and services is quite a leap forward for the miner, but detailed reporting requirements turn out to be administratively burdensome even to a few smaller operators.
New tax laws for cryptocurrencies represent a crucial step that Russia has taken in regulating digital assets. These laws formally recognize cryptocurrencies as property, which provides clearer guidelines for taxation. The new regulatory measures will impact all stakeholders, from individual miners to large corporations. As a result, it is crucial for them to prepare for this changing landscape and find their unique positions within it. In the coming months, it will become evident how these changes will affect the domestic market and Russia's role in the global cryptocurrency ecosystem.