Individuals and legal entities residents of the Russian Federation are allowed to operate with cryptocurrencies. The main official document on this issue is the Letter of the Ministry of Finance of the Russian Federation and the Federal Tax Service of the Russian Federation dated October 3, 2016 No. OA-18-17/1027, which states: “the legislation of the Russian Federation does not contain a ban on Russian citizens and organizations conducting transactions using cryptocurrency.”
It is impossible not to say about the position of the tax authorities. They agree that Russian legislation does not prohibit transactions using cryptocurrency (letter of the Federal Tax Service of the Russian Federation dated October 3, 2016 No. OA-18-17/1027).
Are transactions with cryptocurrencies subject to taxes?
To date, regulatory authorities have provided clarifications only regarding the taxation of transactions with cryptocurrencies in relation to individuals. Thus, the Ministry of Finance of the Russian Federation believes that transactions with cryptocurrencies should be subject to personal income tax (Letter dated October 13, 2017 No. 03-04-05/66994). In this case, in accordance with the provisions of Art. 228 of the Tax Code of the Russian Federation, individuals must independently calculate and pay tax, receiving remuneration from individuals on the basis of civil law contracts. In other words, if one individual sells bitcoins (or other currency) to another individual, he must independently determine the tax base, report the income received, calculate and pay the tax. At the same time, the Russian Ministry of Finance relies on the provisions of Art. 41 of the Tax Code of the Russian Federation on the determination of income.
There are no official clarifications regarding the taxation of transactions with cryptocurrencies regarding companies and individual entrepreneurs.
LEGAL SERVICES FOR COMPANIES
Slovenia
In Slovenia, the tax system for individuals and companies associated with BTC is quite variable. Even though citizens are not charged capital gains tax on the sale of Bitcoin and other cryptocurrencies, they still have to pay income tax no matter what currency they exchange. However, companies that receive payments in BTC or from crypto mining are required to pay tax at the corporate tax rate.
Corporate taxation “depends on the circumstances of the individual case and the information provided in the return: the status of the recipient of the income, the type of income. If profit is recognized as capital gain, then the tax is 19%,” experts say.
What is the most favorable tax system?
Today, individual entrepreneurs and LLCs can engage in such activities as purchasing cryptocurrency on one exchange for the purpose of resale on another exchange. The law does not prohibit this.
Now let’s consider which taxation system is beneficial to use and, depending on this, we will determine whether it is better to open an LLC or an individual entrepreneur.
The most optimal mode is the simplified tax system, because when applying the general taxation system, companies will have a higher tax burden: they are forced to pay income tax and VAT (if cryptocurrency is sold by a Russian company or individual entrepreneur registered in Russia, then an object of taxation arises - Article 146 of the Tax Code of the Russian Federation).
In addition, when using the general taxation system, the problem arises of determining expenses related to the “production” of cryptocurrency (Article 318 of the Tax Code of the Russian Federation). It is impossible to determine and somehow evaluate in tax accounting the balances of unfinished calculations (the essence of mining).
And in this situation, it does not matter whether the LLC or individual entrepreneur will apply the general taxation system. In the latter case, if it is impossible for an individual entrepreneur to document his expenses, he only has the right to reduce income by 20% (professional deduction).
Important!
Based on the above, we consider it inappropriate to use a general taxation system.
Portugal
In this country, individuals do not have to pay capital gains tax or value added tax (VAT) when purchasing or selling Bitcoin or other digital assets. Thus, the relevant authorities in the country have abandoned the collection of these taxes, and the Portuguese Tax Authority (PTA) about the currency is the provision of services on request and without VAT.”
However, the PTA noted that if businesses accept digital currencies as payment for goods or services provided, they will have to pay income tax and VAT.
It turns out that Portugal's laws regarding cryptocurrencies are among the most favorable in the world, since income tax is considered a huge expense on most digital asset accounts.
Let's consider the benefits of the simplified tax system.
In order to determine which object is profitable to use under the simplified tax system, we will carry out a comparative calculation of the effectiveness of choosing tax bases:
| Object of taxation “Income” | Object of taxation “Income reduced by the amount of expenses” |
| EH = [D x 6%:2] The single tax calculated for the tax period is reduced for insurance premiums, temporary disability benefits and payments under voluntary personal insurance contracts for employees by no more than 2 times (clause 3.1 of Article 346.21 of the Tax Code of the Russian Federation, Letter of the Ministry of Finance of the Russian Federation dated August 10, 2017 No. 03 -11-11/51316). All other expenses are not taken into account in the calculation of the single tax “income” simplified tax system. | EH = (D - R) x 15% Insurance premiums are taken into account as part of recognized expenses on the basis of paragraph 7 of paragraph 1 of Art. 346.16 Tax Code of the Russian Federation without restrictions. In that case, for the tax period the amount of tax calculated in the general manner is less than the amount of the calculated minimum tax, then at the end of the year a minimum tax is paid in the amount of 1% of income (clause 6 of Article 346.18 of the Tax Code of the Russian Federation). |
| Notations used in the formula: EN - single tax under the simplified tax system; D - income; P – expenses. | |
| Let us determine the amount of expenses at which the effect of using two tax bases will be the same: [D x 6%:2] = (D - P) x 15%; 0.03 x D = 0.15 x D - 0.15 x R; P = 0.8 x D Thus, if expenses amount to 80% of income received or more, and we assume that payroll x % of insurance premiums >= EN:2 (for the “profitable” simplified tax system), then it makes sense to consider the object of taxation “Income reduced by the amount of expenses " | |
However, in order to make a choice in favor of one or another tax base, it is necessary to analyze the structure of possible expenses, taking into account the percentage of payment, since in practice, purchased goods, works, and services can be paid in installments.
In relation to the simplified tax system with the taxable object “Income reduced by the amount of expenses”, one should take into account the closed list of expenses given in Article 346.16 of the Tax Code of the Russian Federation.
PROVISION OF LEGAL SERVICES
This article does not include this type of expense in the form of replenishing the account of exchange “A” by bank transfer from the current account of an LLC or individual entrepreneur, but income in the form of a bank transfer in foreign currency from exchange “B”, etc.
You will have the OKVED code 62.09 “Activities related to the use of computer equipment and information technologies, other” and the expenses associated with this activity are practically absent from the closed list of Article 346.16 of the Tax Code of the Russian Federation.
In addition, problems will arise with documentary confirmation of transactions with cryptocurrencies for compliance with the requirements of Article 252 of the Tax Code of the Russian Federation.
Therefore, we consider it beneficial to use the simplified tax system with the taxable object “Income” (6%).
ACCOUNTING SERVICES FOR IP
In this case, the cash method will be used and your income will be the proceeds going to your current accounts.
In order to choose in what form you should conduct business, we note the following:
- When creating an LLC, two types of liability arise: liability as a legal entity and the founders (participants) as individuals. An LLC as a legal entity is liable for its obligations only to the extent of its property. However, if, for example, an LLC cannot pay off its debts on its own, then during the bankruptcy process these obligations may be assigned to its founders and participants (subsidiary liability);
- The property of an individual entrepreneur is not divided into personal property and that which he uses in business activities. Therefore, if debt obligations arise, claims will extend even to the property that was received before the start of business. However, it should be noted that there is a list of property that cannot be recovered from an individual entrepreneur (for example, his only home or land).
Composition of the submitted financial statements for LLC:
| OOO | What forms | Reasons |
| Organizations not related to small businesses | Balance sheet | Order of the Ministry of Finance of the Russian Federation dated July 2, 2010 No. 66n, Order of the Federal Tax Service of the Russian Federation dated March 20, 2017 No. ММВ-7-6/ [email protected] “On approval of recommended formats for presenting accounting (financial) statements in electronic form,” Letter from the Federal Tax Service RF dated April 19, 2017 No. PA-3-6/ [email protected] |
| Income statement | ||
| Statement of changes in equity | ||
| Cash flow statement | ||
| Report on the intended use of funds received | ||
| Small businesses | Balance sheet | Order of the Ministry of Finance of the Russian Federation dated July 2, 2010 No. 66n (Appendix No. 5), Order of the Federal Tax Service of the Russian Federation dated March 20, 2017 No. ММВ-7-6/ [email protected] “Recommended format for presenting simplified accounting (financial) statements in electronic form "(Appendix No. 11). |
| Income statement |
Accounting statements can be provided both on paper and in electronic form. At the same time, the signature of the chief accountant on the paper form is not required (Order of the Ministry of Finance of the Russian Federation dated April 6, 2015 No. 57n). To date, the obligation to submit financial statements in electronic form has not been established (letter of the Federal Tax Service of the Russian Federation dated December 7, 2015 No. SD-4-3/21316, letter of the Ministry of Finance of the Russian Federation dated June 11, 2015 No. 03-02-08/34055).
In addition, LLCs are required to submit a legal copy of their annual financial statements to the state statistics body.
Composition of submitted tax reporting:
| Composition of reporting | Reporting form | Base | Where is it provided? |
| DAM (calculation of insurance premiums) | The form of calculation, the procedure for filling it out, as well as the format for submitting calculations for insurance premiums in electronic form were approved by order of the Federal Tax Service of the Russian Federation dated October 10, 2016 No. ММВ-7-11/ [ email protected] (Letter of the Federal Tax Service of the Russian Federation dated December 28, 2017 No. GD-4-11/ [email protected] "). | Clause 7 of Article 431 of the Tax Code of the Russian Federation | To the tax office |
| SZV-M | The form was approved by Resolution of the Board of the Pension Fund of the Russian Federation dated February 1, 2016 No. 83p. | Clause 2.2 of Article 11 of Law No. 27-FZ of April 1, 1996 | To the Pension Fund |
| SZV-STAZH | The form was approved by Resolution of the Board of the Pension Fund of the Russian Federation dated January 11, 2017 No. 3p. | Clause 2 of Article 11 of Law No. 27-FZ of April 1, 1996 | |
| 4-FSS (Calculation on accrued and paid insurance premiums for compulsory social insurance against industrial accidents and occupational diseases) | The form and procedure for filling out were approved by order of the Federal Social Insurance Fund of the Russian Federation dated June 7, 2017 No. 275. | Clause 1 of Article 24 of Law No. 125-FZ of July 24, 1998 | To the regional branch of the FSS |
| 6-NDFL | The form and procedure for filling out were approved by order of the Federal Tax Service of the Russian Federation dated October 14, 2015 No. ММВ-7-11/ [email protected] | Clause 2 of Article 230 of the Tax Code of the Russian Federation | To the tax office |
| 2-NDFL | The form and procedure for filling out were approved by order of the Federal Tax Service of the Russian Federation dated October 30, 2015 No. ММВ-7-11/ [email protected] | Clause 2 of Article 230 of the Tax Code of the Russian Federation, Clause 5 of Article 226 of the Tax Code of the Russian Federation | |
| Declaration according to the simplified tax system | The form and procedure for filling out were approved by Order of the Federal Tax Service of the Russian Federation dated February 26, 2016 No. ММВ-7-3/ [email protected] The format of the inventory of documents in electronic form was approved by Order of the Federal Tax Service of the Russian Federation dated June 29, 2012 No. ММВ-7-6/ [email protected] | clause 1 and clause 2 clause 1 of article 346.23 of the Tax Code of the Russian Federation | To the tax office |
From an accounting point of view, it is easier to maintain an individual entrepreneur than an LLC. Based on these considerations, an individual entrepreneur with the “Income” object will be a more suitable form of doing business.
ACCOUNTING
What's next for mining?
In December 2020, the Bank of Russia website posted a report on the development of distributed ledger technology, which is directly related to blockchain technology, Bitcoin and other crypto-assets. The Bank of Russia sees the prospect of a new way of exchanging information with auditors and banking supervisory authorities in distributed registry technology. For example, the supervisory authority will receive transaction data as soon as it is transmitted to the network. By having viewing access to certain parts of the general ledger, supervisors will be able to obtain more reliable information about the history of transactions and the origin of assets. And then the problem of maintaining the confidentiality of information is described, since distributed storage of information presupposes the presence of a copy of the distributed registry on each node that is a member of the network ( ).
The use of distributed ledger technology is not prohibited, and general legislation should apply to its use in the financial sector, which may require additional clarification or the development of special regulation of certain aspects. Given that this technology is in its early stages of development and key market participants are taking different approaches to their developments, the adoption of common standards is not yet possible.
The bill, already prepared by the Russian Ministry of Finance, provides for very “light” regulation. It introduces legal definitions of most concepts and establishes a legislative framework for ICOs, where an attempt is made to legalize smart contracts: so that there is a document that can be presented in court in case of a dispute, and the person raising funding is responsible for their promises.
Otherwise, this bill allows for the development of regulation: it itself is of a framework nature, but on its basis it will be possible to work further, including introducing regulations regarding the circulation of digital currencies.
At the same time, the concepts of cryptocurrency and token have already been differentiated (the first does not have an issuer, and the second must have one) and a definition has been given to mining, which is called a business activity.
Malta
The famous “blockchain island” of Malta does not tax long-held digital currencies for either capital gains or VAT. However, intraday cryptocurrency trades are considered similar to intraday stock or foreign exchange trades, which are taxed at 35% as business income.
Malta is perhaps one of the most crypto-friendly countries in the world, initiating legislation that has legalized many different crypto transactions in the country. The government recognizes Bitcoin “as a unit of account, a medium of exchange, or a store of value.”
