To counter financial sanctions, Russia promotes the legalization of cryptocurrency assets

Russia is the third-largest country in the world for Bitcoin "mining," with a high prevalence of cryptocurrency usage. According to government data, among Russia's approximately 144 million population, there are over 12 million cryptocurrency accounts and crypto assets valued at around 2 trillion rubles (approximately 26.7 billion USD). Influenced by the international situation, the Russian government is increasingly focusing on the cryptocurrency sector and has intensified efforts to establish cryptocurrency infrastructure. This article analyzes Russia's general and cryptocurrency tax systems, customs policies related to crypto mining enterprises, and the evolution of Russia's regulation of crypto assets in the context of international developments.

1. Russia's Basic Tax System
1.1 Overview of Russia's General Tax System
The Russian tax law system consists of the Tax Code of the Russian Federation (referred to as the "Tax Code") and other regulations issued under it. According to the Tax Code, taxes in Russia are levied at three levels: the federal level, the federal subject level (also translated as "regions"), and the local level. Federal taxes and fees are determined by the Tax Code and federal laws, taxes of federal subjects are determined by the Tax Code and federal subject laws, and local taxes are determined by the Tax Code and municipal regulations. Federal subject legislation and local legislation can establish tax exemptions, determine tax rates within specific ranges, and set tax payment procedures and deadlines according to the provisions of the Tax Code. Therefore, the tax burden on taxpayers registered in different regions of Russia varies. The Federal Tax Service of the Russian Federation, which is under the Ministry of Finance of the Russian Federation, is the main department responsible for tax administration in Russia, performing functions such as supervising the enforcement of tax laws and ensuring that taxes and other state revenues are paid accurately, fully, and on time according to relevant laws.
1.2 Three-Tier Taxation System
According to the provisions of the Tax Code and federal laws, federal taxes and fees include value-added tax, excise tax, personal income tax, corporate income tax, mineral extraction tax, water use tax, additional income tax on the extraction of hydrocarbons, fees for the use of wildlife and aquatic biological resources, government fees, and social insurance contributions, totaling 10 types of taxes and fees. In addition, local governments have certain taxation powers. Federal subject taxes are paid within the respective federal subject and include three types of taxes: corporate property tax, gambling tax, and transportation tax. Local taxes and fees are paid within the respective city or district and mainly include land tax, personal property tax (property tax), and transaction fees.
1.3 Basic Taxation System
1.3.1 Personal Income Tax
The current Russian personal income tax system classifies taxpayers into two categories: resident taxpayers, who are individuals permanently residing in Russia, and non-resident taxpayers, who are non-Russian residents earning income within Russia.
(1) Resident Taxpayer Tax System
A Russian resident is defined as a Russian citizen or a foreign citizen or stateless person who has lived in the Russian Federation for at least 183 days within any consecutive 12 months. Travel abroad, short-term medical treatment or training abroad for less than 6 months, and working or providing services abroad under an employment contract or other obligations do not interrupt the calculation of residency time. According to the progressive tax rate, a 15% tax rate applies to the portion of annual income exceeding 5 million rubles, while a 13% tax rate applies to the portion of annual income not exceeding 5 million rubles. The scope of personal income tax for resident taxpayers includes four parts: first, income from employment, allowances in kind, and pension income; second, business income and professional income; third, investment income (dividends and interest); and fourth, capital gains (such as profits from the sale of shares and securities). With the exception of special cases, all types of income are subject to a 13% personal income tax rate. Special cases are divided into two types: first, interest on mortgage bonds issued before January 1, 2007, is taxed at a rate of 9%; second, certain types of non-employment income are taxed at a rate of 35%.
(2) Non-Resident Taxpayer Tax System
Non-resident personal income taxpayers in Russia are individuals who have lived in the Russian Federation for less than 183 days within a consecutive 12-month period but have taxable income sourced from within Russia. Similar to resident taxpayers, travel abroad, short-term medical treatment or training abroad for less than 6 months, and working or providing services abroad under an employment contract or other obligations do not interrupt the calculation of residency time. The scope of personal income tax for non-resident taxpayers refers to the scope of taxation for resident taxpayers but is only taxed based on income sourced from within Russia.
The applicable tax rates for non-resident personal income tax are divided into four situations. Situation one refers to the income of foreign employees with high qualifications employed in Russia, as well as income of non-resident foreigners staying in Russia without a visa and individuals working for personal, family, and similar needs with special permits, which is taxed at 13%. Situation two refers to the tax rate of 15% on dividend income received by non-resident individuals from Russian companies. Situation three refers to the tax rate of 30% on income sourced from Russia for non-resident individuals, excluding situation one. Situation four refers to the tax rate of 35% on certain types of non-employment income.
1.3.2 Corporate Income Tax
Russian corporate income tax is paid by all legal entities that earn taxable income during the tax year. The profit subject to Russian corporate income tax (translated as "corporate income tax" in the China-Russia tax treaty) is calculated as income determined according to tax law minus deductible expenses specified by tax law, which is fundamentally consistent with the income accounting principles in corporate income tax in China. The statutory corporate income tax rate is 20%. From 2017 to 2020, 3% of corporate income tax revenue was allocated to the federal budget, and 17% to the federal subject budget (2% before 2017, 18% thereafter). Each federal subject has the right to implement preferential tax rates for specific taxpayers through legislative means, with the minimum preferential rate not lower than 12.5%. The subjects of taxation for Russian corporate income tax are divided into resident enterprises and non-resident enterprises.
(1) Resident Enterprises
A Russian resident enterprise is defined as a company registered in Russia with its actual management located in Russia. For Russian resident enterprises, the taxable object is profit after deducting expenses listed in Chapter 25 of the Tax Code from income. The tax period for corporate income tax is one calendar year. Resident corporate taxpayers are required to make monthly advance payments of corporate income tax, although they may be allowed to make quarterly advance payments under certain conditions.
(2) Non-Resident Enterprises
A Russian non-resident enterprise is defined as a foreign company that conducts activities in Russia through a permanent establishment or earns income from Russia. For Russian non-resident enterprises, the taxable object is profit after deducting expenses listed in Chapter 25 of the Tax Code from income attributable to the permanent establishment. The tax obligations and tax administration for foreign enterprises engaged in business activities in Russia through a permanent establishment are similar to those of resident enterprises; income sourced from within Russia that is not related to the permanent establishment is subject to source-based tax jurisdiction, with the withholding agent in Russia responsible for withholding and paying corporate income tax.
1.3.3 Value-Added Tax
The value-added tax (VAT) implemented in Russia is a consumption-type VAT, applying the destination principle, meaning that the tax is based on the final consumption location of goods and services. This system includes all sectors of the national economy under VAT collection, meaning that income from the sale or provision of goods, labor, and services within Russia is subject to VAT, while export goods or services used outside of Russia are exempt from VAT. The VAT base is the taxable sales amount, determined based on the value of the sold goods (labor, services), calculated at a price excluding VAT. Starting from January 2019, VAT rates are divided into three tiers: 0%, 10%, and 20% (the rates before January 1, 2019, were 0%, 10%, and 18%). In practice, the rates are categorized into five types: zero rate, standard rate, reduced rate, settlement rate, and special rate. The settlement rate is derived from the basic tax rate, calculated based on income including VAT, such as the settlement rate for a 20% tax rate being 16.67%. The special VAT rate is numerically consistent with the settlement rate but is substantively different, applying to penalties, late fees, and breach of contract penalties.
1.3.4 Customs Duties
Russian import customs duties are generally levied ad valorem, but approximately 10% of imported goods such as clothing, shoes, bags, plastic products, records, tapes, and some household appliances are still subject to specific duties or compound duties. Currently, the main ad valorem customs duty rates in Russia are divided into five tiers: 0%, 5%, 10%, 15%, and 20%, with an average rate of about 12.4%. The Russian Customs Tariff stipulates that for goods imported from countries enjoying most-favored-nation treatment, Russia will levy customs duties according to the most-favored-nation rate. For goods imported from other countries, customs duties are levied at double the most-favored-nation rate. Additionally, Russia implements preferential customs duties for countries under the Generalized System of Preferences, least developed countries, and CIS countries with which Russia has free trade agreements, exempting customs duties for goods imported from CIS countries with free trade agreements and least developed countries, while applying 75% of the most-favored-nation rate for goods imported from countries enjoying preferential treatment.
In terms of imports, since 1993, Russia's trade management system has gradually relaxed restrictions on imported goods. Currently, except for a few items that require import licenses, state registration, mandatory certification, and sanitary and epidemiological inspections, all other goods can be imported freely. Regarding exports, Russia has implemented export restrictions, mainly including certain raw materials and resource-based products. Export restrictions mainly include export bans, export quotas, export licenses, and export duties.

2. Russia's Cryptocurrency Tax System
Russia's regulatory policies on digital assets have varied over different periods, from the initial proposal for strengthened regulation in 2007 to later taxation policies and revisions of digital currency legislation. After multiple amendments, the Russian government has attempted to find a balance between regulation, taxation, and market protection. In recent years, as the third-largest Bitcoin "mining" country in the world, Russia is trying to provide more comprehensive regulations to govern the rapid development of the cryptocurrency industry.
2.1 Taxation Methods for Russian Crypto Assets
Compared to other countries, Russia's cryptocurrency tax system is relatively simple, with taxes related to cryptocurrencies mainly collected from two sources: taxation of legal entities such as cryptocurrency exchanges and service providers, and taxation of individuals investing in cryptocurrencies. For cryptocurrency exchanges and service providers, income obtained from the sale of cryptocurrencies is included in corporate income tax, with a tax rate of 13% for domestic companies and 15% for foreign companies, and cryptocurrency issuers are exempt from VAT. For Russian citizens, income obtained from the sale of cryptocurrencies is included in personal income tax, with a tax rate of 13%. Income from investing in cryptocurrencies is taxed as capital gains, with a tax rate of 13%. Although Russia's cryptocurrency tax system is relatively simplified, the government may collect up to 1 trillion rubles (approximately 13 billion USD) in cryptocurrency taxes annually, with even the most direct tax collection potentially generating between 146 billion rubles and 1 trillion rubles in cryptocurrency tax revenue.
2.2 Customs Policies Related to Crypto Mining Enterprises
As the legalization of cryptocurrency assets progresses in Russia, more and more cryptocurrency mining enterprises are turning their attention to the Russian market. Crypto mining enterprises need to use cryptocurrency mining machines to obtain cryptocurrencies. Cryptocurrency mining machines are computers used to earn cryptocurrencies, commonly referred to as "mining machines," such as ASIC miners, GPU miners, and dedicated mining machines for certain cryptocurrencies (PFS miners). According to current Russian policies, the import of mining machines is not prohibited, but the Federal Customs Service of Russia indicates that mining machines fall under the category of cryptographic equipment, so the legal import of mining machines must comply with the customs rules for cryptographic equipment.
Currently, the Federal Customs Service of Russia implements non-tariff regulatory measures for the import and export of cryptographic equipment based on the "Eurasian Economic Union Regulations on the Import and Export of Cryptographic Equipment." According to the provisions of these regulations, if imported cryptographic equipment products fall under the product list of Section 2.19 of these regulations, the following documents are required: (1) Notification from the Federal Security Service (ФСБ). The Russian government has listed the mining machines that can currently be imported into Russia in the cryptographic equipment product notification catalog; if not included in this catalog, an application must be submitted; (2) Conclusion from the Federal Security Service (Заключение ФСБ). This conclusion is divided into two types: one for the identification of equipment imported for personal use (note: even for personal use, import declaration is required); the other for the identification of imported equipment for general commercial use. If the above-mentioned notification and conclusion from the Federal Security Service are missing, directly using the relevant equipment for mining carries a high risk of administrative and criminal liability. Based on the enforcement records of local customs in Russia and current penalty regulations, those who illegally import and use mining machines may face fines of up to double the value of the mining machines, and the machines may be confiscated. In April 2018, the Federal Customs Service of Russia issued a public letter clarifying the import of mining machines (ASIC), explicitly stating that mining machines imported into Russia are subject to the technical regulations of the Eurasian Economic Union on "Safety of Low Voltage Equipment" and "Electromagnetic Compatibility of Technical Equipment." Customs officials primarily assess whether mining machines meet the requirements based on these two technical regulations. Only mining machines that pass the assessment can obtain the mandatory product circulation uniform label for circulation in the Eurasian Economic Union market.
The Federal Customs Service of Russia (RFCS) strictly monitors the customs duties payable on the import and export of mining machines. Russia conducts price reviews based on the contract price of imported mining machines, which is the transaction value, and levies import duties accordingly. For exported mining machines, price reviews are conducted based on the sales price minus export duties, and export duties are levied accordingly. According to CoinDesk, in July 2019, the RFCS launched a criminal investigation against a Bitcoin mining machine importer for underpaying customs fees (import duties) by 1.2 million USD. Therefore, enterprises engaged in the import and export of mining machines should strengthen daily trade compliance management to avoid legal risks.

3. The Evolution of Russia's Cryptocurrency Asset Regulation
In May 2017, the Central Bank of Russia stated: "Due to the release of virtual currencies into the market and the fact that they are not backed by gold and their quantity is not controlled, there should be strengthened regulation of virtual currencies. If people participate, they must pay money for it," but no specific tax policies were proposed. In early 2018, the first bill on the taxation of digital assets in Russian history was submitted to the State Duma, but it did not provide a clear tax framework for cryptocurrencies. On May 17, the Russian Ministry of Finance released a document stating that Russian citizens should declare capital gains from investing in cryptocurrencies. In Russia, capital gains are included in personal income, with a personal income tax rate of 13%.
On July 23, 2020, the State Duma of Russia passed the "Digital Financial Assets Law" (DFA), representing the agreement of the Russian legislative body to grant legal status to digital assets, which came into effect on January 1, 2021. The DFA law provides legal definitions for digital assets in Russia and legalizes cryptocurrency trading, but still prohibits the use of cryptocurrencies like Bitcoin as a means of payment. On December 10 of the same year, Russian President Vladimir Putin signed a decree requiring Russian officials or individuals holding public office to disclose their digital assets, as well as those of their spouses and children, and prohibits certain Russian officials from holding any cryptocurrencies. This decree has been added as part of the DFA law. The added decree aims to ensure that the government complies with local financial disclosure rules like ordinary citizens, reflecting Russia's anti-corruption measures.
Before the Russia-Ukraine conflict, various departments such as the Central Bank of Russia, the Ministry of Finance, and the government had not reached a unified view on cryptocurrency regulation, with the Central Bank maintaining a skeptical attitude towards cryptocurrencies. In December 2021, the Central Bank of Russia released a report banning mutual funds from investing in cryptocurrencies, warning of risks associated with digital assets, and even proposing a complete ban on cryptocurrency mining and trading. After the outbreak of the Russia-Ukraine conflict and facing multiple rounds of sanctions from the West, the Central Bank of Russia, the Ministry of Finance, and various government departments began to adopt a unified stance, embracing the cryptocurrency sector and implementing a series of supportive measures for cryptocurrencies. In 2022, Putin denied the Central Bank of Russia's plans for a ban, believing that Russia has some advantages in cryptocurrency mining and should tax and regulate cryptocurrency mining, supporting the restriction of mining to areas with surplus electricity, such as Irkutsk, Krasnoyarsk, and Karelia.
On February 13, 2022, Russia revised the "On Digital Currency" bill, restricting non-qualified investors from purchasing cryptocurrencies, stipulating that they must pass an exam before purchasing, with qualified individuals allowed to purchase up to 7,000 USD worth of cryptocurrencies per year, while unqualified individuals are limited to 600 USD. The bill also defines digital currency as property, providing a legal basis for cryptocurrency payments. Furthermore, the bill stipulates that platforms operating digital currencies must meet certain capital requirements, with exchanges required to retain at least 30 million rubles in capital and digital trading platforms or auction platforms required to retain at least 100 million rubles in capital.
On June 28, 2022, the lower house of the Russian parliament approved a draft law that could exempt cryptocurrency issuers from VAT and set more favorable tax rates for income obtained from the sale of cryptocurrencies. Currently, the tax rate for such transactions is 20%, but under this bill, the new tax rate for Russian companies will be reduced to 13%, and for foreign companies to 15%. This bill must be approved by the upper house of the Federal Assembly and agreed upon by President Putin before it can become law.
On April 20, 2023, Elvira Nabiullina, the Governor of the Central Bank of Russia, stated that the Central Bank is drafting a bill that will introduce an "experimental legal regime" allowing cryptocurrencies to be used specifically for import and export transactions, or a dedicated organization will be established to oversee cryptocurrency mining and manage cross-border trade payments, although cryptocurrency trading and payments within Russia will still be prohibited. Member of the Economic Policy Committee of the Russian parliament, Altukhov, added that the Russian government is also drafting a bill to create a national agency to license and supervise cryptocurrency platforms operating in Russia. Additionally, as part of the regulation, new tax laws will be introduced for miners.
In summary, the Russian government has been regulating the digital asset market, promoting legal taxation while encouraging the development of digital assets. This policy evolution is a response to the growing global interest and application of digital assets. However, policies will also be adjusted in response to ongoing changes in the market and technology. Investors should closely monitor international situations and policy trends to make informed investment decisions.

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