Cryptocurrency regulations in Russia

Cryptocurrency regulations in Russia

 

The first time when Russian authorities started talking about cryptocurrencies was in 2014. In January 2014, the Central Bank of the Russian Federation warned citizens against any transactions with “virtual currencies,” including both transfers and payments. Until 2016, government officials did not extend beyond individual (mostly negative) statements about cryptocurrencies. In March 2016, the Ministry of Finance began to prepare a bill introducing criminal liability for Bitcoin mining and usage, but in October it suspended its development.

In 2017 it became clear that it would not be possible to completely prohibit cryptocurrencies. In particular, this was stated by Sberbank's head German Gref. An important event was the creation of the Russian association of Blockchain and Cryptocurrency (currently the Russian Association of Cryptocurrency and Blockchain) in August 2017. The purpose of the Association was to promote the development of blockchain technology as well as to introduce regulatory proposals. During its lifetime, the Association proposed a number of bills concerning the legalization of smart contracts and ICOs and launched initiatives to create mining pools.

In April 2018, the Central Bank launched a “regulatory sandbox” to test services using innovative financial technologies, including blockchain.

In May 2018, the State Duma passed 3 bills in the first reading related to cryptocurrencies: "On digital financial assets", "On crowdfunding", and amendments to the Civil Code.

 

Current cryptocurrency regulation in Russia

Bill No. 419059-7 “On digital financial assets” passed the first reading in the State Duma on May 22, 2018. The document describes financial assets that are created or issued using digital and information technologies.

The authors of the bill state that cryptocurrencies and tokens are property. The bill also introduces a direct ban on the circulation of cryptocurrency and tokens as a “legal means of payment on the territory of the Russian Federation”.

Also, the document does not consider the possibility of exchanging cryptocurrencies for fiat; only tokens issued as part of domestic ICOs can be exchanged for "real" money. The Central Bank and the Government will establish the procedure for such an exchange.

 

Some basic definitions presented in the bill are as follows:

Mining is an activity aimed at creating cryptocurrencies and/or node validation in order to receive rewards in the form of cryptocurrencies. Mining is recognized as an entrepreneurial activity in case the person who carries it out exceeds the energy consumption limits set by the Government of the Russian Federation during three months in a row.

Cryptocurrency is a type of digital financial asset created and accounted for in a distributed ledger by participants of this ledger in accordance with the rules for maintaining a digital ledger.

A token is a type of digital financial asset that is issued by a legal entity or an individual entrepreneur (issuer) in order to raise funds and is recorded in a digital ledger.

Smart contracts are self-executing contracts with the terms of the agreement between buyer and seller being directly written into lines of code in the electronic form. Smart contracts permit trusted transactions and agreements to be carried out among disparate, anonymous parties without the need for a central authority, legal system, or external enforcement mechanism.

A digital wallet is a system that securely stores users' payment information and passwords for numerous payment methods and websites. By using a digital wallet, users can complete purchases get access to a registry of digital transactions.

Cryptocurrency regulations in the Russian Federation are implemented to protect private investors and to create a legal base for controlling cryptocurrency turnover in the country.

The deputies left the second and third readings of the draft law for the autumn session of the lower house of the Russian parliament.

The bill on crowdfunding by the Bank of Russia as well as the bill on amendments to the Civil Code created by deputies of the State Duma was also passed. There is a division into cryptocurrency and tokens in the draft law on digital financial assets and on amendments to the Civil Code. The concept of cryptocurrency is not mentioned at all in the crowdfunding bill.

 

Cryptocurrency taxation in the Russian Federation

This summer, the Ministry of Finance of the Russian Federation explained that the income from cryptocurrency must be recorded in the declaration independently and the tax must be paid on personal income, which is 13% in Russia. The amount of profit should be calculated as the difference between the value of the cryptocurrency at the time of purchase and the income received from its sale.

BUT

Even if you bought Bitcoin for $100, and its rate has increased significantly, it doesn’t mean that you have received income yet in terms of legislation. Earning income is fixed when you transfer the cryptocurrency to Fiat money, and then it makes sense to think about editing your tax return.

 

Conclusion

The existing bills on cryptocurrency regulation and blockchain in Russia is a cautious attempt to find a middle ground between the ban on cryptocurrency activities and its legalization. Since it is impossible to attain such a middle ground in this case, these bills did not satisfy either crypto enthusiasts or opponents of cryptocurrency. Interestingly, experts were not allowed to write bills, as a result of which the bill remained incomplete. From a legal point of view, these bills also look completely undone, since they do not define a single element of the basic legal concepts: neither right, nor duty, nor responsibility. All this prompts the Russian ICO’s and cryptocurrency business owners to register in foreign jurisdictions, for example, in Switzerland, Estonia or Malta.

Thus, the situation with the cryptocurrency regulation in Russia is such that, despite the presence of as many as three draft laws in this area, legislative regulation has not yet been established.

And everything indicates that in the final reading bills on cryptocurrency will have a qualitatively different look. And at the same time, it should be noted that the majority of ICO projects have Russian roots, and by the number of crypto-enthusiasts Russia definitely comes to the fore, therefore it will be in the interests of the state to preserve and develop this industry, which can bring large investments and profit from abroad.