Based on the new legislation, the tax on cryptocurrency transactions is subject to mandatory reporting. According to the team of lawyers, the new taxation procedure directly provides for the need to declare income from crypto. First of all, this applies to everyone who receives income exclusively from cryptocurrency transactions, since such agreements often do not contain clauses on tax deductions.
Since the beginning of 2021, cryptocurrency has been officially legalized in Russia, Kyrgyzstan and the CIS countries, although it appears in legal acts under the name “digital currency”.
For example, Federal Law No. 259-FZ of July 31, 2020 (Law 259-FZ) on digital financial assets and digital currency, introduced in Russia on January 1, 2021, enshrines cryptocurrency as property. This gives companies and individual entrepreneurs (IE) the right to invest in crypto assets and use them within the law.
In addition to this law, there are a number of regulations governing the use of cryptocurrency for various transactions. We have collected the main documents and information on cryptocurrency taxes in Kyrgyzstan and Russia. Let’s take a closer look.
When and how to pay taxes on cryptocurrency?
Cryptocurrency transactions are taxed only if you make a profit. Example: if you invested 100,000 rubles in 10 crypto coins and subsequently, by successfully selling the assets and converting the income into rubles, earned 200,000 rubles, your profit will be 100,000 rubles. It is from this amount that you will need to pay tax.
Important: if as a result of the transactions you made a loss or remained at the level of the invested funds, you do not need to pay tax.
Let’s look at this whole process using another example:
When exchanging one cryptocurrency for another (if the exchange rate is 1:1), no tax is required, since this is recognized as an exchange transaction without an increase in property. However, if an increase in property does occur, the tax is calculated from this increase, estimated through the difference between the value of the received and given cryptocurrency in fiat currency.
Reporting and tax payment deadlines
For individuals, tax reporting is submitted annually, while for legal entities – monthly or quarterly. The declaration reflects data on income from the sale of cryptocurrency, its value at the time of purchase, as well as the increase in kind. Taxes are paid once a year or quarterly, depending on the status of the taxpayer.
According to experts, violation of reporting deadlines can lead to fines. For example, if the tax return is not filed within six months, liability is provided. Therefore, the advice of experts is not to delay filing declarations and regularly check the current requirements. Note that the most convenient way to submit reports is through online services, which saves time and avoids queues.
The rating of users who file declarations on time, as conditionally proposed by the new regulation, can become the basis for loyalty to conscientious taxpayers. It is important to understand that abandoning attempts to hide income from crypto transactions is not the best option, because fines are provided even for minimal violations. When seeking assistance, taxpayers can expect consultations within a few weeks to ensure that reporting errors are avoided.
Taxable cases
Fiat income from the sale of cryptocurrency. For example, if an investor buys 1 ETH at $1,000 and sells it later for $2,000, the profit from the sale will be $100, on which taxes must be paid. If the price drops to $500, there is no profit, and no tax is charged.
Cryptocurrency property gain. For example, if as a result of trading an investor increases his balance from 1 BTC to 1.5 BTC, he must pay property gain tax (0.5 BTC), using the current market value of the cryptocurrency on the date of receipt.
Foreign currency transactions. When cryptocurrency is bought or sold for foreign currency, all income and expenses are recalculated in rubles on the date of the transaction, taking into account exchange rate differences. Exchange rate revaluation applies only to individuals. Legal entities are not required to revalue until the sale of cryptocurrency. The increase in value is recognized as income and is taxed only upon sale. Example of exchange rate difference
When calculating the tax for individuals, the exchange rate at the time of purchase and sale of cryptocurrency is taken into account. Let’s say the coin was purchased at a dollar rate of 59 rubles and sold at a rate of 61 rubles. The tax will be calculated based on an increase of 2 rubles, even if the price of the cryptocurrency in foreign currency remains the same.
Who is required to pay taxes on cryptocurrency income and at what rates?
Those who have received income from the sale of cryptocurrency are required to pay the tax. Since cryptocurrency is considered property, it is subject to personal income tax (PIT) at a standard rate of 13%. The state equates income from the sale of cryptocurrency to income from the sale of real estate or transport.
For legal entities, the legislation also allows transactions with cryptocurrency, but imposes restrictions:
- Cryptocurrency transactions must correspond to the main activity of the company according to OKVED.
- It is forbidden to purchase cryptocurrency for cash or through electronic wallets such as “Yu.Money” and Qiwi, which is allowed for individuals.
- Payments for goods and services in cryptocurrency are prohibited – a rule that is also relevant for individuals in Russia.
- Legal entities that have received profit from cryptocurrency transactions are required to pay corporate income tax at a rate of 20%.
For individual entrepreneurs (IE), there is also the opportunity to invest in cryptocurrency. Individual entrepreneurs on the simplified taxation system (STS) can pay tax at a rate of 6%, and on the general regime – at a rate of 13%. It is important to take into account that only those whose income does not exceed 200 million rubles per year and whose number of employees does not exceed 130 people can use the STS.
So far, the crypto taxation mechanism in the Russian Federation and Kyrgyzstan is only undergoing its first tests, but over time it will become more transparent and understandable for all participants.
Cryptocurrency as a financial investment
Recognizing cryptocurrency as a financial investment causes disagreement among experts, as the official IFRIC explanations do not support this approach. However, many experts see a certain logic in classifying digital assets as financial investments, since cryptocurrency, like shares, can generate income due to changes in its value between the time of purchase and sale.
However, in the Russian legal system, this approach faces limitations. According to paragraph 2 of PBU 19/02 “Accounting for financial investments,” an asset can be considered a financial investment only if there are official documents confirming ownership and profitability. Cryptocurrency does not have such supporting documents, which makes it difficult to account for it as a financial investment from a legal perspective.
Key documents on cryptocurrency regulation in Kyrgyzstan
Cryptocurrency regulation in Kyrgyzstan is currently undergoing an active development stage. One of the key documents is the Law on Digital Assets, adopted to determine the legal status of cryptocurrencies and digital tokens.
This law establishes rules for the use and taxation of cryptocurrencies, restrictions on their use, as well as requirements for cryptocurrency platforms, which ensures the transparency of their activities.
In addition, the National Bank of Kyrgyzstan has issued a number of regulations governing the control of cryptocurrency transactions in order to minimize the risks of money laundering and financing illegal activities.
Here is a list of the main laws and regulations governing cryptocurrencies in Kyrgyzstan:
- The Law of the Kyrgyz Republic “On Virtual Assets” – establishes the legal status of cryptocurrencies and defines them as property, regulates the use and storage of virtual assets in the country.
- The Regulation of the National Bank of the Kyrgyz Republic on the control of cryptocurrency transactions – regulates the activities of banks and other financial institutions in terms of control over transactions with cryptocurrencies to prevent money laundering and the financing of terrorism.
- Resolution of the National Bank on licensing cryptocurrency platforms – defines the requirements for licensing and regulating platforms that provide cryptocurrency exchange and storage services.
Instructions on taxation of transactions with digital assets – establishes the rules for taxing income received from cryptocurrency transactions for both individuals and legal entities. - Concept for the development of the digital economy of the Kyrgyz Republic – includes recommendations for the development of digital assets, the integration of blockchain technologies into the economy and proposes measures to create conditions for the operation of cryptocurrency businesses in the legal field.
These documents form the legal basis for the use and regulation of cryptocurrencies in Kyrgyzstan, helping to protect participants in the cryptocurrency market and the development of the digital economy.
Conclusion
Cryptocurrencies are becoming an integral part of the financial world, and regulatory attention to them is growing along with their popularity. In Russia and other countries, legal frameworks are being created to regulate the use, purchase, and sale of digital assets. Understanding and complying with these rules not only helps to avoid legal problems, but also opens the way to the most effective management of cryptocurrency income.
Proper taxation of cryptocurrencies is an important element of financial literacy for every investor, trader, and miner. Knowing the rules will help to avoid the risks associated with non-declaration or incorrect assessment of income. Understanding that cryptocurrency transactions are considered the sale of property means that investors can optimize their taxes by monitoring exchange rate changes and planning transactions in favorable periods.
The legislation continues to adapt, and it is important to monitor its changes, since the introduction of mandatory requirements and specification of accounting are inevitable. Cryptocurrency taxes are a reality, and proper accounting not only simplifies tax reporting, but also allows you to be fully prepared in the future, with the possible introduction of additional benefits or more flexible conditions for owners of digital assets.
