The proposed regulation of digital currencies (cryptocurrencies) and digital financial assets does not meet market needs.

The future of cryptocurrencies in Russia depends only on us.

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Current situation

New laws complicate the use of cryptocurrencies in Russia and slow down the development of the distributed finance market.

Administrative and criminal liability from fines to jail time is introduced for failing to declare cryptocurrencies and operations with it.

On January 1, 2021, Federal Law N259-FZ "On Digital Financial Assets, Digital Currencies and on Amendments to Certain Legislative Acts of the Russian Federation" (the "DFA Law") came into force. Four additional bills supplementing the Law are currently being considered.

What we offer

Establishing the dialogue with representatives of the Russian Federation government authorities with respect to changing the proposed laws in a positive direction, in order to create a favorable business climate and introduce a truly adequate and well-developed regulation of digital financial assets and digital currencies circulation, taking into account the interests of all parties in the "state - citizens - business " formula;

Informing all members of the crypto community about changes in the adopted and future laws governing circulation of digital financial assets and digital currencies in the Russian Federation;

Improving the financial and legal literacy of citizens of the Russian Federation when working with digital financial assets and digital currencies, including in cooperation with government.

Disadvantages of the current approach

Enacted laws create legal uncertainty

Discuss

Provisions of the Law, in particular, the definitions of "digital financial assets", "digital rights", "digital currencies", "operator of the exchange of digital financial assets" do not allow precise qualification of specific digital assets (i.e. system or utility tokens, crypto exchanges, decentralized cryptocurrencies ) as clearly falling under the relevant definitions, which gives rise to legal uncertainty. The Law does not contain conditions for the operation of digital currency exchange operators and legal circulation of cryptocurrencies in Russia.

The adopted laws do not take into account the established global practices and legislative experience of other jurisdictions

Discuss

The adopted laws do not take into account the long-established global practices in relation to, among other things, classification of various types of digital assets. For example, the Law does not establish any difference between various token and cryptocurrency types. There is no uniform approach to circulation of these digital assets.

Legal protection is available to digital currencies owners only upon declaration

Discuss

In fact, the owners of cryptocurrencies are outlawed, which directly violates clause 1 of Art. 46 of the Russian Federation Constitution, according to which everyone is guaranteed judicial protection of their rights and freedoms. Article 14 of the DFA Law establishes that if a citizen of the Russian Federation has not declared his/her digital currencies, and it has been somehow stolen, it will be impossible to return this asset in court. According to the adopted law, cryptocurrency is recognized as property. However, not a single type of property, except for cryptocurrencies, is protected by civil law under a suspensive condition.

Digital currencies cannot be used to pay for goods, work and services

Discuss

Currently, the financial blockchain sector is recognized as one of the most promising areas of the digital economy, and relevant solutions are being actively integrated into the leading countries’ economies. While the rest of the world countries are trying to effectively integrate cryptocurrencies into their economy (for example, as of 2021 the Swiss canton of Zug allows paying taxes in cryptocurrency), the Russian law explicitly prohibits the use of cryptocurrencies for any payments for goods, works and services. According to proposed amendments to the Russian Federation Administrative Offences Code, if digital currency was used as a means of payment for goods, works or services, then fines of up to 200,000 rubles may be imposed on individuals, and up to 1 million rubles - on legal entities. In almost all such instances, the item of administrative offence – that is, digital currency - is subject to confiscation by the government authorities. This contradicts the original purpose of cryptocurrency, which was created as a simple payment instrument available for anyone to use.

Pending amendments to the Code of Administrative Offenses introduce significant fines for violations of the law

Discuss

The potential administrative fine of 500 thousand rubles for individuals negatively affects the climate in the crypto community, and information on its introduction in the nearest future has already begun to lead to formation of a gray economy. The amendments to the Tax Code, considered already in the second reading by the State Duma, suggest that in cases where a person has not provided data on the ownership of cryptocurrency and transactions with it to the tax authorities, he will be fined 10% of the largest of the two amounts (or receipts digital currency to a person, or from the amount of digital currency debited), and non-payment or incomplete payment of tax on digital currency and transactions with it provides for a penalty of 40% of the amount of unpaid tax.

Pending amendments to the Criminal Code introduce a 3-year jail sentence for failing to file cryptocurrency-related tax reports

Discuss

According to the proposed amendments to the Criminal Code, criminal liability may be imposed for a systematic (for two or more reporting periods) violation of the obligation to submit to the tax authorities a report on transactions (civil transactions) with digital currency and the balances of the specified digital currency, by failing to submit such report or the inclusion of deliberately false information in the report, committed in large (15 million rubles) and especially large (45 million rubles). This distinguishes digital currencies from other types of tax crimes, liability for which is provided for in Art. 199 of the Criminal Code of the Russian Federation.

Extremely low threshold for mandatory declaration and reporting of operations with cryptocurrencies

Discuss

According to the proposed amendments to the Tax Code, the annual threshold, after exceeding which it is necessary to submit reports to the Federal Tax Service, is extremely low and amounts to 600 thousand rubles. Given the high volatility of digital currencies, this threshold does not correspond to the specifics of the market. Moreover, it is the FTS that should assess the market value of cryptocurrencies, and given the volatility, it seems that such an assessment may not correspond to reality.

Complete lack of tax incentives for the blockchain sector

Discuss

The lack of government support in the form of tax and other benefits, practiced in some jurisdictions in relation to promising industries, and the complex regulation of the blockchain sector in Russia will have a negative impact on the market development. At the same time, it is very likely that DFA and digital currencies as property, as well as operations with them, will be subject to income tax (24%) or personal income tax (13%).

It is in our interests to convey the voice of the entire Russian crypto community to those who make decisions. The results of public and expert discussions after their completion will be sent to the Central Bank, the Ministry of Finance, the State Duma Committee on the Financial Markets and other persons involved.

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