With Bitcoin, a decentralized payment system, it is now possible to mine digital assets. The purpose of mining is to find a hash (unique identifier) for new blocks of the chain. Computing equipment is engaged in its random selection. For this, the blockchain gives a reward in cryptocurrency. In Russia, citizens are obliged to pay taxes on any income and register their activities. Having the status of the self-employed in mining is allowed (as of April 2022). This was stated by Dmitry Vasiliev – lawyer for legalization of cryptocurrency income.
Whether a self-employed person can engage in mining
On January 1, 2021, the draft law “On Digital Financial Assets” (DFA) came into force. In it, cryptocurrency received the status of property on the territory of Russia. You also need to consider the federal law on the self-employed. It states that they do not have the right to sell property for profit (including digital currency). However, this applies only to cryptoassets purchased earlier.
When mining, there is no need to purchase them, so the self-employed are able to mine coins and legally pay taxes on the activity. Individual entrepreneurs (IE), individuals and registered companies can also do this.
How to formalize the status of the self-employed
Getting it is easier than registering an IE. The miner does not need to go to the tax service. Also for the registration of self-employment there is no state duty. There are 3 ways to do this:
- Use the mobile application “My Tax”. Here you need to send a photo of your passport and face, and then fill out an application. The procedure can be automated if you authorize through Gosusgoservices. All the necessary data are imported automatically.
- On the website of the Federal Tax Service (Federal Tax Service). It will be necessary to create an account of a payer of NPD (professional income tax). The procedure requires specifying TIN.
- At the bank. Some of the financial institutions allow you to register self-employment. To do this, you need to submit an application on the website or in the bank’s mobile application.
The status of self-employed is able to register anyone over the age of 14 (up to the age of majority with the written permission of guardians). There are no other age restrictions. What do people fear when registering self-employment for mining? Examples are given in the table below.
| Fears | Reality |
|---|---|
| It is difficult to get this status and legalize profits | There are no problems with this. If there are doubts, you can consult lawyers. |
| You will have to sign paper contracts to buy and sell cryptocurrencies | No, without them to conduct trading operations on exchanges, exchangers and other platforms is allowed by law |
| If the miner was engaged in mining earlier, there will be problems in legalizing income | The tax service is unlikely to conduct an audit, but there is a risk. |
| You need to keep records and constantly go to the Federal Tax Service | It is easy to work with the tax service. As of April 2022, most procedures are automatic. |
To obtain the status of self-employed, the income must not exceed ₽2.4 million per year. Another requirement is that the miner must work without hiring employees.
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Specifics of tax payment
According to the legislation (Art. 207 of the Tax Code) of Russia, it is necessary to give a share from any income. This applied to profits from cryptocurrencies, even before the appearance of the project “On digital financial assets”. On the topic of taxes there were clarifications from the Ministry of Finance (Ministry of Finance of the Russian Federation) back in 2018. Pay them from cryptocurrency mining can be as:
- A physical person.
- Individual entrepreneur.
- Self-employed.
Calculation
Self-employed miner pays tax in the amount of 4% of net profit (6% if he works with a company or IE). There is no need to pay the state for the storage of digital assets. Also, when formalizing the considered status, the miner will be given a tax deduction of ₽10 thousand. It is awarded once and allows you to reduce the state fee before it is spent.
Individual entrepreneurs have different schemes for paying taxes:
- A levy on 12 months’ revenue. As of April 2022, it was 6% (up to ₽150 million) and 8% (up to ₽200 million).
- Tax on 12 months’ income less expenses. It started at 15% (up to ₽150 million) and ended at 20% (up to ₽200 million).
If you pay taxes under the second scheme, you will have to prove the expenses. To do this, you need to collect checks, receipts and other documents.
Individuals when mining cryptocurrencies must pay personal income tax at a rate of 13% (up to ₽5 million) or 15% (from ₽5 million profitability).
Declaration
Miners with self-employed and sole proprietorships do not need to report their income to the state authorities. However, the Federal Tax Service requires individuals to submit a declaration of all profitable operations at the end of the calendar tax period. It is prepared in the form of 3-NDFL. Russian citizens will not need to declare other transactions (storage, purchase, sale, exchange).
As of April 2022, state officials are obliged to report the presence of digital assets. This is written in the law on CFA.
Penalties and liability
Unregistered mining of digital currencies in Russia can lead to negative consequences. The first is the blocking of accounts in the bank. Its customized algorithms monitor the user’s operations. For example: large amounts of money transfers, cash withdrawals and currency exchange. If the software sees suspicious activity on the account, it will block it. The bank will not let you use the services until the origin of the money is revealed.
Also the miner can fall under the articles of the Criminal Code:
- Art. 171 of the Criminal Code of the Russian Federation. Illegal activity of an entrepreneur. Liability for the miner of cryptocurrencies will come if he receives more than ₽2,250 million. The penalty is a fine of up to ₽300 thousand or compulsory labor up to 480 hours or arrest for up to 6 months.
- Art. 198 of the Criminal Code of the Russian Federation. Evasion from payment of state fees. The penalty is a fine from ₽100 to ₽300 thousand, arrest for up to 6 months or imprisonment for up to 1 year.
Failure to pay taxes on time also gets you in trouble with the laws. For this, the miner will be charged penalties. Additionally, he will violate the following articles of the Tax Code:
- Art. 122 of the Tax Code of the Russian Federation. Failure to pay state fees. If the miner of cryptocurrencies did this unintentionally, he will be fined 20% of the amount of the debt. In another case, the payment will amount to 40%.
- Art. 119 of the Tax Code of the Russian Federation. Submission of a declaration by an individual with a delay. The penalty is from 5% to 30% of the penalty from the amount of tax, but not less than ₽1000.
Summary
In Russia, cryptocurrencies have the status of property. This is written in the law on CFA from January 1, 2021. Self-employed people are not allowed to resell property to earn money. However, when mining, no trading operations are performed. Accordingly, it is possible for the self-employed to engage in the mining of digital assets (with an income of up to ₽2.4 million per year and without hiring employees). This is stated by lawyer Dmitry Vasiliev.
The status of self-employment in Russia is experimental. It will continue until December 31, 2028.
Frequently Asked Questions
❓ Is it profitable to mine cryptocurrency?
As of April 18, 2022, an AMD RX 580 graphics card (price $550) brought $480 per year (according to the CryptoCalc service). The payback of the computing device was 13-14 months.
📲 How to mine bitcoins?
Due to the high complexity of the Bitcoin network, coins are mined on ASIC devices. This is equipment that is designed to perform one specific task.
🔍 What do you need to mine cryptocurrencies?
Computing equipment, a cooling system, a wallet for digital assets, a mining pool, and a special program.
🧐 How to mine coins without ASICs, video cards and other devices?
Mining is not the only method of processing transactions in blockchain networks. There is also coin steaking. Its working principle is to freeze assets to validate transactions within networks.
💡 Is it legal to engage in crypto mining in Ukraine?
As of April 2022, the legislation did not prohibit this activity. In Ukraine, it is allowed to mine digital currency with the condition of paying tax on profits.
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Author: Saifedean Ammous, an expert in cryptocurrency economics.
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