As of January 1, 2025, Russia has implemented an updated regulatory framework for the taxation of digital currency operations, including cryptocurrency mining, as established by Federal Law No. 418-FZ dated November 29, 2024. This article focuses on the application of Value Added Tax (VAT) for legal entities (LEs) and individual entrepreneurs (IPs) engaged in mining activities. It examines the current provisions of the Russian Federation Tax Code (RF TC), gaps in the regulation of VAT deductions for the purchase or lease of mining equipment (ASICs), and additional considerations, such as taxation in the context of foreign data centers and cloud-based mining models.
Legislative Framework: VAT and Mining in 2024–2025
Federal Law No. 418-FZ introduced amendments to the RF TC, designating digital currency as property for tax purposes and establishing rules for taxing income from mining and cryptocurrency transactions. The key provisions regarding VAT for LEs and IPs are as follows:
- Transactions Not Subject to VAT
Pursuant to Clause 2 of Article 146 of the RF TC (as amended in 2024), operations involving cryptocurrency mining and the disposal of digital currency are not recognized as subject to VAT (Subclauses 27 and 28). This implies that:- Cryptocurrency mining (the process of generating digital currency) is not subject to VAT.
- The transfer (disposal) of digital currency, including sales or exchanges, is also exempt from VAT.
For context: individuals not registered as IPs are not VAT payers (Article 143 of the RF TC), but this article focuses exclusively on LEs and IPs.
- Profit Tax
Income from mining is subject to profit tax at a rate of 25% (as of 2025, Article 284 of the RF TC). The tax base is determined as the market value of the cryptocurrency at the time it is credited to the wallet, minus documented expenses (Article 282.3 of the RF TC).
Challenges with VAT Deductions for Purchasing or Leasing ASICs
The exemption of mining from VAT creates difficulties for LEs and IPs in claiming VAT deductions for mining equipment, such as ASICs.
- Inability to Claim VAT Deductions
Since mining is not recognized as a VAT-taxable activity, LEs and IPs cannot claim deductions for VAT paid on the purchase of equipment, electricity, or other resources used in cryptocurrency mining. This follows from Article 171 of the RF TC, which stipulates that VAT deductions are available only for goods, works, or services used in VAT-taxable operations.
VAT paid on the acquisition of ASICs or electricity is included in the cost of these assets and is not refundable. - Leasing Equipment and VAT
The issue of VAT on equipment leasing for mining remains unresolved. Under current legislation, equipment leasing services are generally subject to VAT unless otherwise specified in the RF TC (Article 149). However, as of April 2025, the Russian Ministry of Finance is discussing the possibility of introducing specific rules for taxing the leasing of equipment and the provision of computing power for mining, though no official draft law has been presented. If VAT is imposed on such operations, LEs and IPs using leased equipment will not be able to claim VAT deductions, increasing their costs. - Accounting for VAT in Profit Tax
VAT that cannot be deducted may be accounted for in profit tax calculations. According to Clause 1 of Article 170 of the RF TC, VAT amounts paid for goods (works, services) used in non-VAT-taxable operations are included in the cost of such goods (works, services). These costs can be recognized as expenses when determining the profit tax base (Article 252 of the RF TC), provided they are economically justified and documented.
For example, VAT paid on the purchase or leasing of ASICs can reduce the taxable profit base.
Additional Taxation Considerations for Mining
Beyond VAT, LEs and IPs should consider the following issues:
- Disposal of Digital Currency Abroad and Cost Structure in Colocation
When using foreign data centers and disposing of cryptocurrency through foreign platforms, LEs and IPs must address:- Income Allocation: It is necessary to determine which portion of income is subject to taxation in Russia, particularly for Russian tax residents.
- Controlled Foreign Company (CFC) Rules: Income from a foreign company involved in mining may fall under CFC rules (Articles 25.13–25.15 of the RF TC), requiring declaration and payment of profit tax in Russia.
- Currency Control: Transactions with foreign platforms are subject to currency control under Federal Law No. 173-FZ “On Currency Regulation and Currency Control.” LEs and IPs must provide banks with information on currency transactions, including contracts and documents verifying the economic substance of the transactions.
- Operation Documentation: To account for expenses related to leasing computing power, contracts and invoices compliant with Article 252 of the RF TC are required.
- Taxation of Income from Cloud or Quasi-Cloud Mining Models
Cloud-based models (leasing computing power) or quasi-cloud schemes (agency agreements, mining pools) may entail:- VAT Implications: Services for leasing computing power provided by a Russian company may be subject to VAT, increasing costs for LEs and IPs.
- Income Requalification: Under Article 39 of the RF TC (regulating transfer pricing and control over market prices in transactions between related parties), tax authorities may requalify income if it does not align with market conditions, potentially leading to additional profit tax assessments.
- Contractual Structures: Complex arrangements require careful structuring to minimize risks.
- Separate VAT Accounting
If a LE or IP combines mining with VAT-taxable activities (e.g., equipment sales), separate accounting of “input” VAT for general business expenses is required, as stipulated by Clause 4 of Article 170 of the RF TC. The lack of clear methodologies for miners complicates accounting and increases the risk of tax disputes. - Control Over Equipment Legality
The Federal Tax Service (FTS) monitors the legality of equipment imports. VAT paid during customs clearance of ASICs is mandatory, and non-payment may result in fines, equipment confiscation, and exclusion from the miners’ registry.
Practical Recommendations and Conclusions
- VAT: Mining and the disposal of cryptocurrency are not subject to VAT, but input VAT on expenses (ASICs, electricity, equipment leasing) cannot be deducted and is included in the asset cost. Note that equipment leasing is generally subject to VAT, and monitor potential legislative changes discussed by the Ministry of Finance.
- Profit Tax: Include VAT accounted for in asset costs as expenses to reduce the taxable profit base (Article 252 of the RF TC).
- Separate Accounting: When combining mining with VAT-taxable activities, maintain separate accounting of “input” VAT for general business expenses per Clause 4 of Article 170 of the RF TC.
- International Operations: Structure transactions with foreign data centers in compliance with CFC rules and currency control requirements, providing banks with information on currency transactions.
- Documentation: Ensure documented evidence of expenses (invoices, contracts, receipts) for tax accounting purposes.
- Consultations: Engage tax specialists to optimize taxation and structure complex operations, such as cloud-based mining models.
Conclusion and Invitation to Collaborate
The new mining taxation rules have created a more transparent legal environment for LEs and IPs, but issues surrounding VAT application, deductions, and taxation of international operations require further clarification. Thorough structuring of operations, separate accounting, and cost tracking can minimize tax risks and optimize the tax burden.
We invite specialists in tax law, mining, and cryptocurrency to contact us to discuss current issues, share expertise, and develop solutions.
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This article is intended for informational purposes only and does not constitute legal advice. For specific inquiries related to this article or our firm’s expertise in Tech Law, please feel free to reach out to us at info@danilovpartners.com.