Russian residents will be required to report their offshore crypto wallets to the federal tax authority under new legislation regulating digital assets, now filed with the parliament in Moscow.
Domestic wallets will be known to the state anyway, as Russia intends to channel all cryptocurrency flows through local intermediaries licensed as elements of a sovereign crypto infrastructure.
Several bills proposed by the government are fundamentally changing the way Russian citizens and businesses interact with coins like Bitcoin and how platforms process such transactions.
Moscow wants to know all about Russians’ crypto holdings
Residents of the Russian Federation will be obligated to notify the country’s Federal Tax Service (FNS) about any foreign crypto wallets they have.
That’s according to provisions in draft legislation designed to comprehensively regulate crypto-related activities, including investment and trading.
The executive power in Moscow submitted this week a package of bills to the State Duma, among which is the flagship draft law “On Digital Currency and Digital Rights.”
The lower house of parliament is expected to adopt the acts, which legalize but also limit transactions with decentralized digital money, during its spring session by July 1.
The requirements, introduced with one of the supplementary bills, include informing the FNS of the opening and closing of wallets hosted abroad within a month of the event.
Crypto holders who permanently live in Russia will also have to file tax reports on all crypto transactions involving foreign-based wallets, the crypto news outlet Bits.media unveiled.
While Russians won’t be banned from having such wallets, any digital assets purchased in a different jurisdiction must be paid for using foreign fiat accounts.
The measure is apparently aimed at preventing capital flight through crypto. The authorities also plan to push companies to repatriate cryptocurrency held in foreign addresses.
According to estimates quoted by officials and financial experts, Russia has up to 10 million cryptocurrency users, with their daily coin transactions reaching 50 billion rubles (over $600 million).
New legislation brings significant changes to Russia’s crypto space
The new laws will finally regulate crypto transactions in Russia, but will do it the Russian way. The long-awaited legalization comes with a lot of restrictions and government control.
For example, even non-qualified investors will be able to legally buy cryptocurrencies, but their purchases will be capped at 300,000 rubles a year, or less than $3,700, and limited to a handful of the most liquid coins.
The Central Bank of Russia also wants to limit crypto investments for commercial banks to 1% of their capital, whether they acquire the assets themselves or on behalf of clients.
Existing crypto platforms, such as exchanges currently working mostly in the gray economy, will have a year to apply for a license that should be issued by July 1, 2027.
Traditional financial institutions like banks, brokers and stock market operators will be able to provide services under their existing licenses.
The regulatory framework introduces the institute of “digital depository,” similar to a stock market depository but acting as a crypto wallet operator as well.
While every client will technically have their own personal wallet, each transfer will need the consent of the custodial provider, explained Denis Polyakov, head of the Digital Economy practice at the law firm GMT Legal.
These digital depositories will play a key role in the Russian crypto market, as most transactions involving regulated entities and clients must be conducted through one.
The digital currency bill also adopts the concept of an “identifier address” as a means to link a person or an entity to a specific crypto wallet, similar to a bank account number.
Thus, Russia’s view of how its crypto infrastructure should function seems to leave no room for non-custodial wallets, despite that these are not explicitly banned.
Sending coins from such a wallet to a regulated account would come with the obligation to explain the origin of the funds. What’s more, direct withdrawals to non-custodial wallets will be prohibited.
One way to circumvent this restriction is to first transfer the crypto to a wallet hosted by a foreign exchange and then deposit it into a Russian wallet.
However, it’s uncertain if even this option would eventually work, as Russian authorities have made it clear they would require foreign-registered platforms to either establish a presence in the country or work through a licensed domestic intermediary.
Since many global cryptocurrency exchanges have already left Russia amid sanctions over its invasion of Ukraine, conditions like these have caused critics to conclude that Moscow is effectively dropping an iron curtain on the crypto market.