Financial Crime World

Russia’s New Law on Digital Financial Assets and Digital Currency

On July 31, 2020, Russian Federation President Vladimir Putin signed into law the Law on Digital Financial Assets (DFA) and Digital Currency, paving the way for the fintech industry in Russia to take a significant step forward. The law is set to come into effect in January 2021.

Definition of Digital Financial Assets

According to the new legislation, DFA are digital rights that can be viewed as analogues of emission securities, but placed through a blockchain. This includes:

  • Monetary claims
  • The ability to exercise rights to emission securities
  • The right to participate in the capital of non-public stock companies

Key Provisions

Transactions with DFA

  • All transactions with DFA must be conducted through and recorded by specialized “operators” - primarily banks or other credit organizations or exchanges
  • Operators must be Russian entities included in the register maintained by the regulator, the Central Bank of Russia
  • DFA can be sold, purchased, pledged, inherited, or exchanged for other digital rights

Issuance of DFA

  • The issuance of DFA is accompanied by documentation similar to the prospectus of emission securities
  • Documentation must contain information on the volume of the issue and the scope of rights attributed to their owners

Digital Currency

The law also defines digital currency, an analogue of cryptocurrency. According to the new legislation:

  • Digital currency is a collection of electronic data representing currency other than the currency of Russia or other countries
  • Digital currency can be used as investment or sold from one party to another on the basis of civil law transactions
  • However, it cannot be used or advertised as a means of payment for goods or services in Russia

Prohibitions and Restrictions

Ownership Prohibitions

  • Russian officials related to national defense and security are prohibited from owning DFA and cryptocurrency issued in foreign information systems
  • Other Russian residents have the right to purchase foreign DFA and cryptocurrency using a foreign operational platform

Tax Implications

  • Cryptocurrency is expected to be treated as “assets” subject to a mandatory declaration with the Russian tax authorities

Omissions and Future Developments

The law does not include widely used concepts such as “mining” and “token”, which are expected to be included in a separate bill that will further regulate the issuance and operations of digital currency.

Regulatory and Tax Issues

While the law legitimizes the operations of DFA and locally issued digital currency, it poses regulatory and tax issues that are yet to be clarified by the Central Bank and Tax Service.