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Mining Q&A: All About Cryptocurrency Accounting

Mining Q&A: All About Cryptocurrency Accounting

In this interview Tatyana Shkarupeta answers practical questions about starting a mining business in Russia, reporting to the Federal Tax Service (FTS), and accounting for mined cryptocurrency.

Starting a mining business
Reporting and taxes
Accounting for cryptocurrency

Tatyana Shkarupeta

CEO, Founder

He has been active in business process outsourcing since 2005 as the owner and CEO of Outsourcing Solutions, a company specializing in providing accounting and legal services to Russian and foreign small and medium-sized enterprises.

Starting a mining business

Yes. Mining is permitted, but a business must meet the applicable registration, reporting and territorial requirements before it begins operations.

Is cryptocurrency mining legal in Russia?

Tatyana:

A miner receives cryptocurrency from mining, either directly or through a mining pool. An infrastructure operator provides miners with premises, equipment, power capacity or other services for a fee. One company may perform both roles, but it must account for them separately.

What is the difference between a miner and a mining infrastructure operator?

Tatyana:

No. A foreign legal entity cannot be entered in Russia’s miners' register and therefore cannot mine there in its own name. This matters to international groups planning to place equipment in Russia. The FTS also states that an operator cannot provide Russian mining infrastructure to a foreign legal entity for that purpose.

Can a foreign company mine cryptocurrency in Russia?

Tatyana:

No. Some territories have permanent or seasonal restrictions. Before choosing a site or buying equipment, a company should check the rules for the specific location and its available power capacity.

Is mining allowed in every region?

Tatyana:

Mining does not require a separate licence. A Russian legal entity or individual entrepreneur must, however, be entered in the FTS miners' register before starting. Infrastructure operators have a separate register.

Does a mining company need a licence?

Tatyana:

It submits an electronic application through the FTS MiningRegister service, using a qualified electronic signature. The application must contain the required information about the business and its mining arrangements.

How does a company register?

Tatyana:

Reporting and taxes

Each month, the miner reports the amount of digital currency received and its identifier address. If it participates in a pool, the pool’s address is also reported. The deadline is the 20th day of the following month, so technical data must reach accounting before then.

What must a miner report after receiving cryptocurrency?

Tatyana:

No. The operator reports information about the mining activities of clients using its infrastructure. This report is due by the 25th day of the month following each quarter. Its client and infrastructure records therefore need to be ready for that deadline.

Does an infrastructure operator submit the same report?

Tatyana:

No. A business that mines digital currency cannot apply the Simplified Tax System (STS) or another special tax regime. An operator that only provides infrastructure and does not mine itself may use STS if it meets the general conditions. The distinction matters when a company plans to combine the two activities.

Can a mining company use the Simplified Tax System?

Tatyana:

Income arises when the company obtains the right to dispose of the mined cryptocurrency, even if it has not sold it. For tax purposes, the currency is valued using a market quotation on that date. The company needs to retain the quantity, date, quotation and ruble calculation behind the figure.

When does a mining company recognize taxable income?

Tatyana:

A separate result is calculated on sale. The sale proceeds are reduced by the value previously recognized when the currency was mined and by documented disposal expenses. This prevents the previously recognized value from being treated as new profit in full.

Is the company taxed again when it sells the cryptocurrency?

Tatyana:

Depending on the business model, these may include electricity, equipment depreciation, rent, maintenance, wages and mining-pool fees. The costs must be economically justified and documented. If the company has other activities, it also needs a sound method for allocating shared costs.

Which mining costs can reduce taxable profit?

Tatyana:

Mining and the subsequent sale of digital currency are outside the scope of VAT. Providing mining infrastructure is a different activity: the operator must assess VAT on its services under the rules applicable to its business.

Is VAT charged on mining?

Tatyana:

Accounting for cryptocurrency

ASIC miners, servers and other equipment that meet the relevant criteria are recorded as fixed assets and depreciated. Electricity, repairs and other operating costs should be tracked separately so the company can see what mining actually costs.

How should mining equipment be recorded?

Tatyana:

Records should show the currency, quantity, receipt date, wallet, source, mining pool and initial ruble value. They should also track subsequent movements. The figures must be reconcilable with pool reports, wallet data, tax records and FTS submissions.

What information should the company keep for mined cryptocurrency?

Tatyana:

There is no dedicated federal accounting standard for cryptocurrency. The company must choose and document an approach that reflects its business model. For currency mined for sale, the source document discusses a separate subaccount for finished goods as one possible approach; the choice should be justified in the accounting policy.

Is there a prescribed accounting account for mined cryptocurrency?

Tatyana:

There is usually no conventional transfer document from a counterparty. The company can establish an internal report recording the date, amount, wallet and pool addresses, transaction ID, quotation and ruble value. The supporting technical data should be retained with it.

What documents confirm that cryptocurrency was mined?

Tatyana:

It should document which wallets belong to the company, who can access them and how transfers are approved. Accounting must distinguish a transfer between the company’s own wallets from a sale or another transaction with a third party.

How should a company control its wallets?

Tatyana:

The company needs to reconcile its accounting records with wallet balances, blockchain data, pool reports and assets held on external platforms. That check helps establish how much cryptocurrency the organization actually owns at the reporting date.

Why is an inventory of digital assets needed?

Tatyana:

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The first question for a mining business is what role the company actually plays. Mining cryptocurrency for itself and providing infrastructure to other miners may involve similar equipment, but they create different rights, assets and reporting obligations. Once that role is clear, the accounting can reflect how the business really works.

Tatyana Shkarupeta, the owner and CEO of Outsourcing Solutions

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