Taxation and Forex: what is there and what to expect?
Issues of taxation of income from forex trading rarely concern novice investors, because in most cases we can not talk about any serious amounts of earnings here. But if we are talking about more or less stable profit recovery or serious investment volumes, it will simply not be possible to “hide the stick in the bag”. The market, which is not even regulated by the Russian legislation, leaves less and less chances to conceal income in the “shadows” every year. And with the adoption of the law banning anonymous payment transactions, it is not worth hoping that the proceeds from currency trading will be withdrawn from circulation unnoticed, and not at all. The largest operators, including Webmoney, are now obliged to provide data on user accounts to state authorities, including tax authorities. And that means that we have to share what we have earned with the state one way or another. How can we do that legally?
Forex and taxation
Since the Forex market in Russia currently has no regulatory mechanisms, taxes on trading income (speculative currency trading) are calculated on the basis of standard rates. That is, 13% (personal income tax) for individuals and at the rates of the simplified taxation system (simplified taxation system) or income tax – for legal entities.
How to calculate the amount of personal income tax?
The standard personal income tax rate is 13%. What’s that supposed to mean? According to Article 207 of the Tax Code, this tax must be paid by all citizens who have the status of tax residents of the Russian Federation (staying in the country for more than half a year for 12 months) and non-residents who receive income from financial or other operations carried out on the territory of the Russian Federation. That is, if you are a citizen of Russia and spend more than 6 months in the country out of 12 months a year, then you will have to pay taxes under the laws of the Russian Federation, regardless of which territorial sources (Cypriot offshore or currency exchanges) they were received from. As for non-residents (for example, persons with dual citizenship who have chosen another state to pay taxes and spend less than 183 days a year in the Russian Federation), they will be forced to pay tax only on income received in the course of activities carried out in the territory of the Russian Federation.
For example, if you are a tax resident of the Russian Federation and receive income from the activities of a Cyprus brokerage company authorized to communicate with traders with the Forex trading platform, the tax inspection qualifies the funds received in the course of such activities as income from foreign sources.
How is the income, taxable base from which the interest is to be paid calculated?
Actually, it’s simple. The taxable base is the balance (balance) of a bank account. For example, you transfer 10,000 USD from your bank account to your trading account. Then, in the course of trading operations, you get an income of 2000 USD and withdraw to the account already 12 000. The taxable base will amount to 2000 USD – respectively, 13% of the income will be 260 USD. If the amount deducted does not exceed the initial balance of 10,000 USD, by law the tax base will be absent, as the balance in this case will be negative.
Forex trading income is recorded in the Tax return in the form of 3NDFL (in electronic or paper format), calculated for the tax period (calendar year). The tax return must be submitted no later than April 30 of the year following the end of the tax period, and the amount of tax must be paid no later than July 15 of the same year.
How to calculate the amount of tax for legal entities doing business on Forex?
According to the Russian legislation, the activities of legal entities (Russian tax residents) associated with work on the Forex market, requires payment of income tax or is taxed under the simplified taxation system (6 or 15%, depending on the chosen scheme of calculations).
The 6% rate is relevant for the simplified taxation system, in which the tax base is the income received.
The rate of 15% for the simplified taxation system is calculated on the basis of profit (the amount of income reduced by the amount of expenses).
Forex and Russian legislation
In fact, the Forex market is not regulated by the laws of the Russian Federation. But in practice, there is still some legislative regulation. Namely, forex trading and its revenues are considered as stock-exchange games, i.e., they are equated to obligations, within the framework of which neither rights nor obligations of the parties arise (similarly to bets and games), nor to risky transactions (according to the Civil Code of the Russian Federation). In fact, it means that according to the laws in force in Russia, the activity on Forex is not related to business or other business spheres and is not protected neither in legal nor in civil aspect (cannot be a reason to appeal to the court).
According to Chapter 25 of the Tax Code of the Russian Federation regulates the collection of taxes on income from games and bets, which are equated to forex trading, is not made in case of a negative balance on the transaction. Simply put, a loss does not lead to tax liabilities. And from the amount of the winnings the taxes should be paid depending on the scheme of taxation, which is actual for the taxpayer.
Separate consideration should be given to situations where a broker providing access to trading on Forex is a tax agent (for example, if a bank provides brokerage services). In this case, the fulfillment of tax obligations will be performed by a broker who has the right to withhold and pay taxes on behalf of clients (individuals). For legal entities, such a system is irrelevant. In any case, they make their own tax payments and keep records.
It should be noted that for non-residents of the Russian Federation, regardless of whether they are individuals or legal entities, the tax rate on income received from trading on Forex is 35%.
Taxation and Forex: Prospects
In light of the global redistribution of the banking market that has already taken place in Russia under the auspices of the Central Bank and has deprived dozens of commercial banks of their licenses in recent months, we can expect that legislative regulation will soon affect the currency trading market as well. The unregulated nature of the Forex market only in recent years has led to the emergence of a variety of fraudulent schemes, implemented with significant damage to citizens.
The prospects of Forex development in Russia in the near future are such that the trading platform is likely to oblige to create processing centers – dealing companies directly under Russian jurisdiction. That is, the Russian market share will be de-offshorized. In this case, players will have access to clear and simple taxation schemes, and fraudsters will have much less money to cheat traders.
At the moment, it is already known that the self-regulating association of Russian companies working on Forex – CRFIN, has already sent the corresponding initiative to the management bodies of the Central Bank of Russia. The State Duma and the Council of Federations are planning to consider a revised draft law on regulating the derivatives market and conducting business on over-the-counter trading floors/markets by the end of 2014. This means that in the near future the Forex market in Russia may become transparent and regulated. Most of the fraudulent schemes will be eliminated as insolvent and irrelevant frauds, due to the emergence of clearly defined rules of work.