Issues of taxation of income from forex trading are rarely worrying for novice investors because in most cases we can’t talk about any serious amounts of earnings. But if we are talking about a more or less stable profit-making or serious investment volumes, it’s simply not possible to “hide the awl in the bag”. Market not even regulated by Russian law, every year leaves less and less chance of hiding income in the “shadow”. And with the adoption of the law on the prohibition of anonymous payment transactions, it is not worth hoping that the proceeds from the currency trade can be withdrawn from circulation unnoticed. The largest operators, including Webmoney, are now required to provide data on user accounts to government agencies, including tax authorities. And this means that one way or another it will be necessary to share what is earned with the state. How to do this by law?
Forex and taxation
Since the Forex market in Russia currently does not have regulatory mechanisms, taxes on trading income (speculative currency trading) are calculated based on standard rates. That is 13% (PIT) for individuals and at the rates of the simplified tax system (the simplified tax system) or income tax for legal entities.
How to calculate the amount of tax on personal income?
The standard personal income tax rate is 13%. What does it mean? According to Article 207 of the Tax Code, all citizens who have the status of tax residents of the Russian Federation (staying in the country for more than six months within 12 months) and non-residents who receive income from financial or other operations carried out on the territory of the Russian Federation are required to pay this tax. That is, if you are a Russian citizen and spend in the country more than 6 months of the year 12, then you will have to pay taxes according to the laws of the Russian Federation, regardless of which territorial sources (Cyprus offshore or currency exchanges) they were received. 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 derived from activities territorially carried out within the Russian Federation.
For example, if you are a tax resident of the Russian Federation, and receive income from the activities of a Cypriot brokerage company authorized to communicate with traders on the Forex trading platform, the tax inspectorate qualifies the funds received during such activities as income from foreign sources.
How, in this case, is income calculated, the tax base with which it is necessary to pay interest?
In fact, everything is simple. The taxable base is the balance (balance) of the bank account. For example, you transfer from a bank account 10 000 USD to a trading account. Then, during the course of trading operations, you receive an income of 2000 USD and withdraw to your account already 12,000. The tax base will be 2000 USD – respectively, 13% of the income will be 260 USD. If the withdrawn amount does not exceed the initial balance of 10,000 USD, according to the law, there will be no tax base, since the balance, in this case, will be negative.
Revenues from Forex trading are recorded in the Tax Return in the form of 3NDFL (in electronic or paper format), calculated for the tax period (calendar year). The declaration is filed no later than April 30 of the year following the end of the tax period, 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 Russian law, the activities of legal entities (Russian tax residents) related to working in the Forex market require income tax or are taxed according to the simplified tax system (6 or 15%, depending on the chosen settlement scheme).
The 6% rate is relevant for the simplified tax system, in which the income is the tax base.
The 15% rate for the STS system is calculated based on profit (the amount of income reduced by the number of expenses).
Forex and Russian law
In fact, the Forex market is not governed by the laws of the Russian Federation. But in practice, some legislative regulation is still present. Namely, forex trading and income from it are considered as exchange games, that is, they are equated with obligations, under which neither the rights nor obligations of the parties arise (similarly to bets, as well as games), to risky transactions (according to the Civil Code of the Russian Federation). In fact, this means that, according to the laws in force in Russia, Forex activity is not related to business or other business areas and is not protected either in legal or civil aspects (it cannot serve as a reason for going to court).
According to Chapter 25 of the Tax Code of the Russian Federation, it regulates the collection of taxes on income from games and bets, which equals Forex trading, which is not performed in the event of a negative balance on the transaction. Simply put, losing does not result in tax liabilities. And from the amount of the winnings taxes must be paid depending on the taxation scheme relevant to the taxpayer.
Separately, it is worth considering situations where a broker providing access to Forex trading is a tax agent (for example, if a bank provides brokerage services). In this case, the fulfillment of tax obligations will be carried out 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 independently make tax payments and keep accounts.
It is worth noting that for non-residents of the Russian Federation, regardless of whether they are individuals or legal entities, the tax rate on income derived from Forex trading is 35%.
Taxation and Forex: prospects
In light of the global redistribution of the banking market, which has already taken place in Russia under the auspices of the Central Bank and has deprived dozens of commercial banks of licenses in recent months, it can be expected that legislative regulation will soon affect the currency trading market. The unregulated 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 for the development of Forex in the Russian Federation in the near future are such that the trading platform is likely to be obliged to create processing centers – dealing companies directly under Russian jurisdiction. That is, the Russian market share will be deoffshorized. In this case, players will have access to clear and simple taxation schemes, and fraudsters will have much less money to deceive traders.
At the moment, it is already known that the self-regulatory association of Russian companies working on Forex – CRFIN has already sent a corresponding initiative to the governing bodies of the Central Bank of the Russian Federation. And the State Duma and the Council of Federations are planning by the end of 2014 to consider the revised draft law on regulating the market of derivatives and conducting activities on over-the-counter trading floors/markets. This means that in the very near future, the Forex market in Russia can become transparent and regulated. Most of the fraudulent schemes are eliminated, as insolvent and irrelevant frauds, due to the appearance of clearly defined rules of work.