In Russia, the rules of state control over the circulation of precious metals are being tightened, which, presumably, should be accompanied by gold. Whether the expectations of market participants will be met depends on the position of the Federal Tax Service
The basis of the new monitoring system will be one of the GIS that are being implemented or are already operating in various sectors of the Russian economy. In this case, it is the “State Integrated Information System in the field of control over the circulation of precious metals, precious stones and products made from them” (GIIS DMDK). Through this channel, the operator of which is Goznak, the Ministry of Finance must monitor the movement along the entire chain: from the producer or supplier of goods to the consumer or export.
The Central Bank and banks were taken “out of bounds”
On March 1, 2021, Government Decree No. 270 “On certain issues of control over the circulation of precious metals, precious stones and products made from them at all stages of this circulation and amendments to certain acts of the Government of the Russian Federation” came into force. The resolution approved the operating rules and defined the stages for connecting precious metals market participants to the GIIS DMDK starting from March 1, 2021. But the document does not mention important market participants.
“The Bank of Russia and credit organizations, as stated in the Resolution, are not subject to the provisions of the rules. The Ministry of Finance has prepared a draft amendment to the Resolution, which provides for the extension of the provisions of the Resolution to the Bank of Russia and credit organizations, as well as the establishment of a procedure for the provision of information by the Bank of Russia and credit organizations to the GIIS DMDK, their interaction with the specified system. Based on the results of the consideration by the Bank of Russia and the SRO NFA of the said project, proposals for its refinement were sent to the Ministry of Finance,” said Vasily Zablotsky, president of the SRO NFA (National Financial Association).
How to obtain a license for Moscow and the regions: stages of work
- At the first stage of cooperation, our experts provide remote and, if necessary, written consultation on licensing issues. To receive it, just fill out the appropriate application on the website.
- Obtaining a license for precious metals involves carefully preparing a set of documents for submission to the federal chamber. Some official papers are provided by the client or his authorized representative; lawyers can prepare forms from government bodies or third parties on their own.
- Sending documents by a legal expert to the licensing authority. If the customer's company is registered outside the Moscow region, courier services will be required.
- Interaction with authorized persons of the chamber and resolving issues regarding licensing of a specific company. If additional questions arise during the consideration of the submitted documents, our lawyers are ready to defend the client’s interests in the licensing authority.
- In the event of an obvious and unfounded refusal by the licensor, an appeal to the courts is allowed, with which the lawyers of the consultation center will also help. In any case, the result of cooperation with us will be receiving an extract from the register of licenses with permission to work in the chosen industry.
System with spaces
So far, bankers have no clarity on what they should prepare for, since there are no documents with a clear description of the processes and terms of connection. At the same time, it is planned that control standards through the Federal Assay Office will begin to apply as early as January 2022, including for refineries. Market participants are not sure that banks will be able to begin to fully use the system by this time.
“Marking of jewelry has been postponed until 2022, but marking of bars will begin on September 1,” said Alexey Vyazovsky, vice president of the Golden Coin House company. “We can’t talk about equality among market participants yet.”
Presumably, the expanded draft of the Resolution will be presented no earlier than the third quarter of this year. Then it will take time to agree and approve it. And in the remaining time, less than six months, banks will not have time to carry out all the necessary implementations on their side, organize tenders, register software, and undergo certification by security authorities. The issue of access to bank secrecy also arises.
Mikhail Sheibe, strategist for operations on commodity markets at SberCIB Investment Research, added that before introducing new legislation, one should ensure the safety and effective functioning of the GIIS DMDK.
In interaction mode
According to Arina Samokhina, head of the precious metals department of the ICB, access to the first part of the system’s functionality has been open since March; organizations wishing to take part in the voluntary labeling of jewelry and their tracking at all stages of circulation can begin working in it.
But the NFA’s answer leaves no doubt: the banking community is concerned about the current situation. The market requires a Government Resolution with a clear description of the processes and deadlines for the implementation of the GIIS DMDK, as well as “technical requirements developed by federal executive authorities with the participation of the Bank of Russia, which should reflect the specifics of the activities of credit institutions in the precious metals market and contribute to their uninterrupted operational work in this market segment ", Vasily Zabolotsky is convinced.
The NFA initiated a discussion of problems with the implementation of the GIIS DMDK with the Russian Ministry of Finance, Goznak and the Central Bank of the Russian Federation, and prepared proposals.
“We hope that in the third quarter of this year Goznak will begin a detailed discussion with technical specialists of banks about the technical specifications for the system, taking into account the specifics of credit institutions,” said the head of the SRO. “The Ministry of Finance also expressed its readiness to send employees of the ministry and the Federal Assay Office to participate in such discussions.”
When asked by B.O whether the opinion of the banking community is taken into account during the implementation of new tools, the NFA responded that “interaction is carried out on a constant basis.”
“Yes, it is definitely taken into account,” Arina Samokhina is sure. “It is impossible to create such a system and ensure its long-term operation without the active involvement of federal authorities and business representatives. That is why the stages of system construction are often the subject of discussion at various sites.”
Advantages: why you should contact Generation 8
- We conduct an initial audit of all requirements for the enterprise necessary to obtain a work permit. A license for precious metals will be issued without bureaucratic difficulties. Each stage of registration will be carried out under the constant supervision of our lawyers.
- Guaranteed results or your money back. Long experience in the industry allows us to make such promises - we are confident in our abilities. If we see significant violations in the work of your company, we will point them out before an audit from government representatives takes place.
- We specify the term of cooperation in the contract - you pay not for the time spent by the experts, but for the result. The general period for obtaining a license is 50-60 days from the date of filing an application on our website or 45 days from the date of sending the documentation to the federal chamber.
- The license validity period is not limited. However, after repair or maintenance work has been carried out on equipment for processing natural raw materials, re-certification will be required once every 5 years.
- The result for the client is the opportunity to work at the state level, receive discounts and subsidies from the government, quickly develop their business not only in the Russian Federation, but also attract partners from the CIS or the EU.
Gold with a difference of 20%
Market expectations also apply to changes in the tax system. Investment coins are already legally exempt from VAT, as are precious metals in an unallocated metal account in a bank. Therefore, investments in these instruments are the most profitable, noted Arina Samokhina. It remains to resolve the issue of jewelry gold and silver (VAT will have to be left on it) and bullion (investment bullion will have to be numbered in order to qualify for the abolition of VAT), says Alexey Vyazovsky.
Anna Samokhina recalled that you don’t have to pay VAT on gold if you purchase bullion and store it in a bank. In this case, you will have to pay storage rent. Another advantage of storing gold in a bank: if the bullion does not physically pass to the owner, there is no question of authenticity when it is resold.
“It is obvious that VAT on bullion should be abolished as soon as possible. Gold and silver of the same standard in coins and bars have a difference in value of 20%! It is not normal! - the expert said uncompromisingly, who sees only advantages in the abolition of the tax. “The abolition of VAT will lead to a sharp (2-3 times) increase in the turnover of precious metals among the population.”
“The investment demand for bullion in precious metals certainly has potential: it may seem attractive to wealthy investors as a kind of diversification of assets,” added Mikhail Sheibe.
“Keep your money in savings bars”: gold will become more accessible to the population
They have been wanting to abolish VAT on the sale of gold for several years now.
Photo: Alexander CHERNYKH
“You should only buy gold if you are afraid of a nuclear apocalypse. Then exchange it for a piece of bread,” one of my investor acquaintances once joked. This joke makes a lot of sense. Investing in gold bullion in Russia is now catastrophically unprofitable. You need to pay VAT upon purchase (+20% of the price) . It is not returned upon sale. In addition, you can only buy bullion at a bank. And there the difference between buying and selling is 5-10%. That is, the investor immediately loses a quarter of the invested money. It is almost impossible to fight them off due to rising metal prices. Gold, like any commodity, rises and falls (see chart).
They have been wanting to abolish VAT on the sale of gold for several years now. At first, the Ministry of Finance and the Tax Service were sharply against it. They say that then the budget will lose part of its income. But then they did the math. It turned out that the losses were small. three tons of gold in the form of bars are sold in Russia per year One gram costs three thousand rubles. Total revenue - 9 billion. VAT - 1.8 billion rubles. For the federal budget with its 16 trillion expenditures, this is not much.
Senators believe that the abolition of VAT will bring more benefits. Firstly, gold is an alternative to dollars and euros. It so happens that world currencies and precious metals are similar assets. Their prices vary approximately the same. That is, it is better to let Russians buy Russian gold than support the American economy. Secondly, escaped capital may return to the country. Some rich people do not want to keep money in banks or in any currencies. They only trust gold.
— The state pays great attention to the repatriation of capital. A number of citizens would like to return their capital to their homeland, but invest it not in the banking system, but in gold bars. This is a personal right. The obstacle to this now is VAT. If this measure allows us to repatriate capital even for several tens of billions, it will be justified, says Deputy Minister of Finance Alexei Moiseev .
And thirdly, tax revenues will also increase. Senators believe that the demand for gold bullion will increase from three to fifty tons per year. This will lead to an increase in bank profits (you can only buy bullion there). They will pay more taxes on this profit. Plus, the volume of gold production will increase. And the budget will receive more money from the mineral extraction tax. In total, this will add 19 billion rubles a year to the treasury, the senators calculated.
The bill proposes to abolish VAT on gold purchases from January 2021 . Plus, the senators made two more proposals: to protect impersonal metal accounts with a deposit insurance system and to abolish income tax on them.
TRICKY QUESTION
So should you buy it?
The question is complex. Gold is an investment. That is, with equal probability you can both receive income and go negative. It all depends on the shelf life, date of purchase and date of sale. The average person has a stereotype: “gold always goes up in price.” This mantra is uttered by many specialized analysts. But if you look at the dynamics, there is nothing like that. In some periods there really is long-term growth, and in others there is stagnation for decades. Therefore, it is impossible to predict how gold will behave in the coming years.
Now more and more experts say that another global crisis is coming. During such periods, savvy investors actually buy gold. It is considered a defensive asset. During a crisis, all assets (stocks, real estate, currencies of developing countries) fall, and gold rises. But the abolition of VAT will still not make the purchase of gold bars profitable for the people, experts say.
— There are many ways to invest in gold without paying VAT (see help. — Ed.). They just don’t mean physical gold, but impersonal gold,” says Sergei Spirin, a personal finance expert and author of the Investor’s Notes blog . — From a cost point of view, an almost ideal way is to buy gold on the Moscow Exchange. The commission for the transaction is only 0.2-0.3% of the amount.
However, many investors buy gold for reasons other than rational ones. Holding a gold bar in your hands is a special pleasure. Leaving it as a legacy for descendants is priceless. The abolition of VAT will make this family investment more profitable. But it will be difficult to sell gold.
- There is another problem. We have a sales market, but there is no market for buying gold bars at all,” says Sergei Spirin. — Not a single bank, except Sber, buys back its bullion. It is explainable. Gold transactions are labor-intensive. It is necessary to keep qualified specialists on staff. So even if VAT is abolished, a normal gold market is unlikely to appear in the country.
Now you can only hand over the bullion to a pawnshop. But then you can say goodbye to half of its cost.
BY THE WAY
Five ways to invest in gold
1. Buy an ingot
Large banks sell bullion in their branches. They weigh from 1 gram to 1 kilogram. But there are nuances here. Firstly, VAT (20%) is charged upon sale. Secondly, banks make a difference between the purchase and sale prices. It can reach up to 5 - 10%. The smaller the bar, the more the buyer will overpay per 1 gram. Thirdly, you need to store gold carefully. Any scratch on an ingot immediately makes it cheaper. Even a bank will only accept such metal at a discount. Fourthly, it can be stolen. You can, of course, store the bullion in a safe deposit box. But you will have to pay for it.
2. Buy a coin
There are two types of coins - investment and commemorative. Both are available at major banks. The most common investment coin is “St. George the Victorious”. It comes in both gold and silver. Its value is tied to the price of the metal. And the biggest plus is that VAT is not charged to the buyer upon purchase. But other disadvantages remain: banks still make markups when selling, the quality of the coin must be monitored, and it must be stored in a safe place.
3. Open compulsory medical insurance
An unallocated metal account (UMA) is a deposit linked to the price of gold. You deposit money in a bank, which converts it into grams (or kilograms) of gold at the purchase rate. You receive only a paper contract, no real bars or coins. The advantage is that you don’t need to pay VAT. But that's where they end. And the disadvantages begin. Firstly, compulsory medical insurance does not fall under the protection of the Deposit Insurance Agency. Secondly, the difference between buying and selling gold is quite large, meaning you lose a lot on bank commissions. Thirdly, you need to pay income tax on the profits received. It is not taken only if you have held the account for more than three years.
4. Invest in shares of gold mining companies
Typically, the quotes for the securities of these enterprises depend on how the price of gold changes. The traditional cost of mining one ounce of gold is $600. Anything higher is the company's profit minus other costs. When the price of gold increases, the income of gold miners increases. They are most interested in the growth of quotes. So are their shareholders. To become the “owner” of securities, you need to open an account with a brokerage company (a list of legally operating ones is on the Central Bank website). Deposit money there and buy shares of Polyus or Polymetal (these are the largest Russian gold mining companies). The broker's commission for buying/selling is usually 0.1%. There is no need to pay VAT. But if you are lucky, gold has risen in price, stocks have jumped and you have sold them at a higher price, you will have to pay income tax (13%) on the profit received. If you receive a loss, you do not need to pay anything.
5. Gold futures
This financial instrument is for even more advanced investors. Those who already have a brokerage account and experience working with securities. But at the same time the most profitable in terms of costs. Transactions are made on the derivatives market. You can buy a gold futures contract. That is, you will not physically receive the metal, but you will receive some kind of right to it. Essentially, this is a bet on gold. If you guess correctly and the price of the metal rises, you will make a profit. If you don't guess correctly, you will receive a loss. Plus, you are investing in gold directly, not indirectly. The downside is that you still have to pay income tax.
The Federal Tax Service announced the conditions
The Ministry of Finance, the Central Bank and participants in the precious metals market, according to Vasily Zabolotsky, support the expediency of abolishing VAT on bullion. But the discussion of this issue began back in 2021, and there is no end in sight. The corresponding bill was submitted to the State Duma in the summer of 2021, but after a couple of months it was withdrawn for revision, or rather, “shelved.”
The Federal Tax Service is slowing down the process due to loss of income and risks of fraud with precious metals on the part of individuals. In January 2021, the department announced the conditions for consent to the abolition of VAT, and they are not at all limited to the control of goods through the system.
“All cases where initially there is a certain product that arrives without VAT, and then it is turned into a “VAT-free” product, potentially contain risks,” said Sergei Semenov, head of the VAT department of the legal entity taxation department of the Federal Tax Service. At the same time, according to the official, the tax service understands how important this step is for the development of the precious metals market.
A representative of the Federal Tax Service named measures to compensate for lost income:
- refusal of special taxation regimes;
- introduction of a precious metals marking system;
- introduction of tax agents.
Fraudsters are leaving the market or correcting themselves
Deputy Head of the Ministry of Finance Alexey Moiseev voiced the ministry’s view on the prospect of abolishing VAT on gold during the session of the XIII International Forum “Russian Precious Metals Market” RBF-2020. According to the official, “the faster and more efficiently the GIIS DMDK is implemented, the faster the issue of abolishing VAT will be considered.” He emphasized that the system “must demonstrate its effectiveness, namely, show that there are no risks of investment gold flowing into the jewelry industry.” In his opinion, the stable operation of GIIS is not only a necessary condition for the abolition of VAT on gold, it will help solve the acute problem with unscrupulous market participants, which is important for increasing public confidence in the industry and eliminating fraudulent VAT evasion schemes.
The deputy minister found it difficult to accurately assess the quantitative result of introducing the system (the amount of legal investment gold), but he is confident that “the legal market will grow significantly.” Already at the stage of preparation for the implementation of the GIIS DMDK, a trend is visible: unscrupulous players in the precious metals market either correct themselves or leave it, assured Alexey Moiseev.
Cost and payment procedure
When ordering a turnkey package of expert services, you will need to pay 128,000 rubles. The company allows staged payment based on the relevant service agreement. Hence:
- Checking the company’s activities and preliminary consultation will cost 50,000 rubles;
- Collection, verification and generation of documentation for transfer to the licensor – 50,000 rubles;
- Assistance with obtaining a license for the sale of precious metals or other activities - 28,000 rubles.
You can refuse a number of services, but it is recommended to order them as a package. Otherwise, we will not be able to guarantee a 100% positive result. To get clarification on all your questions, call us today!
Prerequisites for dedollarization
Supporters of the abolition of VAT on investment precious metals refer to countries where positive experience has already been accumulated. It is true that the causes and effects of precious metals tax reforms vary across economies.
“There is no gold mining sector in the EU, so here, with the abolition of VAT, they solved a specific problem, namely, to put an end to scams with VAT refunds on gold and silver bars,” said Alexey Vyazovsky. “Because of this, EU countries lost significant funds every year. With the abolition of VAT, the problem was partially resolved (although problems with money laundering through transactions with precious metals still remained).”
The goals pursued by the authorities of China and Hong Kong (dedollarization of the savings sector, development of their own gold mining by stimulating private demand) are similar to those set by the Russian government (especially now - during the aggravation of trade wars and the formation of new currency zones in the world). The changes will also lead to a reduction in the size of foreign currency deposits (increasing the risks of devaluation of the national currency).
Today, gold as an investment instrument occupies only the sixth position in Russia. Alexey Vyazovsky notes that the examples of China, Hong Kong, and EU countries show: with the abolition of VAT, the popularity of precious metals from an investment point of view is sharply gaining momentum.
“It is important to note the investment and speculative inertia that provokes an increase in demand after the abolition of VAT,” said Mikhail Shaibe. “The current legislation regarding the circulation of precious metals in China has been in force since 1994, the Chinese economy has grown more than 25 times since then, and accordingly the demand for gold (which has increased significantly in price).”
The tax takes away all the benefits
Due to the presence of VAT, physical gold is very noticeably losing its investment attractiveness in Russia, notes TeleTrade chief analyst Mark Goikhman. On world markets, gold has become noticeably more expensive in recent years: since, as part of strategies to protect against inflation, geopolitical and exchange rate risks, although it is dynamically fluctuating and, in turn, also a risk-creating instrument, it is increasingly serving as a mandatory attribute for the diversification of stock portfolios, which complements the basket of stocks and bonds.
The idea of creating savings in gold is also popular among citizens, the analyst says, also because gold could well serve as an effective and alternative to the dollar as a means of storing savings. This topic is becoming especially relevant given the now low interest rates on ruble deposits.
However, in essence, VAT serves as an outdated and serious brake on such sentiments, an understandable reason to doubt whether investments in gold will really pay off, the analyst says. After all, 20% VAT is the same as a wide non-market “spread” between the price of today’s purchase of precious metals and the potential resale price later. It turns out that a Russian investor can benefit from gold only over a very long-term horizon, if there is a steady increase in the price of gold over several years: such investments will reach “zero” only after the price increase has already exceeded the artificial level of 20%.
And by continuing to collect tax on the resale of bullion or jewelry, the state maintains this unpleasant side effect for our citizens, thereby compressing turnover due to the low degree of interest, and therefore reducing its own tax revenues to the treasury from transactions with bullion and decorations, while a significant part of such transactions takes place in the shadows.
In many countries, investment gold is not subject to VAT or other taxes at all, and states are content with taxes on gold mining companies and income taxes already paid by citizens before they decide where to invest their legally created hard-earned savings. Hence the huge difference: if in Russia, with the production of more than 300 tons of gold per year, legal investment demand is at the level of 4-5 tons, that is, less than 1.5% of production. For example, in China, private investment demand exceeds the level of 60% of production and procurement volumes.
However, in our country, the decision to abolish VAT on bullion and precious products dragged on for years: wanting to maintain, or better yet increase, revenues to the treasury, after demand and physical turnover after the abolition of VAT could increase significantly, the government is introducing mandatory labeling so that control turnover: and therefore both sellers and manufacturers at all preliminary stages.
To some extent, the creation and debugging of a unified marking system can indeed additionally protect against fraud and counterfeiting, but still the main task of government agencies here, Mark Goykhman believes, is to transfer the “shadow” precious metals market to the maximum extent possible into the legal field. This is how it happened, for example, when mandatory labeling of fur coats was introduced: the official turnover of fur coats increased almost 10 times as a result.
The jewelry market will be whitewashed and traceability of ingots, products, and stones will be ensured at all stages from mining to the finished product. The process will not be particularly expensive, the expert is sure, so there is no need to expect additional price increases for these reasons: prices will, as now, remain at world levels. The main disadvantage for investors is that while the marking system is being introduced and worked out, they will have to wait at least another year for the VAT on gold to be abolished.
Gold is a source of counter-sanctions
“The abolition of VAT on bullion transactions could be an internal response to external pressure from Western countries. The law on the purchase of bullion without VAT is designed to increase the number of investors in gold from among individuals by at least 15–20%, added Arina Samokhina. “Attracting new investors - individuals will improve the financial condition of gold mining companies, which will have a beneficial effect on the overall economic development of Russia.”
“We see great potential in the development of such an investment instrument for the population as bullions of precious metals, in the event of the abolition of VAT. There is significant unmet demand for them on the Russian market. This problem has become especially noticeable during the pandemic, when gold has proven to be the safest investment asset. Russian investors are very interested in investing in gold, as they consider it a reliable asset for protecting savings in times of crisis, as well as a good way to hedge against inflation. For example, according to the WGC (World Gold Council), if VAT were abolished, the demand for gold in Russia would be at least 50 tons per year,” said Vasily Zabolotsky.
Bullions were in short supply
The prospects are more than impressive, considering that last year, according to the Ministry of Finance, production volume amounted to 291.2 tons (an increase of 1.8% compared to 2021). Total production of the precious metal decreased by 1% to 340.2 tons.
Alexander Tuchkov, executive director of the global markets department of Sberbank, speaking at the RBF-2020 session, said that there is significant unmet demand for precious metal bars in the Russian market; compared to the volumes of gold production in Russia, the volume of investment by individuals in gold is insignificant. According to the speaker, the problem became especially noticeable during the pandemic, when gold turned out to be the most reliable asset for investment.
However, Mikhail Sheibe also emphasized other obstacles to the active growth of demand: they are related to the storage of gold and the necessary papers for it, as well as the possibility of an individual selling the purchased bullion.
Personal income tax is still out of sight
Russian legislation provides for two types of tax on transactions with precious metals: in addition to VAT, there is also a personal income tax of 13%, paid when selling precious metals from a metal account, as well as when selling gold coins or bars.
“If the precious metal was owned for more than three years, then personal income tax is not required to be paid on the amount received from its sale. Otherwise you will have to pay tax. At the same time, the amount of income subject to personal income tax can be reduced due to property deduction. The deduction amount is no more than 250 thousand rubles per year,” clarified Arina Samokhina.
When asked by “B.O” whether it only makes sense to adjust VAT or whether in order to achieve the goals of de-dollarization of the economy through the development of the gold mining sector, it is necessary to abolish both personal income tax and income tax, Alexey Vyazovsky replied:
“Perhaps it is worth discussing the abolition of personal income tax when owning a bullion of precious metal for more than three years. Investments in precious metals in physical form can be brought under GIIS and the same benefits can be extended to them.”
Investing in gold through ETFs
Unlike the above options for buying gold, gold ETFs are not assets. A refers to securities.
Accordingly, a tax of 13% will be levied only on profits. When selling ETFs.
There are several ways to reduce taxes:
- own an ETF for more than 3 years and receive a benefit (tax exemption) of 3 million for each year of ownership.
- buy ETFs on the second type of IIS, with complete exemption from tax on the sale of securities.
- Use some tax tricks (legal) to reduce the overall tax amount.
A broker is a tax agent. There is no need to file a tax return or pay taxes on ETF transactions yourself.
Real gold, digital ruble
In connection with plans to introduce a digital ruble in Russia, another question arises: is it possible that in the future investment gold can only be purchased for cryptorubles? Alexey Vyazovsky believes that there are no such prerequisites. The story with the digital ruble “so far looks like a tribute to modern financial fashion, but not as something that will be really in demand by the market and the population.”
“The rules for using the digital ruble will be established by the Bank of Russia. We do not expect that the Bank of Russia will introduce restrictions in relation to settlements in the established current format,” said Vasily Zabolotsky.
At the same time, Anna Samokhina does not rule out that in the future gold in Russia can only be purchased for digital rubles.
