When to expect a 5% tax on transactions with crypto assets in Ukraine

Features of regulation

The law states:
🔹 the concept of “virtual asset” as “intangible good, which is the object of civil rights, has value and is claimed by the circulation of data in electronic form”.
🔹 coins and tokens will not be considered legal means of payment in Ukraine. The hryvnia remains the only instrument for purchasing goods.

Virtual assets are divided into three types:

• secured (confirm ownership and a specific object)
• unsecured (common crypto tools with an unstable exchange rate – Bitcoin, Ethereum and others)
• financial (assets secured by such classical instruments as gold, silver, foreign currencies and others).

Legal entities will be required to obtain a special permit in order to provide services of storage, administration, exchange, and transfer of virtual assets, as well as services of the conclusion of contracts regarding crypto-assets.

One of the conditions for obtaining a license is the authorized capital – from 35 thousand non-taxable minimum incomes of citizens for residents (from 595 thousand UAH) and from 175 thousand non-taxable minimum incomes of citizens for non-residents (from 2 million 975 thousand UAH). The permit will be granted for a period of 1 year with the possibility of extension. The price for the license will be from 68 thousand to 136 thousand hryvnias for residents of Ukraine, and from 340 thousand to 680 thousand hryvnias for foreign companies.

The functions of cryptocurrency market regulators will be transferred to the National Commission for Securities and Stock Market and the National Bank of Ukraine. The National Securities Commission will issue licenses and monitor the activities of crypto market participants, conduct inspections, issue warnings, and instructions on the cancellation of requests, and apply financial sanctions. Within half a year, the National Commission for Securities and Stock Market will have to implement the procedure for maintaining the state register of service providers related to the circulation of virtual assets. The National Bank of Ukraine will control the turnover of crypto-assets backed by currency values and will determine the list of currency values for which the assets can be exchanged and the procedure for such exchange. Also, the National Bank will control the activities of service providers related to the exchange of secured cryptocurrencies, will determine requirements for cybersecurity, and impose sanctions for violations.

Taxation of operations related to cryptocurrency

Today, cryptocurrency transactions are taxed at the rate of 18% personal income tax and 1.5% military levy. This position is indicated in the individual tax consultation No. 4907/ ITC/99-00-04-04-02-09 dated 30.11.2020. The fact that the taxpayer has cryptocurrencies does not need to be reflected in the tax return, but the income received from transactions with cryptocurrencies is subject to declaration.

According to draft law No. 2461 dated November 15, 2019, for individuals, transactions with virtual assets will be taxed at the rate of 5% personal income tax for a period of up to 5 years and will not be subject to VAT.

After the grace period – 18% and the military tax is 1.5%. Corporate income tax will be required on the profit from operations with crypto assets, which is defined as the positive difference between the income from the sale of the virtual asset and the costs associated with its acquisition or mining. The rate of 5% for those legal entities for which this industry will be the only type of activity. Other companies will pay a standard 18% on profits from such transactions.

What does business in Ukraine provide?

1. Foreign and Ukrainian companies will be able to officially conduct transactions with crypto assets, open bank accounts, pay taxes and provide their services.
2. Cryptocurrency users in Ukraine will be able to legally exchange assets, list them in tax returns, and establish blockchain businesses.
3. Ukrainian owners of cryptocurrencies and foreign companies will be able to protect their rights and interests in court in the event of fraud, or arbitrariness of law enforcement agencies.

Conclusion

The Law of Ukraine “On Virtual Assets” for the first time establishes the legal basis for the functioning of activities related to the circulation of cryptocurrency and responsibility for violations of the rules.

The law establishes 5% personal income tax on operations with virtual assets and attractive conditions for obtaining licenses, which is the first step in the legalization of cryptocurrency in Ukraine. However, the law can be characterized as a framework and more detailed regulatory rules will be specified in by-laws. The shortcomings of the current version of the law include the fact that it does not regulate cryptocurrency mining (calculation of blocks in a distributed cryptographic registry) as a business activity, it is designed mostly for large players, taking into account the conditions for obtaining a license, it does not contain instructions for changes to the Criminal Code and the Code of Administrative Procedures. offense.