What is the situation with cryptocurrency on the Ukrainian market in 2021?
The market of virtual assets (hereinafter – VA) has existed in Ukraine for several years. In addition, Ukraine is one of the countries with the largest cryptocurrency turnover. However, due to the fact that it is not properly legalized, and its owners do not have effective ways to protect their rights, all operations take place in the shadows, international exchanges are unable to enter the Ukrainian market, and Ukraine is deprived of prospects for attracting new foreign investments and resources. Draft Law No. 3637 “On Virtual Assets” (hereinafter – Draft Law No. 3637) is designed to provide such opportunities for the Ukrainian VA market. On September 8, 2021, the Law “On Virtual Assets” was adopted by the Verkhovna Rada and sent to the President for signature.
However, on October 5 of this year, the President of Ukraine returned it to the Parliament with his proposals. The main reasons for such actions were not fully understandable and transparent conditions for participants in the virtual assets market, as well as the impracticality of creating a new body of the central executive power, which would require significant expenditures from the state budget. The President’s proposals must be taken into account in the new version of Draft Law No. 3637 and undergo a repeated voting procedure. It is predicted that the amended Law will be adopted no earlier than January-February 2022.
What are the main provisions included in the Draft Law “On Virtual Assets”?
- The legal status of VA has been granted;
- It was established that VA is not a means of payment on the territory of Ukraine;
- The conditions for the acquisition of the right of ownership of the VA by market participants have been determined;
- The rights and obligations of VA market participants have been approved, in particular, the right to open a bank account for settlement of VA transactions, judicial and other ways of protecting their rights, and independent determination of VA pricing have been approved.
At the same time, this Law is basic and defines only the legal basis for the functioning of the VA market. The main prerequisite for the entry into force of the Law on Virtual Assets is the introduction of amendments to the Tax Code of Ukraine (hereinafter referred to as the Tax Code of Ukraine). Draft Law No. 2461 “On Amendments to the Tax Code of Ukraine and Some Other Laws of Ukraine Regarding the Taxation of Transactions with Crypto-assets” (hereinafter Draft Law No. 2461) should define the specifics of VA taxation. However, it is currently under consideration by the Verkhovna Rada since November 2019. It is not known whether it will be accepted in the 2019 edition.
The issue of taxation is very relevant for cryptocurrency owners, so it is necessary to find out what taxes should be paid to taxpayers in connection with the sale of VA now, and what tax burden to expect if changes to the Tax Code of Ukraine are adopted.
How is cryptocurrency taxed today?
As stated in the individual tax consultation of the DPS N 4907/IPK/99-00-04-04-02-09 dated 30.11.2020, income from the sale of cryptocurrency is taxed according to the general rules established in the Tax Code of Ukraine, as there are currently no special rules for its taxation. That is, from the income received from the sale of cryptocurrency, the taxpayer must pay 18% personal income tax and 1.5% military duty, as well as show such income in the annual declaration of property status and income in section II “Other income”. The presence of cryptocurrency in a physical person does not oblige him to declare it in the annual declaration, only the income from the sale of such an asset is subject to declaration.
The procedure for declaring virtual assets by subjects of mandatory declaration, in accordance with the Law “On Prevention of Corruption”, can be found at the link https://smartsolutions.ua/ua/pravovij-status-kriptovalyut-ta-ix-deklaruvannya-u-2020
What to expect?
Bill No. 2461 proposes to define profit from transactions with crypto-assets as the positive difference between the income received by the taxpayer from the sale of crypto-assets and documented expenses related to their acquisition and/or creation.
Rates of taxation of income from the sale of VA:
- For individuals – personal income tax 5% and military tax 1.5%. These rates are set for five years.
- For legal entities – 18%.
It is worth noting that a group of deputies submitted a new alternative bill to the Verkhovna Rada with a more loyal taxation system for legal entities, namely, it is proposed to establish a 5% tax rate on profits from transactions with cryptocurrency. However, this bill has not even been registered yet. So, we have to wait and keep our finger on the pulse of changes.
It is still difficult to assess the effectiveness of these draft laws, as it is obvious that it will take at least several years for the full legalization and functioning of the cryptocurrency market in Ukraine. But these changes are the first and important step for the growth of digitalization of Ukraine.
The Smartsolutions team is always ready to help you declare your income and provide an up-to-date legal assessment of the legislation.
The author of the article – an external consultant, Veronika Trinchuk
Editor – Director of the Accounting and Tax Department – Anastasia Shostak