What options were offered to Ukrainians regarding crypto taxes?

How to pay taxes?

According to the document, income of individuals from transactions with cryptocurrencies will be taxed at a rate of 5% for the first three years, at a rate of 9% for the next five, after which a general rate of 18% will apply. Why was this particular system chosen?

Yulia Parkhomenko: Any rates are a compromise between the state, which wants to receive as much taxes as possible, and business, which either does not want to pay them at all or wants to pay less. So, of course, our logic is that a rate system with transition periods could create this trade-off.

But everyone understands perfectly well that the Ministry of Digital Development is not the body that will ultimately determine what the tax rate will be. For this there is a Ministry of Finance, there is a tax committee, there are deputies who will vote and pass the law in the future. But we are 100% sure that when creating a new industry, an 18% personal income tax tax for it is a road to nowhere.

Dmitry Nikolaevsky: The document has a limit of 7 million hryvnia - questions arose about why this particular figure. [According to the bill, the right to the rates provided for by the proposed system will be those taxpayers whose amount of profit from transactions with cryptocurrencies does not exceed 7 million hryvnia during the year].

We do not want to create an arbitrage of different legal tax regimes. We have a simplified system for group III individual entrepreneurs, which has an annual income limit of 7 million hryvnia and a rate of 5%. Therefore, to ensure that one tax instrument is not used instead of another, it was proposed to start with the conditions that already exist for certain types of activities and income. And then there is a consistent evolution of the rate to the standard one.

When does taxation apply?

Nikolaevsky: Income from the sale is received only when a virtual asset is sold for cash. Therefore, entering fiat is the moment a tax liability arises.

If you sold Bitcoin for USDT and do not withdraw funds into hryvnia, does the taxation period not occur?

Nikolaevsky: It’s not coming.

How will the confirmation of expenses that the user must indicate for tax purposes be carried out?

Parkhomenko: For example, I transfer 1000 hryvnia from my bank account to the exchange to purchase bitcoin. After some time, I sell it and receive 1200 hryvnia. In this case, 200 hryvnia is the income on which I must pay tax.

In order to confirm my expenses, I must provide the tax office with a bank statement about my money transfers to the service provider that I withdrew 1200 hryvnia, and from the service provider I must receive a document that will confirm at what rate I bought and sold this bitcoin .

Nikolaevsky: After the law is adopted, the tax office will formulate rules by which the confirmation of expenses is carried out and describe individual cases when such expenses must be confirmed. Everything will be explained at the level of by-laws, which will be developed by the Ministry of Finance and with the participation of the tax inspectorate.

What if there are, for example, more than fifty such operations per day?

Nikolaevsky : It is not yet possible to propose any other more convenient mechanism. So, we assume that this problem will be solved at the service provider level by automating the tax reporting process.

What happens from a legal point of view if my investments are in the red during the reporting period?

Nikolaevsky : In this case, of course, taxation does not apply. Moreover, a negative result can be carried forward to future years, reducing the object of taxation for future tax periods.

How will the information provided by an individual in the declaration be verified regarding his income/losses from transactions with cryptocurrencies?

Nikolaevsky : The tax office usually makes a comparison when conducting an audit. An audit is carried out when the tax office questions the accuracy of the declared information. If there is a discrepancy between the data from suppliers and the declaration data, then the tax office can seek clarification from the taxpayer and ask him to provide documents confirming his calculation.

What tax conditions are provided for legal entities?

Nikolaevsky : If we are talking about service providers, this is a separate section of regulation. Their services, except for consulting ones, are exempt from VAT. After receiving authorization, they can take advantage of the preferential regime of Diya.City and pay 9% tax on the withdrawn capital.

Another story is the income tax for all other legal entities that are not service providers. There are no exceptions for them - a general income tax rate of 18% is used.

Who is considered a service provider?

Nikolaevsky : In order not to list all the types specified in the bill, I will focus on the general principle. It lies in the fact that those types of activities that provide the ability to operate with virtual assets owned by other persons are subject to authorization. The only exception is the provision of consulting services.

Bill 10225 has a tax agent provision that would make service providers responsible for collecting taxes from their users. What obligations do your Alternative 10225-1 impose on service providers?

Parkhomenko : According to it, tax agents will be required to submit reports to the tax authorities - nothing more. That is, they will neither pay taxes nor file returns for users.

The latter can receive reports from service providers and independently generate a declaration and pay taxes. We understand that each user may use the services of multiple providers. He collects all the reports and creates a general declaration.

Nikolaevsky : In the bill that was submitted earlier, exchanges had to withhold and pay taxes for individuals. However, this did not relieve the individual himself from the corresponding obligation, that is, in fact, we were talking about a double process. We don't see any practical sense in this. There is a financial result that is subject to taxation, and it can be formed through transactions on various platforms.

That is, the service provider can help generate reporting for the declaration?

Nikolaevsky : We expect vendors to implement this as a service for their users and make their lives easier.

What kind of reporting will the exchange have to provide?

Nikolaevsky : About his activities, since he is also a taxpayer. Submits reports on users in terms of amounts paid to individuals. That is, if a person withdrew a certain amount of money from a service provider, the latter is obliged to notify the tax authorities about this payment in cash using a standard form.

Exchanges require KYC. Does this mean that the tax office, if necessary, will receive all data about the platform’s clients?

Nikolaevsky : Yes, the tax office will be able to compare the amounts that a person indicated in his own declaration with the information received from service providers.

What about transactions with decentralized exchanges and cold wallets? How to control them?

Nikolaevsky : The person who reports has the obligation to document his expenses. It will be very difficult to prove expenses if he carries out transactions on decentralized exchanges.

If a person is satisfied with simply paying tax on the entire amount of income received and expenses are not important to him, then he can earn money somewhere on DEX, then sell [assets] through a service provider in Ukraine, withdraw this money to a card and pay the same from the entire amount 5% tax.

Might it be necessary for the user to explain the origin of funds when placing them on the exchange?

Nikolaevsky : Each service provider forms such policies independently in accordance with current legislation and FATF requirements. Of course, if the amounts exceed a certain limit, then it is very likely that the supplier who identifies the client may question the source of the funds.

In any case, the exchange will have the obligation to fulfill its obligations as a subject of primary financial monitoring. To do this, the provider must be conscientious about what is happening with a particular user and ask if something looks suspicious.

The main task of a financial monitoring specialist is to make sure that the money is not of criminal origin.

If a service provider does not register on the territory of Ukraine, for example, an exchange from the EU, can it serve citizens of the country?

Parkhomenko : Our bill does not limit non-residents at all in providing services to citizens of Ukraine. In fact, people themselves choose where to get service - from non-residents, or from registered service providers on the territory of Ukraine.

But there is a nuance here in that the latter will be able to provide reporting for the tax authorities, but foreign suppliers are not required. Therefore, it will be much more difficult to confirm the costs that the user will incur when working with service providers.

Nikolaevsky : What does a legal framework provide in general? The ability to go to court if, for example, your funds were stolen. This is a basic benefit. In fact, this is what taxes are paid for. That is, the state can prosecute the criminal.

Regarding non-residents and companies registered in offshore jurisdictions. We understand that there are no legal tools to get your money back, or they are “vague”, or very expensive. A person for a nominal $1000 will not contact some Interpol to search for scammers. At the same time, it will be possible to work in Ukraine relatively calmly, since all market participants will undergo a preliminary check upon authorization.

Why does an international exchange need to obtain a license in Ukraine? What are the advantages if it can already serve the citizens of the country?

Nikolaevsky : If exchanges want to get clients from this jurisdiction and work with them more efficiently, they are interested in authorizing themselves on the territory of Ukraine. If, of course, it doesn’t cost millions of dollars or hryvnia, then why not go through authorization and use convenient fiat gateways.

Does the new regulatory framework provide for the exchange of information with Eurozone tax authorities? Will there be an analogue of DAC8 or Travel Rule ?

Nikolaevsky : Yes, this will all happen. Regarding the requirements for the exchange of tax information, Ukraine has already adopted the relevant law and will exchange such information. Information about virtual assets is also included in the data to be exchanged.

However, this does not apply to everyone. There is a limit below which the corresponding exchange does not take place. And it is important to understand that this is an exchange not between service providers and tax authorities, but between tax authorities among themselves.

Classification of virtual assets

The update to the law “On virtual assets” divides the latter into four types. Can you give an example for each category of such assets to clearly understand what exactly is meant?

Nikolaevsky : Let's start with the most interesting thing, electronic money tokens are virtual assets that will have a special legal regime. What does this mean in practice? When the previous law was adopted, it was often communicated that it was very bad when virtual assets could not be used as a means of payment.

In this case, the problem is solved - these particular tokens can be used as a calculation tool.

What is their specificity? They will definitely be tied to the hryvnia. Since they will be backed by fiat hryvnia, their issue will not in any way negatively affect the overall monetary policy. These were the main concerns of the NBU when adopting the previous version of the law. So, these tokens, their circulation, issue will be regulated by the National Bank of Ukraine. It is he who will subsequently provide his explanations regarding the circulation of electronic money tokens.

Further. Asset-linked tokens . Let's look at them in comparison with utility tokens . In both cases there is a specific underlying asset. But in the case where the transfer of a utility token represents the transfer of the right to receive a physical thing, for example, the same car, then in the case of an asset-linked token, the obligation to transfer this asset no longer exists, but there will be an obligation to pay its current value.

If the issuer of this token proves its ability to fulfill obligations at the expense of other highly liquid instruments, excess deposit, which significantly exceeds the volume of obligations for actually issued asset-linked tokens, then such a possibility will exist.

What are unclassified virtual assets?

Nikolaevsky : This is such a general view in order to understand what legal regime applies to all those tokens that do not meet the previous criteria. This is Bitcoin, Ethereum, which we all know, that is, this multiplicity of cryptocurrencies. Now even USDT is an unclassified virtual asset.

reports appeared on the Internet that monobank and PrivatBank began to block cards with the assumption that this was due to the use of P2P trading. Could it be that banks are trying to close alternative channels for people to potentially withdraw assets through official gateways into fiat?

Nikolaevsky : Most people probably know that operations with virtual assets, in accordance with banking regulations, are considered high-risk. Many banks decide that it is better to refuse cooperation with a client who has some involvement in this industry in general.

There is no clear legal framework yet that would explain that cryptocurrencies are not something super-risky, but a normal element of the new digital economy.

Parkhomenko : It is the adoption of the law that will allow banks to treat cryptocurrencies normally.

Nikolaevsky: And suppliers will be able to open accounts and fiat gateways will finally work normally.

Regulators: without National Commission

Is it correct to understand that the National Securities and Stock Markets Commission was completely excluded from market regulation in the new bill?

Parkhomenko: Absolutely right, this particular edition identifies only two regulators: the NBU, which will be responsible for electronic money tokens, and the Ministry of Digital Development, which will be responsible for absolutely all other areas.

People's Deputy Alexey Zhmerenetsky said that the working group will work to find a compromise between bills 10225 and 10225-1 and the possible synthesis of two documents into one. In this case, what compromises would the Ministry of Digital Development be willing to make regarding the provisions of the document, and what compromises would it not?

Parkhomenko : As of today, two bills have been registered: the main one and the alternative. Now the Tax Committee is collecting all findings from state executive authorities. After this, it is planned to create a working group under the Tax Committee, within the framework of which both bills and all the findings will be considered.

We do not yet know how the further process will take place. We will know this only when this working group is already operational.

Are we ready to make any concessions? We will defend our position to the last, arguing it, and then we will look at the reactions of other stakeholders.

The issue here is not even some kind of struggle; it is important for us that regulation works. Because over the past two years, almost all operations have stopped due to martial law, and now the only way to restore them is to start regulation.

Nikolaevsky : If the Commission had been able to complete this task, probably these two versions of the bill would not have existed at all.

What are your predictions regarding the adoption of the law?

Nikolaevsky : There are always optimistic and realistic forecasts. If everything goes well, then we really hope that the framework as a whole with the tax part, with the registration of suppliers, as they say “turnkey”, will start working from the first days of 2025, that is, in a year or a little more.