What taxes do they want to impose on cryptocurrency owners in Ukraine: review of the new bill

On November 7, a bill on amendments to the Tax Code and other legislative acts to regulate the turnover of virtual assets (VA) was introduced to the Verkhovna Rada of Ukraine.

In particular, it prescribes the taxation of transactions with cryptocurrencies and involves updating the law “On Virtual Assets”. Let us remind you that according to the previously adopted version of the latter, it will not come into force without amendments to the Tax Code.

The editors of Incrypted analyzed in detail the new draft law and the proposed norms, its features and disadvantages, and also considered alternative proposals for regulating transactions with cryptocurrencies and their taxation.

Rates for individuals and tax agents

One of the most controversial provisions is taxation proposals for cryptocurrency owners. According to the presented draft law, for individuals, income from transactions with crypto assets is taxed at a rate of 18% personal income tax and an additional 1.5% military tax.

As Yuriy Boyko, a member of the National Securities and Stock Market Commission (NCSM), explained in a conversation with Incrypted, an individual will be required to reflect the financial result from transactions with virtual assets in his annual declaration.

Such a financial result (profit or loss) from operations on the sale or other alienation of VA is defined by the document as “the amount of income received from the sale or other alienation of VA, reduced by the value of virtual assets.”

According to this, the value of such assets for individuals is determined as:

• for purchased VA - the amount of documented expenses for their purchase;
• for VA received free of charge - the amount of documented expenses directly related to the receipt of such assets;
• for VA acquired as a result of an exchange for other virtual assets - the documented value of the virtual assets transferred by the taxpayer.

The tax base is the positive financial result of transactions with VA.

Taxpayers must keep records of income and expenses from such transactions separately from similar records with their other assets, Juscutum lawyers noted.

“At the same time, the list of expenses that can be taken into account in the annual financial result from transactions with virtual assets has been submitted for separate approval by the National Securities and Stock Market Commission and the NBU within the limits of their powers in the future,” the experts added.

Investment profit is determined at the time the taxpayer sells the virtual assets. Lawyers noted that the document contains criteria for determining the amount of profit “for different cases”: operations on the issue of virtual assets, acquisition, gifted and inherited virtual assets.

“For each category, it is important to have documentary evidence of the operation. What exactly this documentary evidence is is not determined. Most likely, these are transaction hashes that contain information necessary for accounting,” Juscutum told Incrypted.

Tax agents are:

• for individuals - service providers related to the turnover of virtual assets. They are the ones who must withhold taxes from each user transaction and transfer them to the state budget;
• for legal entities (their branches, branches, representative offices of foreign companies, self-employed persons) - the legal entities themselves.

The procedure for recording such transactions, the content and volume of documentary evidence are also subject to future regulation by the National Securities and Stock Market Commission and the NBU within the limits of their powers, Juscutum noted.

Yuriy Boyko emphasized that the withholding of tax by a tax agent will not relieve an individual from the need to file an annual return.

CEO and founder of the law firm Manimama Legal & Growth Agency Anna Voevodina indicated that in the current version, legislators allowed the annual investment loss to be carried forward to subsequent years, reducing the overall financial result of transactions with investment assets of the following years until it is fully repaid. In previous iterations of tax rules, taxpayers did not have such a right, she emphasized.