Cryptocurrency taxation in Ukraine: what the National Securities Commission proposes

The National Securities and Stock Market Commission (NSSMC) has presented a matrix of taxation of virtual assets, which may work in the future, when the Verkhovna Rada adopts relevant legislative initiatives on virtual assets. This is reported by UNN with reference to the NSSMC. 

"The NSSMC is actively working on creating a legislative field for regulating the virtual assets market. In particular, the working group under the Committee on Finance, Tax and Customs Policy of the Verkhovna Rada is working regularly on the draft law. An important component of this process is the coordination of the virtual assets taxation system. This issue falls within the competence of tax authorities and the relevant Committee of the Verkhovna Rada, but it is important for the Commission to outline to all parties involved the advantages and disadvantages of different models. Therefore, for this purpose, the Commission's team has developed a taxation matrix, which clearly demonstrates how different options can affect the market and tax responsibilityt", - it says in the message. 

According to the matrix presented by the NSSMC, it is planned to tax the profit from the sale of cryptocurrency and payment for goods/services with it. 

The rate will be 18% + 1.5% military tax, but a preferential rate of 5% and 9% is also being considered. 

"Tokens acquired before the entry into force of special legislation on virtual assets constitute a special category of digital assets that require a separate approach to taxation. The lack of legal status at the time of acquisition, the difficulty in confirming the origin of assets and the costs of their acquisition, as well as the risks of unfair tax planning, create serious challenges for the regulator and taxpayers," the matrix says. 

Therefore, the NSSMC proposes that when choosing a taxation model through net income, a turnover tax with a minimum tax rate should be established for such tokens, since the taxpayer may have problems confirming expenses in relation to them.

Two-level regulation

According to fintech expert and co-founder of the first fintech-ecosystem Concord Fintech Solutions Olena Sosiedka, Ukraine plans to introduce regulation of the cryptocurrency market based on European MiCA (Markets in Crypto-Assets) standards. In particular, we are talking about a two-level regulation of the crypto market. On the one hand, the National Securities and Stock Market Commission (NSSMC) will regulate all transactions with tokens. Its functions will include licensing, control over issuance, and verification of the activities of companies working with blockchain solutions.

On the other hand, the National Bank of Ukraine will be responsible for the circulation of electronic money and transactions for exchanging cryptocurrencies for national currency. The National Bank will also set requirements for financial monitoring of crypto transactions.

"The model of division of regulatory powers between the National Securities and Stock Market Commission and the NBU is a European standard. It allows to clearly delineate responsibility and ensure a systematic approach to market regulation. We will finally move away from chaos and start moving towards clear, transparent rules of the game," explained Olena Sosiedka.

The fintech expert added that after the legalization of cryptocurrencies in Ukraine, companies working with digital assets will be obliged to obtain licenses, disclose information about owners and ultimate beneficiaries, and report on the volume of their transactions.

KYC/AML standards will also be introduced, i.e. mandatory verification of users and financial monitoring of transactions with digital assets.

"For business, this will be a painful but necessary transition. Instead of working "at their own risk", companies will have the right to work openly, under the protection of the state. They will also have the opportunity to enter international markets," predicts Olena Sosiedka.

At the same time, according to her, the rules of the game will also change for ordinary Ukrainians who store assets in crypto or use it for settlements. Legalization of cryptocurrencies will allow to officially declare digital assets, transfer them by inheritance, and use them in civil law contracts. And transactions with digital assets will be taxed.

In parallel with restrictions and taxation, users' rights will become more protected, Olena Sosiedka noted. This will be possible due to the fact that official platforms will be obliged to provide customer support, insure risks and be responsible to the regulator.

What experts say

The Head of the Committee of Economists of Ukraine Andriy Novak is convinced that the legalization of cryptocurrencies in Ukraine is a matter of time.

"The legalization of cryptocurrencies in Ukraine is probably an inevitable story, because too many Ukrainians keep their savings in cryptocurrencies and play on this market. And the global cryptocurrency market is also developing very much. Even countries like the United States are thinking about keeping a part of the national debt in cryptocurrency as well," he said.

According to Novak, the legalization of digital assets in Ukraine will allow the state budget to receive additional revenues in the form of taxes.

The expert also predicts the activation of the banking sector after the legislative regulation of the cryptocurrency market.

"Of course, each bank will make its own decision on the form in which it will operate in this market, how it will motivate its clients, both new and existing clients, if it operates in this market, then in its own bank. These are additional, competitive conditions for banks operating in our banking system," Novak said.

The expectations of economic expert Oleh Pendzin from the legalization of cryptocurrencies are less optimistic. According to him, this market is very difficult to control, and Ukraine currently lacks the necessary legislative framework for such regulation. 

"The blockchain mechanism completely removes all cryptocurrency-related transactions from control. And since this is the case, there is no real control mechanism yet. Theoretically, the only mechanism is indirect control over citizens' expenses. That is, if you formally do not declare a single penny of income, and then suddenly spend huge amounts of money on some powerful things, then, of course, this should arouse great interest among representatives of tax authorities. But in order to detect your actual income from crypto without, say, indirect methods of control, it is not very realistic yet. Therefore, I have very big doubts that this can be done, especially in Ukrainian realities. Europe has long had control - indirect control over citizens' expenses," Pendzin explained.

We would like to remind you

In February, it was reported that the virtual currency will soon be legal in Ukraine. The Head of the National Securities and Stock Market Commission, Ruslan Magomedov, told UNN correspondent that the draft law has already been sufficiently elaborated and should be adopted by the deputies of the Verkhovna Rada. The purpose of legalization is to launch the virtual assets market.

The Head of the Subcommittee on the Functioning of Payment and Information Systems and Prevention of Legalization (Laundering) of Proceeds of Crime, Olha Vasylevska-Smagliuk, said that the Verkhovna Rada plans to adopt a draft law on taxation of crypto assets by the end of this year. This will allow to track transactions with cryptocurrencies, in accordance with European regulations.