When will the market for virtual assets in Ukraine start working?

In February Ukraine came one step closer to legalizing virtual assets (including cryptocurrency) by adopting the Law on Virtual Assets. According to the most optimistic forecasts, the market of virtual assets in Ukraine may be fully operational as early as from October 1, 2022, after the adoption of relevant legislative changes on the taxation specifics of transactions with virtual assets.

What is provided in the law?

The law introduces the concept of "virtual assets" (“VA”), which are divided into secured (certify property rights, including claims on other objects of civil rights) and unsecured (do not certify any property or non-property rights, but have a certain value and cost, are the objects of civil rights and expressed by a set of data in electronic form).

Foreign and Ukrainian cryptocurrencies will be able to operate legally in Ukraine after passing state registration.

Legal entities that have received permission (license) may operate as Service providers on storage or administration of virtual assets or keys of virtual assets, exchange or transfer of virtual assets, for the provision of intermediary services related to virtual assets. The amount of the fee for the issuance of a license to provide services related to the turnover of virtual assets is determined:

• for residents – from 68 thousand UAH to 136 thousand UAH
• for non-residents – from 425 thousand UAH to 680 thousand UAH.

Issuance of financial virtual assets is carried out considering the requirements of state regulators and subject to holding a license:

• for virtual assets secured by currency values – the National Bank of Ukraine
• for virtual assets secured by securities or derivative financial instruments – the National Securities and Stock Market Commission of Ukraine.

Terms of acquisition, transfer and scope of rights to virtual assets may be carried out in the form of smart contracts.

It should be noted that VAs, in any case, are not recognized as a means of payment and cannot be exchanged for goods and services, but they can be used to conduct transactions and save savings in assets such as VAs.

How will virtual assets be taxed?

Bill №7150 on amendments to the Tax Code of Ukraine has been already registered in the Verkhovna Rada of Ukraine. If adopted, it is expected that from October 1, 2022 in Ukraine will be special conditions for the taxation of virtual assets (payment by individuals and providers of tax services in the amount of 5% of profits from transactions with virtual assets and services related to the circulation of virtual assets respectively, income of non-residents from the sale or other disposal of virtual assets are not taxable income).

The bill provides for a special regime for the taxation of virtual assets:

• profits from transactions with virtual assets (including the provision of services) will be subject to corporate income tax at a rate of 5%
• tax differences related to transactions with virtual assets are provided
• for individuals, investment income from transactions with virtual assets will be taxed on personal income tax at a rate of 5% and military duty of 1.5%
• however, for VAT purposes is not subject to taxation:
• putting into circulation (first sale) of unsecured virtual assets
• operations on sale, other alienation and termination of turnover of virtual assets, transfer of virtual assets within the framework of intermediary agreements, provision of services related to circulation of virtual assets.