A draft law prepared by deputies and representatives of the industry aims to introduce light taxation of crypto incomes in Ukraine. Businesses and individuals will be required to pay 5% on their profits from trading and mining cryptocurrencies when exchanged to fiat. Add to that the mandatory ‘military charge’ of 1.5% all Ukrainians owe the state since the start of the conflict in the East.
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Ukrainians to Pay 5% Tax and 1.5% Military Charge on Crypto Profits
Despite their increasing popularity, cryptocurrencies are not yet legalized and regulated in Ukraine. The country’s growing crypto sector is expecting authorities to do that as soon as possible but officials in Kiev have been slow to grasp the phenomenon and figure out what to do with it. Three bills are stuck in the Rada since last October and a fourth one is expected to be filed this September.
Now when Ukraine is getting closer to adopting regulations after the approval of a regulatory concept last month, a new draft law addresses the aspects of taxation. A group of deputies led by Ukrainian lawmaker Oleksiy Mushak and two dozen representatives of the crypto business are working on the bill which proposes а temporary tax regime in the sector. The authors want it to be enforced in 2019 and remain in place until 2025.
The draft envisages the introduction of a 5% tax rate on profits from cryptocurrency trading and mining, Liga Business reported. The tax will be levied at the difference between the buying and selling price of digital assets, and the difference between mining income and mining expenses. It will be due only when the crypto funds are exchanged to fiat or in case of payments for goods and services, including property. Crypto-to-crypto transactions will not be taxed.
According to Mushak, the crypto industry has a positive attitude toward the proposals in the legal document. “The state shouldn’t touch the exchange between cryptos but the exit to fiat, the real sector, and the purchases of goods. 5% sounds optimal. In fact – this is the price to pay for the legalization of income from dealings in crypto,” says Artiom Afyan, managing partner at Juscutum law firm.
In addition, Ukrainians profiting from cryptocurrencies, will be expected to pay the so-called “military charge” – 1.5% on their incomes as private individuals. The tax was imposed as a temporary measure to finance the reform of the Armed Forces of Ukraine in August 2014. Ukraine’s army is engaged in a military conflict with pro-Russian forces in the Eastern part of the country since the spring of the same year.
Regulations and Regulators
According to the new draft, the crypto market will be regulated by the National Securities and Stock Market Commission (NSSMC). Recently, the regulatory concept prepared by the agency won support in Ukraine’s Financial Stability Council. The body is composed of representatives of the NSSMC, the National Bank of Ukraine, the Ministry of Finance, the Deposit Guarantee Fund, and the National Financial Services Market Commission.
Details about the new concept were made public by the NSSMC in July. It defines cryptocurrency as “token that functions as means of exchange and store of value”, and tokens are divided into “centralized or decentralized units of account” that are “cryptographically secure.” The Commission is also expected to take responsibility for licensing and oversight of crypto exchanges as well as the regulation of ICOs (Initial Coin Offerings). The Finance Ministry and the State Fiscal Service should implement the tax regime.
According to Konstantin Yarmolenko, adviser to the head of Ukraine’s Electronic Government Agency, rules should be adopted in order to protect investors and not for the sake of regulation itself. Alexander Momot, CEO of the Ukrainian crypto startup Remme, thinks that in order to stimulate the development of the crypto sector in the country, tax and regulatory breaks should be introduced instead of tax and regulatory regimes.
What do you think of the tax rate on cryptocurrency transactions proposed in Ukraine? Share your thoughts on the subject of crypto taxation in the comments section below.
Images courtesy of Shutterstock, Bitmain.
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