Ukraine Initiates Taxation of Crypto Assets
Baker McKenzie, Kyiv, Ukraine,
Fri, Nov 23, 2018
On 19 September 2018, the Verkhovna Rada (Ukrainian Parliament) published a draft law setting out the principal rules for taxation of transactions involving virtual assets (the "Crypto Tax Law").
The idea behind the Crypto Tax Law is to provide legal certainty as regards transactions with virtual assets, which would lead to emergence of the new industry. If a transaction involves the conversion of a virtual asset into fiat currency, income generated from such conversion may be subject to taxation.
Taxable income is defined as a positive difference between the revenue received from the sale of the asset and its value, i.e., the confirmed costs to purchase or acquire (mine) such an asset. Conversion of one virtual asset into another virtual asset is not subject to taxation. Moreover, the Draft Law introduces a favourable tax regime for legal entities dealing with virtual assets: a reduced rate (5%) of corporate income tax will apply to such taxable income until the end of 2024.
Along the same lines, on 25 October 2018, the Ministry of Economic Development and Trade published a draft concept of state policy for the regulatory treatment of virtual assets (the "Concept"). The aim of the Concept is to (i) address the legal uncertainty of dealing with virtual assets, (ii) protect consumer rights, and (iii) create a foundation for state supervision and taxation of the respective stakeholders and transactions. It also seeks to enable market players in Ukraine to use banking services, conduct "initial coin offerings" (ICOs), attract investment and develop the virtual assets market.
It is expected that the Crypto Tax Law may be adopted by the end of 2018. As regards the Concept, the Ukrainian government intends to implement it in two stages: (i) during 2018-2019, to ensure legal certainty as regards the nature of virtual assets and the activity of the respective market infrastructure (e.g., cryptocurrency exchanges and crypto shops); and (ii) during 2020-2021, to adopt regulations concerning the use of virtual assets, smart contracts and ICOs.