Taxes on Bitcoin and other cryptocurrencies. A new draft law "On Virtual Assets" has been introduced to the Rada - with a gradual increase in the rate from 5% to 18%

Today, the Parliament registered an alternative bill on amendments to the Tax Code and other legislative acts regarding the regulation of turnover of virtual assets (VA). Vice Prime Minister - Minister of Digital Transformation Mikhail Fedorov announced this in his Telegram channel. This is bill No. 10225-1 - it is an alternative to bill 10225 introduced to the Rada on November 7, which provides for a tax scheme at a rate of 18% personal income tax (PIT) and an additional 1.5% military fee.

Context

In March, Zelensky signed the law "On virtual assets," which gives the green light to the launch of a legal market for virtual assets in Ukraine and brings cryptocurrency operations out of the shadows. This law is fundamental (roughly speaking, it defines the status of crypto assets and allows operations with them). To fully launch the market, changes to the Tax Code of Ukraine are necessary to definitively regulate tax issues with virtual assets. The adoption of these changes is a mandatory condition for the full launch of the virtual assets market. Initially, it was planned to adopt them by the end of 2022, but due to the war and currency restrictions imposed by the NBU, which practically blocked all cryptocurrency operations, the process has been somewhat delayed. By the way, earlier the National Bank was categorically against virtual assets being used for payments for goods and services.

Taxes on cryptocurrencies

Last week, a bill on taxing cryptocurrencies in Ukraine was registered in the Rada, developed by the National Securities and Stock Market Commission (NSSMC). Among other things, it proposes to tax profits from activities in the crypto market at a rate of 18% and a military fee of 1.5%. This document has sparked strong reactions and criticism from the community, which considers the rates too high.

An alternative approach was proposed by the Ministry of Digital Transformation - Mikhail Fedorov previously stated that taxes should not exceed a 5% level for individual incomes and 18% for companies with the additional option to benefit from the tax regime in Diia.City. Today, the Parliament registered this bill as an alternative to the previous one with rates of 18% + 1.5%.

The goal is to create an efficient market for virtual assets in Ukraine and establish rules for taxing operations.

According to the Ministry of Digital Transformation, which participated in the document development, the law will help create favorable conditions for the development of the crypto industry, increase budget revenues, and enhance Ukraine's investment attractiveness.

Key tax conditions of the alternative bill

The main difference is more liberal tax conditions for businesses, namely:

• Individual incomes from cryptocurrency operations will be taxed at a rate of 5% for the first three years, at a rate of 9% for the next five years, after which the total tax rate will increase to 18%;
• For service providers related to virtual assets (e.g., exchanges and others), a profit tax of 18% or 9% on capital withdrawn when using the Diia.City tax regime.

Additionally, this bill:

• defines the legal status of virtual assets
• introduces classification of digital assets and services in this area, adapting to European standards for regulating crypto assets Markets in Crypto Assets (MiCA)
• creates an innovation zone where work can be done for three years without prior authorization
• adapts the FATF recommendations on financial monitoring of the virtual assets market

As always, this is a bill now, not a law, which still needs to be adopted through all mandatory stages of the legislative process (reading in the Rada, the president's signature), so the final version may differ significantly from the initial one.

• Ukraine ranked 3rd out of 146 in the global cryptocurrency usage index in 2022.
• In 2020, Ukrainian officials declared 46,351 Bitcoin coins, and the country entered the top 10 countries with the highest Bitcoin earnings and top 5 in the global cryptocurrency usage index ranking.