• 20/04/2024 06:32

Regulation of virtual assets in Ukraine: why is it important and what changes awaits the market

 Регулирование виртуальных активов в Украине: почему это важно и каких изменений ждет рынок

Photo: why it is important to regulate the virtual asset market (flickr) Author: Sergey Novikov

Last month, an alternative bill on virtual assets was registered in parliament. According to the Ministry of Digital Transformation, draft law No. 10225-1 should create an effective market for virtual assets in Ukraine. The document also provides for the establishment of tax rules for a new class of assets.

Read about what innovations this project offers and why it is important to regulate the virtual asset market in the material from RBC-Ukraine.

Various versions of the bill

As you know, in 2022 the Verkhovna Rada adopted the bill “On Virtual Assets” (No. 3637), which can come into force only after changes to the Tax Code. However, the president vetoed it by introducing a number of amendments.

Deputies tried several times to make changes to tax legislation, but they never managed to do it.

On November 7, 2023, a bill on regulating the turnover of virtual assets in Ukraine (No. 10225) was registered in parliament. It was written by the National Securities and Stock Market Commission (NCSM) together with the BP Financial Committee and Ernst and Young.

The bill, among other things, proposes to tax profits from activities in the crypto market at a rate of 18% and a military tax of 1.5%. This document has drawn criticism from the crypto community, which considers the stakes too high.

What does the Ministry of Digital Development bill propose?

The project of the National Securities Market Commission caused a lot of criticism; it did not find support in the relevant Ministry of Digital Transformation.

Thus, Deputy Minister of Digital Transformation for IT Development Alexander Bornyakov noted on Facebook that this project lacks a “simple regulatory environment and incentive taxation” necessary for the development of the crypto market.

“To facilitate the shadowing of the crypto sector, it is necessary to create a special tax regime for business. The first years of legalization of the crypto segment should form a culture of taxation of transactions with a new class of assets. Therefore, tax rates should be 5% for income of individuals and 18% for companies with the additional opportunity to take advantage of taxes “Diya.City regime,” says Bornyakov.

Actually, for this purpose, the Ministry of Digital Development, together with deputies and businesses in the field of virtual assets, has developed an alternative project.

The document completely excludes the National Commission for Securities and Stock Markets from regulating the market, identifying two regulators: the NBU, which will be responsible for electronic money tokens, and the Ministry of Digital Development, responsible for other areas.

The document also defines the legal status of virtual assets, classifies digital assets and services in this area, which are adapted to the European standards for regulating crypto assets Markets in Crypto Assets (MiCA).

Electronic money tokens are defined as a legal means of making payments for goods, works and services throughout Ukraine, which can be used by common agreement of the participants in such payments.

At the same time, issuers and providers of electronic money tokens in Ukraine can only be banks and non-bank financial institutions that are residents of Ukraine. The Ministry of Digital Development believes that this will increase the attractiveness for even more financial and crypto market players to enter Ukraine.

 Регулирование виртуальных активов в Украине: почему это важно и каких изменений ждет рынок

Deputy Prime Minister, Minister of Digital Transformation of Ukraine Mikhail Fedorov (photo: Vitaly Nosach, RBC-Ukraine)

In addition, the document provides for the creation of an innovation zone in which it will be possible to work for three years without prior authorization.

The draft law also adapts FATF recommendations on financial monitoring of the virtual assets market and introduces a state Register of service providers related to the circulation of virtual assets and virtual assets, which will be publicly available.

Minister of Digital Transformation Mikhail Fedorov, presenting the bill, emphasized that in general, the alternative bill will create all conditions for the work and development of the crypto industry, increase budget revenues and increase the investment attractiveness of Ukraine.

What taxes does the alternative project involve?

Draft Law No. 10225-1 provides for an 18% tax on personal income. However, the tax will be introduced gradually: the first three years will be at a rate of 3%, and the next five years – 9%. Payers of personal income tax whose amount of investment profit from transactions with virtual assets does not exceed UAH 7 million during one reporting year will have the right to the rates provided for in this paragraph.

At the same time, transactions with virtual assets for legal entities are proposed to be exempt from VAT, except for service tokens, which will be tokenized goods and services.

A tax of 18% is proposed for service providers. They are also proposed to be exempt from VAT, except for providing advice on virtual assets.

Residents of “Diya.City” will be able to choose between an 18% income tax or a 9% tax on withdrawn capital.

Also, draft law No. 10225-1 provides for the obligation to determine the overall financial result from transactions with virtual assets, declare income, calculate and pay taxes directly to the taxpayer.

Waiting for the industry

The adoption of changes to the Tax Code regarding the circulation of virtual assets in Ukraine is an important step towards the legalization of cryptocurrencies in Ukraine.

According to the founder and CEO of the WhiteBIT crypto exchange, Vladimir Nosov, it is tax regulation that determines what we get in the end: the development of technology, the economy, innovation, or stagnation and marking time.

The wording of the first bill, in his opinion, has a number of controversial provisions. “In this version, this law creates risks for many crypto investors in Ukraine and will not contribute to the development and expansion of the crypto market,” says Nosov.

Other market representatives are also convinced that Ukraine can attract international crypto capital and many influential market players, but this requires the most democratic and simple legislation.

In the meantime, discussions continue in parliament. The Verkhovna Rada Tax Committee collects all conclusions from government bodies and businesses on the first and alternative bills. After this, it is planned to create a working group.

According to MP Alexei Zhmerenetsky, the working group will work to find a compromise between these bills and a possible synthesis of them into one.

Time will tell what will come of this. The main thing is that Ukraine does not miss the unique opportunity to become one of the world leaders in the development of the digital assets market.

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