Ukrainian Parliament Puts Forward A Proposal to Tax Profits from Digital Currencies

Last week on September 14, an official draft law was published which shows that the Ukrainian parliament - Verkhovna Rada - has proposed a bill to tax all the returns and profits derived from cryptocurrency-related operations.

The lawmakers proposed levying a flat 5% tax to all the individual and commercial entities dealing in digital assets. Moreover, these profits should be reported separately from the other regular income, as suggested in the tax bill.

If the bill is passed, commercial business entities will be taxed at 18 percent starting from 2024. The bill additional talks of official defining the concept of digital currencies in the country’s Taxation Code as "a virtual asset in a form of a token, which functions as a mean of exchange or a store of value," as well as defining virtual assets as a "form of a digital record on the distributed ledger that can be used as a mean of exchange, unit of account or a mean of storing value.”

The new bill also talks of withdrawing operations from the grey market and adding them to the state budget revenues. It also talks about encouraging crypto-related activities in the country. AN explanatory note tied to the bill states: Accordingly, the introduction of transactions with virtual assets in the legal field will [make it possible] to draw 1.27 billion hryvnia ($43 million) to the budget annually from 2019-2024.”

Another explanatory appendix notes that earlier Ukraine was at the forefront of crypto-mining activities with over 30% of the global mining power concentrated in the region. However, because of the growing regulatory uncertainty, companies started shifting their base to other friendlier jurisdictions like Georgia, Finland and Canada.

The document notes: "Given the current state of affairs, Ukrainians are deprived of the opportunity to raise funds and resources to develop their ideas and technologies through traditional instruments. So, last year, Ukrainian companies did not get a single dollar through an IPO (primary public offering) mechanism. At the same time, according to the Ukrainian association UVCA and Deloitte in 2017, 19 Ukrainian start-ups attracted $ 160 million or more than UAH (Ukrainian hryvnia) 4.3 billion through the ICO (the primary token proposal).”

According to the estimates from Ukrainian authorities, its citizens hold nearly $3.5 billion worth digital currencies in the market. Hence if the digital transactions are legalized as per the proposed bill, it would fetch the country $45 million in taxes every year from 2019-2024.