Publication date: 30.05.2024
lawyer, 23 years of experience in enforcement.
The cryptocurrency system in Ukraine is not officially recognized, and its taxation is also not defined at the legislative level.
Cryptocurrency is not a new form of investment that has recently emerged in a number of countries around the world, the legislation already recognizes it as a form of investment, and it also has a tax procedure. As a result, tax authorities are very interested in taxing cryptocurrency-related income.
What is considered a cryptocurrency according to the tax legislation of Ukraine?
Legislation that would regulate legal agreements that arise in connection with the transfer of virtual assets, in particular cryptocurrency, has not yet been adopted in Ukraine.
We are discussing the Law of Ukraine, which was adopted on February 17, 2022 No. 2074-IX regarding "virtual assets". The law will enter into force on the day of entry into force of the Law of Ukraine "On Amendments to the Tax Code of Ukraine on Features of Taxation of Virtual Assets". The bill with the same name, proposed in the Legislative Assembly of Ukraine, has not yet been adopted by the Verkhovna Rada of Ukraine.
The Law on Virtual Assets defines a virtual asset as an intangible asset that has value and is expressed through a set of electronic data. The virtual asset rotation system is responsible for ensuring the existence of the virtual asset. A virtual asset can be used to authenticate property rights, including rights to claim other civil rights objects.
Despite the uncertainty of the legal status, the National Agency for the Prevention of Corruption in the regulations on the procedure for filling out declarations of natural persons authorized to perform the functions of the state or local self-government, however, defines the rules for declaring cryptocurrency and defines a cryptocurrency that meets FATF (anti-money laundering) standards. which is documented in the Law of Ukraine dated June 12, 2019 (No. 361-IX on prevention and eradication of legalization of proceeds of crime, financing of terrorism, and proliferation of weapons of mass destruction:
A cryptocurrency is a virtual currency expressed in digital form that can be transferred or sold. It can also be used for investment or payment.
Tax legislation and clarifications regarding tax authorities do not specifically describe cryptocurrency, these laws refer to the lack of a defined legal status of cryptocurrency in Ukraine, in particular, there is no framework for regulating its classification and transactions with it.
What about the taxation of cryptocurrencies abroad?
A number of countries around the world, including the United States, countries of the European Union, India, etc., have established laws or regulations for their taxpayers regarding the taxation of income from cryptocurrency transactions.
Interestingly, the definition of cryptocurrency includes payment as a means of transaction, but taxation is done according to the rules associated with other investment assets such as stocks and other securities. That is, for tax purposes, the profit or loss associated with an investment is determined, which is the difference between the income from the sale of an investment asset and the cost of acquiring this asset.
In the US, the tax authorities consider cryptocurrency to be an asset that gives rise to taxable events when it is sold or transferred to another investment vehicle.
Also, the term of ownership of cryptocurrency depends on the tax rate, for example, the term that begins from the moment of purchase (receipt) and ends from the moment of sale (disposal):
- - If the ownership of cryptocurrency is less than a year, the maximum growth rate of up to 37% is used.
- If the ownership of cryptocurrency exceeds 1 year, the rate of capital growth of up to 20% is used.
In Germany, there is no separate legislation regarding the taxation of cryptocurrency transactions, but there is a tradition and the position of tax officials and courts. In this country, cryptocurrency is usually also considered property and taxable if the duration between the sale and purchase of the property did not exceed one year.
The income received from the sale of the asset is not taxed if it has been owned for a period of time exceeding 1 year. An income threshold of 600 euros per year is also exempt from taxation.
In Germany, the tax rates on cryptocurrency income are not separated from the general rate.
What about the taxation of cryptocurrencies in Ukraine?
The Tax Code of Ukraine does not have separate regulations on the taxation of cryptocurrency or virtual assets.
However, tax officials clarify that the procedure for calculating an individual's income from operations related to cryptocurrency differs from ordinary income.
These clarifications indicate that the taxable event is the time when taxation occurs, i.e. the time of year when the cryptocurrency is sold. The procedure and rules of taxation depend on the location of the source of income. If the source of payment is foreign, then the income from the sale of cryptocurrency is considered part of the total annual taxable income as foreign income. If the payment of income is made by an individual resident on the territory of Ukraine, the income from the sale of cryptocurrency is considered other income.
The tax base in both scenarios is the total amount of funds received by the taxpayer from transactions with cryptocurrency. Income is taxed at 18% plus a military rate of 1.5%. Income declaration is made by submitting a certificate of property status and income.
The report on property status and income is made public by May 1 of the year following the reporting year. Taxes must be paid by August 1 of the year following the reporting year. For example, the 2024 return filing date is May 1, 2025, and the tax payment date is August 1, 2025.
The cryptocurrency system in Ukraine does not have a defined legal status, its taxation is also not defined at the legislative level. The tax authorities have a description of the process of taxation of transactions with cryptocurrency. According to tax officials, taxable income is sales revenue, not sales profit, i.e. acquisition costs cannot be considered taxable. This method does not comply with the principles of taxation in other countries, which only receive taxable income from the sale of cryptocurrency, and there is a possibility of tax losses as an investment.
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