Last week, the Verkhovna Rada registered a draft law No. 9083 “On amendments to the Tax Code of Ukraine on taxation of transactions with virtual assets in Ukraine”. Juscutum’s Managing Partner Artem Afian explains what changes will the draft law on cryptocurrencies provide for Ukraine and why this document is a step in the right direction.
As soon as the first law of the diptych of crypto-laws was registered in the Parliament, it gave rise to the wave of indignation and analytical studies. Network analysts, of course, know better what exactly it means and what insidious plans of the political backstage it shows. Just as a lawyer of the author’s group I will try to explain what the law creators tried to achieve.
Cryptocurrency is not money. It is impossible to recognize the crypto as a means of payment at this stage. We have currency law, the definition of the foreign currencies’ characteristics, codes. Ideas about cryptocurrency as a means of payment with 0% transaction tax remain only in the theoretical field.
In fact, the issue of a zero tax rate has been left behind a long time ago. But the authors did not know how to introduce it the Parliament, and therefore they focused on something real. Namely, the application to the cryptocurrency of securities tax regime. Moreover, this does not mean that the whole crypto is securities and that we all will trade cryptocurrency only through brokers. No. For lawyers, the construction “something white considered green for tax purposes” is a rather regular one.
Therefore, the draft law provides for 5% rate of the difference between the cost of cryptocurrency buying and selling. If the value is negative, then there is no tax base.
Crypto-crypto operations are not taxable. Buy tokens, sell altos, support bitcoin: the Ukrainian tax office will consider it indifferently and kind of derisively. You need to pay only for access to the fiat world. If you buy UAH – pay 5%. If you buy commodity — pay 5% plus commodity-related taxes (real estate, for example). In this case transactions structure will be similar to the situation when you, for example, exchange Naftogaz shares for real estate.
Mining does not require paying taxes until withdrawal in fiat. In this regard, the logic is about the same as in the goods production. You can stuff your warehouses to the brim with your own goods, but the tax basis arises only when you sell it.
But why should I pay? The state will not find out that I have cryptocurrency. But it will learn about Lamborghini or Porsche I have bought, it will learn about my house, apartment or even my scooter. And in the context of conventions on the exchange of information, other states will also help it to learn about my firms outside the country with bank accounts. So fans of action movies with chases do not need to bother, but people wishing to be just wealthy, should not miss the chance to pay taxes according to clear rules.
Why bother with the taxes? As a lawyer, I like to bring bad news sometimes. You already have to pay taxes. 18% of personal income tax + 1.5% of military duty. All this time. The government had invented the personal income tax before Satoshi invented bitcoin. Therefore, we now owe the state 19.5% for all our withdrawals in fiat money. And the law will not change it, because it has no retroactive power in time.
But there is a chance to start getting “white” income now.
The choice was not between 0% and 5%. The choice is between 19.5% and any other less figure:
In general, such logic of the cryptocurrency tax is close to such countries as Great Britain, Ireland, Hong Kong, Canada, Germany, Israel.
If you consider this from the point of view of crypto industry dreams, the draft law looks like a compromise, but if you compare it with the tax pressure in other countries (excluding offshore and special zones), Ukraine seems to look quite decent. In my opinion, these conditions are the best that the industry can expect in the near future, so it is worth keeping your fingers crossed for the draft law adoption.
Artem Afian, the lawyer, Juscutum’s Managing Partner