TLDR
- Ukraine’s financial regulator proposed taxing crypto transactions at 23% (18% income tax plus 5% military levy)
- Stablecoins and crypto-to-crypto transactions would be exempt from taxation
- Mining, staking, airdrops, and hard forks have various proposed taxation options
- The framework includes possible exemptions for small investors, donations, and family transfers
- Ukraine’s President Zelenskyy legalized cryptocurrencies in 2022, with the new tax framework aimed at preventing financial abuse
Ukraine’s National Securities and Stock Market Commission (NSSMC) has released a proposed framework for taxing cryptocurrency transactions. The proposal, published on April 8, would tax certain crypto activities at a combined rate of 23%, consisting of an 18% personal income tax plus a 5% military levy.
The tax would apply when cryptocurrencies are converted to fiat currency or used to purchase goods and services. This framework aims to create clear guidelines for the growing crypto market in Ukraine.
Ruslan Magomedov, Chairman of the NSSMC, emphasized the urgency of addressing crypto taxation. “The issue of crypto taxes is not a hypothesis, but a reality that is fast approaching,” he stated in the announcement.
Key Exemptions
Under the proposed rules, crypto-to-crypto transactions would not be taxed. This aligns Ukraine with several European countries including Austria and France, as well as crypto-friendly jurisdictions like Singapore.
The framework also suggests exempting stablecoins backed by foreign currencies from taxation. Alternatively, a reduced rate of 5% or 9% could be applied to stablecoins since Ukraine’s tax code already excludes income from transactions in “foreign exchange values.”
These exemptions could make Ukraine an attractive location for certain types of crypto activities. The regulator appears to be taking a balanced approach to encourage growth while ensuring proper taxation.
The proposal includes options for taxing other crypto-related activities. Mining could be treated as a business activity, though the framework mentions a possible tax-free limit for small-scale miners.
Additional Considerations
Staking activities might be considered “business captive income” or only taxed when converted to fiat currencies. For hard forks and airdrops, the options include taxing them as ordinary income or only when the tokens are cashed out.
The NSSMC suggests implementing a tax-free threshold to “relieve the burden on small investors.” This approach is common in other jurisdictions and would protect casual users while focusing on larger transactions.
Additional exemptions are being considered for donations, transfers between family members, and long-term holders. However, the NSSMC notes these exemptions might not apply to non-custodial crypto wallets.
The proposal comes as Ukraine continues to develop its crypto regulatory framework. Ukrainian President Volodymyr Zelenskyy signed a law establishing the legal framework for a regulated crypto market in March 2022.
According to Swiss blockchain analytics firm Global Ledger, Ukraine could collect over $200 million in annual taxes from crypto transactions. This represents a significant potential revenue source for the country.
The National Bank of Ukraine is currently working on draft legislation based on the European Union’s Markets in Crypto Assets (MiCA) regulation. This indicates Ukraine’s desire to align with international standards while developing its own approach.
Daniil Getmantsev, head of the tax committee of Ukraine’s parliament, previously mentioned that a draft bill to legalize cryptocurrencies was under review. It was expected to be finalized early this year.
The NSSMC created this tax framework to help lawmakers make “informed resolutions” by considering the advantages and disadvantages of each suggestion. Magomedov noted that “these aspects can have a critical impact on the market and tax liability.”
The proposed framework represents Ukraine’s continued efforts to integrate digital assets into its financial system. By establishing clear tax rules, Ukraine aims to prevent financial abuse while encouraging legal and responsible use of digital assets.
