Ukraine Crypto: VASP Law, Tax & Adoption #35

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Ukraine crypto score

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Virtual assets law, NCSSM regulation, and high adoption amid economic uncertainty

The tragic circumstances of Ukraine being invaded almost renders crypto rank scoring unworthy. However, before the invasion, Ukraine had many advantages in the blockchain and crypto sector: a high concentration of talented people and a higher-than-average number of blockchain organizations and bitcoin nodes. Crypto ownership, well over 10% of the population, was one of the highest scores on the coincub crypto-friendly rankings. Since the invasion, Ukrainian president, Volodymyr Zelenskyy, has enacted a law allowing all crypto exchanges, home-based and overseas, to operate in Ukraine along with a regulatory framework to promote an open crypto market. How this rolls out, only time will tell.

Ukraine has recently passed a law that creates a more cohesive legal framework for the cryptocurrency industry in the country, allowing foreign and Ukrainian cryptocurrency exchanges to operate legally. Banks will also be allowed to open accounts for crypto companies. Ukraine’s Virtual Assets Law determines the legal status, classification, and ownership of virtual assets and supervisory measures for virtual assets. The National Securities and Stock Market Commission will regulate the market principally by issuing licenses to Virtual Asset Service Providers VASPs.

Bitcoin and cryptocurrency trading in Ukraine

Just like in Russia, you may be able to trade or mine cryptocurrency – and sit on it feeling rich if the mood takes you – but you won’t be allowed to spend it within the Ukraine economy. Under the new laws, whilst crypto/virtual assets are defined as intangible goods, which can be secured and unsecured, they are not accepted as a legal means of payment, and their exchange for other goods or services is not allowed. Financial virtual assets must be issued by entities registered in Ukraine – and backed by currencies – which are regulated by the National Bank of Ukraine (NBU), the country’s central bank. You can spend your cryptocurrency outside the country or buy an English football club like everybody else in the world seems to want to do.

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Crypto trading and legislation in Ukraine

Leading exchanges serve Ukraine, which has a population with high volumes of trading and holding cryptocurrency. Unlike its neighbor, Ukraine shows a very friendly face to the world of crypto and openness towards trading. The country has recently approved regulations to facilitate the adoption of cryptocurrencies, even though – as with many countries – the precise definition and legal bearing of cryptocurrency generally is difficult to pin down. Ukraine’s parliament in Kyiv recently passed legislation determining the rules for crypto-activities with a law on virtual assets that gives cryptocurrencies the status of ‘intangible goods’ but not, unlike our old friend El Salvador – the status of legal tender. The laws also regulate the activities and obligations of crypto businesses. Much of its use and exact categorization depends on the circumstances of use and the particular Ukrainian jurisdictions in which those trading activities occur.

Bitcoin taxation in Ukraine

A draft bill some years back must have given all Ukrainians big hopes when it was proposed that tax on gains in crypto were to be taxed at 5% for the first five years of activity. That was false hope! The recent law on crypto legalization is awaiting approval of the amendments to the country’s taxation policy towards cryptocurrency transactions, although these changes haven’t come about at the time of writing. Acquiring cryptocurrency is not taxable, but selling it for gains is. The sales transactions of cryptocurrency are deemed to be a profit-making activity and subject to tax payable on gains at the rate of 18%. The liability to pay tax occurs when the profit is received or when the actual money is transferred to your formal bank account.

Gifting bitcoin in Ukraine

The government has specified that crypto transactions are not subject to VAT, and only the gains over the purchase and sales transactions are taxed. The Digital Ministry has proposed that the tax rate for individuals be reduced to 5%, but this is not likely to happen. Gifting crypto means you will still have to pay tax on any gains you made before gifting, and should you change residency, your tax matters will apply to your new country of residence.

Ukrainian Bitcoin mining

Mining crypto is a highly technical and expensive activity at the best of times, involving powerful computers – and lots of energy – but it is legal and proliferates in Ukraine. Ukraine is big on mining with a brace of plants for mining bitcoin, one under construction is being created by the government-owned nuclear plant operator, Energoatom, and a private firm in a multi-million dollar investment. Another is being built in western Ukraine, partly in collaboration with private companies specializing in crypto infrastructure. Both plants are located next to nuclear power plants – so that tells you something about the kind of energy you’re going to need. That single solar panel on your rooftop isn’t going to cut it.

Ukraine’s outlook on the Bitcoin economy

Prior to war and bitcoin price volatility, Ukraine was looking to reap a golden harvest from opening up to the cryptoeconomy, and all activity has been legalized. With the opening up of crypto activity, without the ability to actually spend your cryptocurrencies on anything in the country, it remains to be seen whether or not the investment industry will experience a boom in demand.

Much of the lead taken by Ukrainian banks regarding crypto comes directly from the Government’s latest laws applying to cryptocurrency trading, with activities and services coming within central bank supervision. As the legalization of cryptocurrency trading begins to take effect and regulation becomes clearer, however, exchanges, including a whole assortment of cryptocurrency service providers, can now begin to tie in with mainstream banks to provide services that customers want. Just as other ambitious countries have become ‘crypto-positive,’ the provision of banking services and overseas crypto businesses could transform Ukraine into something of a financial and crypto hot spot for investors and a hub for the development of potential blockchain-related services. But for now, Ukraine has other problems and the development of the crypto space is for the future.

Ukraine and CBDCs

Central banks around the world are all investigating or trialing some form of digital currency and the newly crypto-friendly central bank of Ukraine is also looking to issue its central bank digital currency CBDC. The country is also fully committed to becoming a blockchain technology advocate and leader.

Compare countries on their crypto-friendliness

Want to find out how Ukraine compares to other countries in terms of their crypto-friendliness? Read here about the crypto economies in Romania, Portugal, Switzerland, or the US.

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Crypto regulation in Ukraine

Cryptocurrency exchanges have to acquire permits to operate and be supervised by regulators. To simplify matters, overseas-based trading platforms will only be obliged to meet certain authorized capital requirements. Customer verification is required but it seems to be operated with a much lighter touch as the country seems not to want to over regulate the golden goose.

While new regulatory laws and clearer supervision provides for more transparency, the owness is firmly on individuals regarding tax declarations over their cryptocurrency gains. Evasion carries the threat of prosecution under criminal proceedings. Mandatory fines and confiscation of property are just the start with further fines of 25% of undisclosed tax amounts. Just for the record, a newly created National Service for Regulation of Virtual Assets will issue permits for crypto companies operating in Ukraine with the Ministry of Finance, the central bank and the National Securities and Stock Market Commission (NSSMC) each having jurisdiction over their own areas of responsibility.

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