Ukraine Proposes New Tax Framework for Virtual Assets

Ukraine's government is advancing efforts to regulate the cryptocurrency market by proposing a comprehensive tax framework for virtual assets. The draft law, submitted to the Verkhovna Rada on November 17, 2023, aims to align Ukraine's legislation with the European Union's Markets in Crypto-Assets directive.

Under the proposed legislation, individuals engaging in transactions involving virtual assets would be subject to a tiered personal income tax rate on investment profits. For the first three reporting years after the law's enactment, a reduced rate of 5% would apply. This rate would increase to 9% for the subsequent five years and eventually reach the standard rate of 18% from the ninth year onward. These rates would apply to taxpayers whose annual investment income from virtual asset transactions does not exceed 7 million hryvnias . Income surpassing this threshold would be taxed at the general personal income tax rate of 18%.

In addition to personal income tax, a military levy is proposed. For individual entrepreneurs paying a single tax, the levy would be set at 10% of the minimum wage per month for those in the first, second, and fourth groups, amounting to 800 UAH monthly in 2025. For those in the third group, the levy would be 1% of income as determined by Article 292 of the Tax Code. This levy is intended to support Ukraine's defense efforts amid ongoing security challenges.

The draft law specifies that only certain transactions would be taxable. Taxation would apply to the sale of virtual assets for fiat currency and the exchange of virtual assets for goods, services, or works. Other operations, such as the creation of virtual assets, their introduction into circulation, withdrawal from circulation, and exchanges between different virtual assets, would not be subject to taxation under this framework.

The proposed legislation also introduces provisions to encourage long-term investment in virtual assets. Profits from virtual assets held for more than one year before their sale would be taxed at a reduced rate of 5%, while assets held for one year or less would be taxed at the standard rate of 18%. This measure aims to promote stability and growth within the cryptocurrency market.

Legal entities are addressed in the draft law as well. Transactions involving virtual assets would be exempt from value-added tax , except for dealings with tokenized assets. Residents of the special economic zone Diya.City would have the option to choose between an 18% income tax or a 9% tax on withdrawn capital, providing flexibility for businesses operating in the digital economy.