"Taxing the exit to fiat." Will this bring crypto out of the shadows?

At tomorrow's meeting, on August 19, the Verkhovna Rada is to consider a draft law.No. 10225-d on virtual assets (VAs). The document aims to regulate the cryptocurrency market and harmonize legislation with European regulations. MISAwill be put to the first reading. It is fourth on the parliament's agenda.

Preparing the document is a requirement of the IMF, which is recorded in the Memorandum with the Fund. This is already the second attempt to bring cryptocurrencies out of the shadows. The law on virtual assets, adopted in 2022, never came into effect: legislative conflicts prevented it.

What will the law change if it is passed, and what can owners of virtual assets expect? We investigated. LIGA.net.

What does the document change?

Draft law No. 10225-d is intended to establish the rules of the game in the Ukrainian crypto market. It aims to regulate the cryptocurrency sector, particularly in the area of taxation.

The document clarifies key terms and provides a definition of what virtual assets are.

Yes, according to draft law No. 10225-d, virtual assets are intangible assets that have value and are expressed in the form of digital data. Such assets will be recognized as objects of civil law in Ukraine.

The definition applies to all digital assets that are not legal tender in Ukraine, but can be used as an investment instrument or a means of exchange.

Service providers will be required to register or obtain authorization from the industry regulator within two months of starting operations. They must submit annual reports and be held accountable for violations.

However, it is not yet known which body should regulate the field. This must be determined by the Cabinet of Ministers.

Taxation specifics

For the first time, transactions with virtual assets will receive a separate, special tax regime for individuals.

Most importantly, taxes will only need to be paid on the annual positive result. This is the total income from the sale of virtual assets minus the permitted expenses for their acquisition (the list of permitted expenses must be approved by the Cabinet of Ministers).

The authors of the draft law propose not to tax the exchange of one virtual asset for another. Similarly, receiving a virtual asset as a result of issuance, free of charge from the issuer/offeror, or in exchange for personal data should not be taxed.

The latter is a common practice. For example, cryptocurrency exchanges often give away free crypto to attract new users.

According to Dmytro Nikolaievskyi, the chief legal counsel of the Project Office of the Ministry of Digital Transformation of Ukraine, who is involved in drafting the bill, the absence of taxation on the exchange of one cryptocurrency for another reduces the administrative burden on market participants.

Active traders, who can conclude exchange transactions several times a minute, will have to calculate the tax burden on each transaction separately. This will require processing a huge amount of data, which will significantly complicate the process of declaring income, explains Nikolaevsky.

"We definitely need to start by taxing the exit into fiat (traditional currency – Ed.)," says Nikolaevsky, "because if the exit into fiat hasn't happened, then the cryptocurrency is circulating in its own accounting system, including various types of distributed ledger systems, where the processes are not administered by the state in any way."

For assets acquired before the law comes into effect, a concession will apply in 2026 – the sale can be taxed at a rate of 5% of the personal income tax.

"We strive to provide people and businesses with good starting opportunities, to make the market more liberal, and to quickly see that it has really formed," explains Nikolaevsky.

The scale of crypto in Ukraine

The global cryptocurrency market is currently valued at $3.3–$3.4 trillion, according to the Verkhovna Rada Committee on Finance, Tax and Customs Policy. Almost two-thirds of this amount is attributed to Bitcoin.

Every day, transactions worth approximately $40 billion are conducted using it alone, and for the entire year of 2024, the volume of transactions reached $19 trillion.

How much of this falls to Ukraine is unknown, as the market is not yet de jure legalized and operates in the shadows. According to data from the analytical center... Chainalysis – our country's share in the global picture is more than noticeable: Ukraine consistently ranks among the top six out of 150 countries in terms of the prevalence of cryptocurrency among the population.

Ukraine generates about 2.5% of global crypto traffic and brought centralized exchanges $343 million in profit in 2024. This is 5.4% of the global total. According to estimates by the research company... Triple AAs early as the beginning of 2022, almost 15.7% of Ukrainians already owned crypto assets.

"Cryptocurrency transactions are already part of our lives today. We cannot ignore the existence of such a large market and ecosystem," said the head of the Verkhovna Rada Committee on Finance, Tax and Customs Policy in a comment to LIGA.net. Danilo HetmantsevHe is also one of the authors of the draft law on virtual assets.

To draft the bill, the committee studied legal regulations in other countries and involved international experts, says Hetmantsev. Some of the norms were borrowed from the European MiCA regulation, which governs cryptoasset markets.

However, there are also differences from the MSA, says Mykolaivskyi, a lawyer from the Project Office of the Ministry of Digital Transformation. The Ukrainian document has smaller fines and postpones some regulatory requirements. Also, according to him, a package of amendments is already being prepared for the draft law. In particular, regarding the postponement of the implementation of some norms until 2032.

What does the business community think about the bill?

"From the perspective of a 'first step,' this draft law is okay. It solves issues and almost everything there is synchronized with the Ministry of Digital Transformation," says Ruslan Lynnyk, leading partner of the cryptocurrency fund Majinx Capital, to LIGA.net. According to him, these will be clear rules, regulation, and a normal scheme of work.

The emergence of clear rules will allow funds and major players to operate legally in Ukraine, register, pay taxes, and ensure capital security, assures Ruslan Lynnyk.

"If we talk about small traders and investors, which is about 80-90% of the market with capital up to $5,000-$10,000, then the situation is less favorable for them, because the 18% taxation is quite significant," said Lynnyk.

The biggest risk is the conditions for startups. In the investor's opinion, the current 18% rate effectively "kills" opportunities for young companies that could create jobs, generate added value, and attract investment.

As a result, the startup market will not develop, but will only be burdened with taxes, because the focus of the authorities is currently not on supporting businesses, but on introducing rules and fiscalization, according to Lynnyk.

Linnik also believes there could be problems if the NBU is given control over market regulation. "There's a downside to the NBU regulating," he says. "We have a very weak economy, and the money supply needs to be controlled from external influence. That's normal, but the National Bank is a very conservative institution."

Without further changes, the situation will remain difficult: banks will continue to block withdrawals, as the cryptocurrency market poses serious competition to the traditional financial sector, notes the source. LIGA.netTherefore, the impact of the draft law on administrative justice should be assessed in a year, in order to observe the changes, Linnyk concludes.