Ukraine Proposes 23% Tax On Crypto To Fiat Conversions

Ukraine’s financial regulator has proposed a framework for taxing certain cryptocurrency transactions as personal income, with a potential tax rate of up to 23%. This proposal, released by the National Securities and Stock Market Commission (NSSMC), aims to provide lawmakers with a comprehensive set of options to make informed decisions regarding crypto taxation. The framework suggests that crypto transactions would be taxed at 18%, with an additional 5% military levy, totaling 23%. This tax would apply when cryptocurrency is converted into fiat currency or used to purchase goods and services. However, crypto-to-crypto transactions and stablecoins would be exempt from this tax, aligning Ukraine with other European countries and crypto-friendly jurisdictions.

The NSSMC's proposal includes various considerations for different crypto-related activities. Mining, for instance, is generally viewed as a business activity but could have a tax-free limit for certain transactions. Staking could be considered as "business captive income" or only taxed when the crypto is converted into fiat currency. Hard forks and airdrops could be taxed either as ordinary income or when the tokens are cashed out. The regulator also suggests a tax-free threshold to ease the burden on small investors, a practice common in other jurisdictions. Exemptions for donations, transfers between family members, and holders who keep their crypto for a set period are also being considered, though these exemptions might not apply to non-custodial crypto wallets.

The NSSMC's framework is part of a broader effort to establish a legal framework for cryptocurrencies in Ukraine. Last December, the head of the tax committee of Ukraine’s parliament announced that a draft bill to legalize cryptocurrencies was under review and expected to be finalized early this year. This follows President Volodymyr Zelenskyy's signing of a law in March 2022 that established a regulated crypto market in the country. The NSSMC's proposal reflects the growing recognition of cryptocurrencies as a significant part of the financial landscape and the need for clear regulatory guidelines to manage their taxation. The regulator's approach aims to balance the need for revenue with the goal of fostering a thriving crypto market, ensuring that Ukraine remains competitive in the global crypto space.

According to the NSSMC, the issue of crypto taxes is not a hypothesis but a reality that is fast approaching. The agency created the framework to help lawmakers make an informed resolution by considering each suggestion’s advantages and disadvantages because these aspects can have a critical impact on the market and tax liability. The regulator's proposal to exclude stablecoins backed by foreign currencies or only apply a 5% or 9% tax makes sense because Ukraine’s tax code already excludes income from transactions in “foreign exchange values.”

This move by Ukraine's financial regulator is a significant step towards integrating cryptocurrencies into the country's financial system. By proposing a clear and structured tax framework, the NSSMC aims to provide clarity and stability for crypto investors and businesses. The exemption of crypto-to-crypto transactions and stablecoins from taxation aligns Ukraine with other jurisdictions that have recognized the potential of these digital assets. The proposed tax rate of 23% for converting crypto to fiat or using it for goods and services is designed to generate revenue while encouraging the growth of the crypto market. The NSSMC's approach to taxing mining, staking, hard forks, and airdrops reflects a nuanced understanding of the various activities within the crypto ecosystem, ensuring that the tax framework is both comprehensive and fair. The regulator's suggestion of a tax-free threshold for small investors and exemptions for certain transactions further demonstrates a commitment to supporting the growth of the crypto market while generating necessary revenue. Overall, Ukraine's proposed crypto tax framework is a balanced and forward-thinking approach that positions the country as a leader in the global crypto space.