Ukraine's Crypto Push Aims to Unlock $10 Billion in Hidden Wealth

Ukraine has taken a significant step toward formalizing its cryptocurrency sector, with the Verkhovna Rada, the country’s unicameral legislature, approving the first reading of a bill titled “On Virtual Asset Markets.” The legislation, which received support from 246 of 321 present lawmakers, establishes a legal framework for the taxation and regulation of cryptocurrencies such as Bitcoin. The law outlines a 18% income tax on profits derived from virtual asset (VA) transactions, with the base calculated as the difference between sales revenues and acquisition costs. A temporary preferential tax rate of 5% will apply to investors converting their holdings to fiat currency during the first year following the law's adoption. Transactions involving the exchange of one virtual asset for another will not be taxed, as will income from the sale of VAs not exceeding the minimum wage threshold for the reporting year or the value of digital coins obtained without payment. The National Bank of Ukraine (NBU) will assume regulatory oversight of the VA market, although a second regulatory body has yet to be designated. The proposed agency will be empowered to conduct on-site inspections, request information from individuals and legal entities, and freeze or seize assets in accordance with the law. The legislative process for the bill is ongoing, with further amendments likely before its second reading. Ukraine’s urgency in passing the bill is underscored by its position as a top ten global crypto adopter, according to Chainalysis, and its need to combat illicit financial flows and generate additional tax revenue. The country’s first attempt to regulate crypto in early 2022 was delayed due to the full-scale invasion by Russia. In the years since, the NBU imposed restrictions to prevent capital flight, inadvertently accelerating crypto adoption. However, the central bank has maintained a cautious stance, rejecting a proposal to include crypto assets in its reserves, citing risks to Ukraine’s integration with the European Union. The bill also addresses necessary amendments to the Tax Code prior to the final adoption of the VA law. Despite challenges, including concerns over inconsistencies with the EU’s Markets in Crypto Assets (MiCA) rules and alleged political resistance, the legislation represents a critical step toward regulatory clarity. A report by the Royal United Services Institute (RUSI) highlighted the potential for Ukraine to recover up to $10 billion by implementing a robust regulatory framework, mitigating the risks of crypto-related crime and financial instability. The country’s high level of crypto adoption, particularly in decentralized finance (DeFi) and institutional investments, has increased the urgency for oversight. As the bill progresses through the legislative process, it is expected to attract further attention from both domestic stakeholders and international observers. The outcome of the second reading will determine the final structure of the regulatory framework and the identity of the second regulator, which remains under discussion. The bill’s passage is also seen as a strategic move to align with global trends in crypto taxation, as countries like Denmark, Brazil, and the United States continue to refine their own regulatory approaches. For Ukraine, the stakes are particularly high, with the potential for significant economic and financial benefits in a nation grappling with the challenges of war and economic uncertainty.

Source: [1] Ukraines lawmakers vote to legalize crypto (https://www.cryptopolitan.com/ukraines-lawmakers-vote-to-legalize-crypto/) [2] Ukraine takes decisive steps to legalize crypto sector amid tax reforms (https://cryptoslate.com/ukraine-takes-decisive-steps-to-legalize-crypto-sector-amid-tax-reforms/) [3] Ukraine crypto legalization taxation bill first reading (https://cointelegraph.com/news/ukraine-crypto-legalization-taxation-bill-first-reading) [4] The Ukrainian parliament has passed the cryptocurrency (https://www.chaincatcher.com/en/article/2203145) [5] Ukraines lawmakers vote to legalize crypto (https://www.cryptopolitan.com/ukraines-lawmakers-vote-to-legalize-crypto/)