Currency liberalization continues!

Back in February 2019, the National Bank of Ukraine (NBU) adopted a number of resolutions that introduced a new regime for regulating foreign exchange transactions, which is usually simply called as “foreign exchange liberalization”.

On June 29, 2021, the NBU adopted a new Resolution No. 62, which entered into force on June 30, 2021, which continues to take further steps towards currency liberalization. The Resolution introduces changes to:

  • Regulation on the structure of the foreign exchange market of Ukraine, conditions and procedure for trading in foreign currency and bank metals on the foreign exchange market of Ukraine (Resolution No. 1);
  • Regulation on the implementation of operations with currency values ​​(Resolution No. 2);
  • Regulation on protection measures and determination of the procedure for carrying out certain transactions in foreign currency (Resolution No. 5).

Purchase and sale of foreign currency and purchase-sale-exchange of bank metals for non-cash funds

In accordance with Resolution No. 62, individuals and legal entities are now allowed to perform following operations through banks:

  • purchase by resident and non-resident individuals of cash foreign currency both for cash in hryvnia and for non-cash funds in hryvnia from current accounts of these individuals;
  • exchange of cash foreign currency of one foreign state by resident and non-resident individuals for cash foreign currency of another state;
  • sale to banks by resident and non-resident individuals of banking metals both for cash in hryvnia and for non-cash funds in hryvnia with their subsequent crediting to current accounts of these individuals;
  • purchase of banking metals by resident and non-resident individuals both for cash in hryvnia and for non-cash funds in hryvnia from current accounts of these individuals;
  • purchase by legal entities of coins (bank metals) for non-cash funds in hryvnia;
  • exchange by resident and non-resident individuals of one bank metal for another bank metal with physical delivery or cash in foreign currency.

In addition to banks, through non-banking institutions it is also possible to perform transactions at cash desks, currency exchange offices for the purchase of cash foreign currency by individuals and the sale of cash foreign currency by individuals for cash or for non-cash funds in hryvnia.

Investing abroad

Resolution No. 62 also expands the possibilities for resident individuals to invest abroad. A resident individual can make investments abroad with the participation of a resident securities trader. An individual makes a transfer of funds in foreign currency from his own current account in the bank to the current account (or to the account of accounts payable for settlements in securities for the clients of a securities trader, which is a bank) of a securities trader (opened in the same bank ) with their subsequent transfer to their destination from the current (correspondent) account of the securities trader abroad or to the current accounts of non-resident legal entities opened in Ukraine (except for investment accounts). In this case, the limit of EUR 200,000  must be respected.

List of exceptions for foreign exchange transactions

Resolution No. 62 also expanded the list of transactions to which the limit of EUR 2,000,000 is not applied when carrying out foreign exchange transactions in order to carry out economic activities by residents (legal entities and individual entrepreneurs). Thus, the specified limit is not applied to:

  • operations related to the fulfillment of obligations under guarantees, sureties, pledges, as well as operations to reimburse the resident-debtor of funds to the non-resident-guarantor (surety), which was performed secured by a guarantee/ surety of the obligations of the resident-debtor to the non-resident creditor – the exception applies if transactions related with the fulfillment of the main obligation are included in the list of transactions that are not covered by the specified limit of EUR 2,000,000;
  • operations on reimbursement by the resident-debtor of funds to the non-resident-guarantor (surety), which has performed obligations of the resident-debtor to the resident-creditor secured by a guarantee/ surety;
  • operations carried out on the current (correspondent) account of a securities trader in the event that the securities trader acts on his own behalf (on behalf of an individual), at the insrtuctions and at the expenses of this individual, upon the condition of following the rules regarding established limit for an individual of EUR 200,000.

Thus, the NBU has in a certain way expanded some opportunities for both individuals and legal entities for the purchase and sale of currencies and coins, as well as provided new opportunities for investing abroad.

The full text of Resolution No. 62 can be found at the link: https://bank.gov.ua/ua/legislation/Resolution_29062021_62

Will crypto assets be objects of tax amnesty?

On June 15, 2021, the Law of Ukraine, which amends the Tax Code of Ukraine and other legislative acts regarding the introduction of such an instrument as a tax amnesty (hereinafter referred to as the “Tax Amnesty Law”) was adopted. From September 01, 2021 to September 01, 2022, a one-time (special) voluntary declaration will be carried out (hereinafter – “voluntary declaration“).

Voluntary declaration means a special procedure for declaring by an individual the assets that he/she owns, located on the territory of Ukraine or abroad, if such assets were obtained from income that were subject to taxation in Ukraine at the time of accrual (receipt) of such assets and from which taxes and fees have not been paid during any of the tax periods prior to January 01, 2021.

For the purposes of voluntary declaration, assets are monetary assets, property and property rights. Electronic money is also considered as monetary assets (in addition to funds in national and foreign currencies, monetary contributions, rights of claims, bank metals, commemorative banknotes and coins).

In accordance with the Law of Ukraine “On Payment Systems and Transfer of Funds in Ukraine”, electronic money is considered – units of value that are stored on an electronic device and are accepted as a method of payment by other persons, other from the person who issues them, and is a monetary obligation of this person, which is carried out in cash or non-cash form. At the same time, the legislation directly establishes that only a bank can issue electronic money. Accordingly, electronic money cannot mean crypto assets, since activities with crypto assets are carried out directly by individuals or legal entities without the involvement of banks. Thus, in the understanding of the Tax Amnesty Law, crypto assets cannot fall under the category of electronic money.

Considering that the Law “On Virtual Assets” has not been adopted yet, it is natural that the Law on Tax Amnesty does not include the concept of such assets and the possibility of their declaration. At the same time, based on the proposed definitions, crypto assets can be considered as:

  • an asset (from the category of other assets), which was obtained from income that was subject to taxation, but was not declared;
  • income that was subject to taxation in the case of the acquisition of other assets at the expense of crypto assets, or in the case of the sale and purchase of a crypto asset.

Declaration as an asset (other assets)

In this case, a crypto asset may be subject to declaration if it was acquired from income that had not previously been declared. For example, income was received from any commercial activity or dividends were received and were not declared until January 01, 2021, and a crypto asset was acquired from these incomes. Thus, in accordance with the Tax Amnesty Law, if a crypto asset was acquired by means of undeclared income, such an asset can be declared in a voluntary declaration. At the same time, given that the voluntary declaration does not indicate information about the sources through which the asset was acquired, the acquisition of a crypto asset at the expense of undeclared income will not be a prerequisite for voluntary declaration.

At the same time, assets, the total value of which does not exceed UAH 400,000 as of September 01, 2022, will be considered as those from which taxes and fees have been paid in full. In this case, the question arises of how to calculate the total value of a crypto asset (considering that its value changes every day)? In such a situation, based on world practice, it is worth considering the cost of a crypto asset at the time of its purchase. Since, as a general rule, income will be the difference between the initial value of a crypto asset and its value at the time of sale or exchange. So, if the initial cost of a crypto asset was less than UAH 400,000 (about EUR 12 000 or USD 15 000 as of July 01, 2021), and it was not voluntarily declared, then in accordance with the Tax Amnesty Law it will be considered as the asset from which all taxes and fees were paid in full.

However, despite the fact that such an asset can be considered as such from which taxes and fees were paid, the legislation does not prohibit declare it voluntarily, even if its value is less than UAH 400,000. This option is recommended, since there is a high chance that the Law on Virtual Assets will be adopted within this year and additional amendments to the tax legislation in this regard might be introduced. Also, despite the fact that in the legal field the issue of declaring crypto assets has not been settled yet in any way, the practice in this case is ahead of legal regulation, since year by year more and more people’s deputies declare their crypto assets.

If a decision is made to voluntarily declare a crypto asset as another asset, the question of determining the location of the crypto asset also arises, since the application of the tax rate will depend on asset’s location. Since the legislation does not give us a clear answer on how to determine the location of a crypto asset, it would be logical to assume that it is such that it is located abroad (since it is quoted on international exchanges and stored on an electronic wallet with an IP address registered not in Ukraine). Accordingly, the rate of 9% will be applied to such an asset.

Declaration as an income

In the case of declaring a crypto asset as income, the situation looks a little more complicated. In this case, not the crypto asset itself will be declared, but the asset that was acquired at the expense of the crypto asset. For example, during the period until January 01, 2021, a person purchased real estate, and the payment was made at the expense of a crypto asset. In this case, the person decides to declare such property and pay tax. As stated in the law, the basis for calculating the fee from voluntary declaration will be the monetary value of such real estate. Accordingly, the value of the property = the value of the crypto asset at the time of the acquisition of the property. However, in this case, is it possible to consider a crypto asset as income that was subject to taxation until January 01, 2021? In accordance with the explanation of the State Tax Service of Ukraine, the list of taxable income accrued in favor of the taxpayer during the reporting tax period does not include crypto assets, since the only legal currency in Ukraine is the Ukrainian hryvnia.

Taking into consideration all the above mentioned, despite the fact that the Tax Amnesty Law does not directly provides the possibility to declare crypto assets, at the same time, its provisions do not prohibit doing this. Consequently, it seems more logical to conduct a voluntary declaration of crypto assets as other assets at a rate of 9%, as assets that are located outside of Ukraine.