It is not the first year, when lots of countries step by step have been making attempts to legalize various aspects of crypto assets’ activities. At the same time, despite the fact that some countries prohibit the conduct of crypto assets’ activities, in fact, it is almost impossible to prohibit them, since there are many ways to continue carrying out such activities bypassing the established prohibitions. In addition to the above, the legal regulation of receiving income from conducting activities with crypto assets, given the significantly increased cost of cryptocurrencies (in particular, Bitcoin) over the last year, will allow the state to have another source of budget replenishment. A significant number of countries have already adopted the relevant legislative acts, partly or in whole, regulating activities with crypto assets. However, in Ukraine, regulation of this aspect is still on hold.

On December 02, 2020, the Verkhovna Rada of Ukraine in the first reading adopted the Draft Law “On Virtual Assets” and as of the moment the document is being prepared for the second reading. It defines such basic concepts as “virtual asset”, “virtual asset wallet”, “virtual asset key”, “service providers related to the turnover of virtual assets”, “virtual assets’ market participants”, etc.

In accordance with this Draft Law:

A virtual asset is a collection of data in electronic form that has a value and exists in the system of turnover of virtual assets.

A virtual asset can be both an independent object of civil turnover and certify property or non-property rights, in particular, the right to claim other objects of civil rights. At the same time, the Draft Law explicitly states that virtual assets are not a means of payment within the territory of Ukraine.

The subject of entrepreneurial activity that carries out one or more types of activities with virtual assets established by law in favor of third parties is considered as a provider of services related to the turnover of virtual assets and is subject to mandatory state registration. These types of activities include:

  • storage or administration of virtual assets and virtual asset keys;
  • exchange of virtual assets;
  • transfer of virtual assets;
  • participation and provision of financial services related to the issuer’s offer and / or sale of virtual assets.

In addition to the mandatory registration, the provider of services related to the turnover of virtual assets must also meet certain requirements, namely:

  • impeccable business reputation of the director and participants;
  • disclosure of information about the ownership structure (including information about the ultimate beneficiaries or their absence);
  • developed and implemented internal procedures of financial monitoring;
  • developed and implemented rules of the processing of personal data.

If an individual or a subject of entrepreneurial activity does not carry out these types of activities in favor of third parties, then such activities are not considered as the provision of services related to the turnover of virtual assets and are not subject to mandatory registration.

In accordance with the Draft Law, the Ministry of Digital Transformation of Ukraine within 30 days decides to conduct state registration of the activities of a provider of services related to the turnover of virtual assets and include information about it into the State Register of providers of services related to the turnover of virtual assets, or decides to refuse such registration. The validity period of state registration is unlimited.

At the moment, consideration of the Draft Law of Ukraine “On Virtual Assets” is not on the agenda of the Verkhovna Rada of Ukraine. However, new draft laws on the regulation of activities with crypto assets have not yet been submitted for consideration.

And what about taxes?

Much earlier (back in November 2019), the Draft Law of Ukraine “On Amendments to the Tax Code regarding the taxation of transactions with crypto assets” was submitted for consideration. The main idea of ​​this Draft Law is to designate the profit from operations with crypto assets as a positive difference between the income received by the tax payer from the sale of crypto assets and the costs related to their acquisition and/or creation. As a general rule, it is proposed that such profits will be the basis for applying the general income tax rate of 18% (+ 1.5% military duty). At the same time, it is proposed to establish a 5% rate for taxing investment profits from the sale of crypto assets for a period of 5 years.

It should be noted that despite the fact that the Draft Law was never adopted, the rules specified in this document on the taxation of profits derived from activities related to crypto assets are already applied in practice. Thus, the designated profit is taxed at a general rate of 18% (+ 1.5% military duty) and falls under the category of “other income”.

Therefore, individual entrepreneurs engaged in cryptocurrency mining are usually on a simplified taxation system and pay 5% tax on the income received. However, this approach is quite risky, since in practice, individual entrepreneurs were excluded from the Register for conducting activities that were not included in the list of activities in which they are engaged.

Thus, at the moment there is a legal conflict, when, on the one hand, there are incomes received from activities with crypto assets, and on the other hand, there is no legal regulation of the issues of declaring and taxing such incomes. So, as it was indicated, some entrepreneurs are trying to declare their income received from activities with crypto assets and pay taxes, and in return have risks of exclusion from the Register for conducting activities outside the law.

Some entrepreneurs and individuals who want to conduct business with crypto assets within the legal framework sometimes also consider options for obtaining residency in jurisdictions where such activity is legally regulated.

For information regarding obtaining legal advice on conducting activities with crypto assets in Ukraine or choosing a jurisdiction for conducting a crypto business, you can contact by phone. +38 (063) 388 81 20 or e-mail: