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.