Will crypto assets be subject to tax amnesty?
On June 15, 2021, the Law of Ukraine was adopted, which amends the Tax Code of Ukraine and other legislative acts regarding the introduction of such an instrument as a tax amnesty (hereinafter – «Tax Amnesty Law») . So 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 owns, located on the territory of Ukraine or abroad, if such assets were obtained from income that was subject to taxation in Ukraine at the time of accrual (receipt) of such assets and from which taxes and fees were not paid during any of the tax periods until January 01, 2021.
For the purposes of voluntary declaration, monetary assets, property and property rights are considered assets. In turn, monetary assets (in addition to funds in national and foreign currencies, cash contributions, rights of claim, bank metals, commemorative banknotes and coins) are also electronic money.
In accordance with the Law of Ukraine “On Payment Systems and Transfer of Funds in Ukraine”, – units of value that are stored on an electronic device are accepted as a method of payment by other persons, other than 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 expressly establishes that the issue of electronic money can only be carried out by a bank. Accordingly, crypto assets cannot be understood as electronic money, 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.
Given that the Law “On Virtual Assets” has not yet been adopted, it is natural that the Law on Tax Amnesty does not include the concept of such assets and the possibility of declaring them. At the same time, based on the proposed definitions, crypto assets can be considered as:
- an asset (from the category other assets) that was obtained from income that was subject to taxation but was not declared;
- income that was subject to taxation, in case of acquisition of other assets at the expense of crypto assets, or in case of purchase and sale of a crypto asset.
Declaring as an asset (other assets)
In this case, a crypto asset may be subject to declaration if it was acquired at the expense of income that was not previously declared. For example, income was received from any commercial activity or dividends were received that were not declared before January 01, 2021, and a crypto asset was acquired at the expense of these incomes. Thus, in accordance with the Tax Amnesty Law, if a crypto asset was acquired at the expense of undeclared income, such an asset can be declared in the manner of voluntary declaration. At the same time, given that the voluntary declaration does not indicate information on the sources from 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 whose total value does not exceed UAH 400,000 as of September 01, 2022 will be considered as those on which taxes and fees have been fully paid. In this case, the question arises how to calculate the total value of a crypto asset (given that its value changes every day)? In such a situation, based on world practice, it is worth considering the value of a crypto asset at the time of its purchase. Since, as a general rule, income will be considered the difference between the initial cost of a crypto asset and its value at the time of sale or exchange. So, if the initial value of a crypto asset was less than 400 000 hryvnia (about 12 thousand euros or 15 thousand US dollars as of July 01, 2021), and if it was not voluntarily declared, then in accordance with the Tax Amnesty Law, it will be considered as such, from which taxes and fees have been fully paid.
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 voluntary declaration of it, even if its value is less than 400 000 hryvnia. This is the recommended option as there is a high likelihood that the Virtual Assets Law will be passed this year and additional changes to the tax laws may be made in this regard. Also, despite the fact that the issue of declaring crypto assets has not yet been resolved in the legal field, the practice in this case is ahead of legal regulation, as more and more deputies declare their crypto assets year after year.
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 this. 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 one that is located abroad (as it is listed on international exchanges and stored on an electronic wallet with an IP address not registered in Ukraine) . Accordingly, a rate of 9% will be applied to such an asset.
Declaring as 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, in the period up to 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 the tax. As stated in the law, the monetary value of such real estate will be considered the basis for charging the fee from voluntary declaration. Accordingly, the value of real estate = the value of the crypto asset at the time of the acquisition of real estate. However, in this case, is it possible to consider a crypto asset as income that was subject to taxation in the period before January 01, 2021? In accordance with the clarification 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 tender on the territory of Ukraine is the monetary unit of Ukraine – hryvnia.
In conclusion, all of the above, despite the fact that the Tax Amnesty Law does not directly provide for the possibility of declaring crypto assets, at the same time, its provisions do not prohibit doing so. Thus, it seems more logical to conduct a voluntary declaration of crypto assets as other assets at a rate of 9%, as assets located outside of Ukraine.