Ukraine’s National Securities and Stock Market Commission (NSSMC) has proposed a new framework to tax cryptocurrency transactions. While the aim is to regulate the crypto market more effectively, the higher tax rates and additional military levy are raising concerns within the crypto community.
What is the New Crypto Tax Rate in Ukraine?
The proposed framework introduces a tax of 18% on cryptocurrency transactions, with an additional 5% military levy. It brings the total tax rate to 23% for transactions that convert cryptocurrencies to fiat currency or use them for goods and services.
It is a significant increase from earlier proposals, where the tax rate was expected to be much lower, around 5%, for crypto-related income, under the 2019 draft bill. However, the latest plan reflects the country’s need for additional resources during challenging times.
Which Crypto Transactions Will Be Taxed?
According to the NSSMC’s proposal, taxes will apply when cryptocurrency is cashed out for fiat currency or used to purchase goods or services. Bitcoin, as one of the most prominent cryptocurrencies, will be affected by these rules.
Crypto-to-crypto transactions, such as trading Bitcoin for Ethereum, will not be taxed under this new framework. The move aligns Ukraine with other European countries like Austria and France, as well as crypto-friendly jurisdictions like Singapore, where crypto-to-crypto exchanges are often not taxed.
Stablecoins: A Different Treatment
Stablecoins, such as Tether (USDT), have a different treatment under the proposed tax framework. The NSSMC suggests that stablecoins backed by foreign currencies may either be excluded from taxation or taxed at a lower rate, around 5% or 9%. It is due to Ukraine’s existing tax code, which already excludes income from transactions in foreign exchange values.
Other Crypto Activities: Mining, Staking, and Airdrops
The proposed framework also addresses other crypto-related activities like mining, staking, and airdrops. Crypto mining, typically viewed as a business activity, may be eligible for a tax-free limit for certain transactions. Staking could be taxed if the crypto is cashed out for fiat. Hard forks and airdrops could be taxed either as ordinary income or when the tokens are converted into fiat.
Relief for Small Investors
The NSSMC’s proposal also includes potential exemptions for certain transactions. Donations, family transfers, and holding crypto for a specified period could be exempt from taxation, providing relief to individual investors. Additionally, a tax-free threshold might be introduced to support smaller investors. It would help encourage participation in the crypto market without burdening those with less capital.
A Strategic Attempt to Retain Crypto Capital Amidst Uncertainty
With the ongoing war and various restrictions, there is growing concern that capital is flowing out of Ukraine as investors seek more stable and favorable environments. Bitcoin and other cryptocurrencies have become increasingly recognized as powerful hedges against geopolitical instability and regulatory constraints.
The introduction of higher taxes may be an attempt to keep crypto capital within the country’s borders. It remains uncertain whether these measures will effectively achieve that goal. Higher taxes may not be the most effective way to encourage crypto adoption and innovation, so it remains to be seen whether these changes will foster long-term growth.
Stay informed,
Rodcas Consulting Group