The National Commission on Securities and Stock Market (NCSM) has introduced a new taxation model that includes a rate of 23% for individual incomes. This rate consists of an 18% personal income tax and a 5% military levy. There is also the possibility of applying reduced tax rates of 5% or 9% under certain conditions.
This is reported by Finway
Standard Taxation Model
Petro Bylyk notes that the 23% rate is currently considered the standard model for taxing all individual incomes, including income from securities and deposits. Specifically, this model is also being considered for the virtual assets market. The possibility of applying reduced rates depends on specific conditions outlined in the Tax Code.
“This does not mean that transactions with virtual assets will be subject to the 5% or 9% rates. Rather, it indicates that in Ukraine, the 18% rate is not applied in all cases”
Lawyers also emphasize that individuals’ transactions with tokens may be exempt from taxation or fall under reduced rates.
Moment of Income Recognition
Hanna Voievodina, CEO of Manimama Law Firm, highlights the moment of taxation. In the NCSM model, income is recognized at the stage of exchanging a virtual asset for fiat. For example, if a person exchanges Bitcoin for USDC, tax is not yet incurred; however, when exchanging USDC for hryvnias in a bank account, a tax obligation arises.
“This opens up opportunities for tax planning: one can control when to ‘convert to fiat'”
This system allows users to plan their taxation based on currency exchange rates and expenses.
The tax base for individuals will be the positive difference between the income from the sale of crypto assets and the documented expenses for their acquisition. It is important to have evidence of expenses, as without documentation, tax will be calculated on the full sale amount, not on the net income.
For instance, if a token is purchased for $1000 and sold for $1200 without proof of purchase, tax will be paid on $1200. The introduction of the new taxation regime in Ukraine will require cryptocurrency users to be more diligent in documenting their market activities.
Hanna Voievodina emphasizes the importance of keeping records of all transactions, including trading history on exchanges, data regarding deposits and withdrawals, as well as proof of token values. This is particularly relevant for those using non-custodial wallets like MetaMask or Ledger.
“When attempting to transfer tokens from MetaMask to an exchange account for fiat sale, the bank may question the origin of these assets”
Moreover, precise documentation will help avoid prolonged disputes with tax authorities regarding the value of tokens received before the new legislation came into effect. There is discussion about the possibility of paying a fixed tax rate without thorough analysis of asset origins for a certain period after the law comes into force, although the details of this rate have yet to be determined.