Ukraine's Parliament Approves Crypto Legalization: 5% Tax First Year, Then 23%

Ukraine Takes a Bold Step Towards Crypto Legalization

The Verkhovna Rada, Ukraine's parliament, has signaled a significant shift in its stance on digital assets by voting to support the legalization of cryptocurrency. In a landmark first reading, lawmakers approved draft bill № 10225-д, a move widely anticipated and crucial for bringing order and transparency to the burgeoning virtual asset landscape. This initiative aims to foster the growth of a legitimate digital economy within Ukraine, as highlighted by Danylo Hetmantsev, head of the parliamentary committee on finance, tax, and customs policy.

Essentially, the proposed legislation seeks to overhaul the existing Law "On Virtual Assets" and introduce amendments to a suite of key legal frameworks, including the Tax Code, Civil Procedure Code, Commercial Procedure Code, Code of Administrative Procedure, and several other relevant laws. If the legislative process unfolds as planned, the long-awaited Law on Cryptocurrency Legalization is slated to come into effect on January 1, 2026. A critical next step involves the Cabinet of Ministers designating a single regulatory body for the crypto asset market within a month. Currently, three prominent state entities are vying for this pivotal role: the National Securities and Stock Market Commission, the National Bank of Ukraine, and the Ministry of Digital Transformation. The draft bill thoughtfully categorizes crypto assets into three distinct types: those pegged to tangible real-world assets like stocks, stablecoins linked to specific fiat currencies (e.g., USDT), and all other cryptocurrencies.

A New Tax Regime for Crypto Operations

Come January 1, 2026, individuals engaging with cryptocurrencies can expect a revamped tax system. The proposed legislation introduces a dedicated tax regime for virtual asset operations, separating them from other income and investment categories. The tax will be calculated on net profit annually, meaning deductible expenses for asset acquisition will be factored in. The proposed tax rates are set at a combined 23% (18% personal income tax plus a 5% military levy). To prevent financial maneuvering, the list of deductible expenses will be initially restricted, though the Ministry of Finance, in conjunction with the regulator, will have the authority to expand it. A welcome provision allows for the carry-forward of prior year losses until they are offset by future profits, with exceptions for situations like the annulment of a crypto asset. Notably, the concept of a tax agent – an intermediary responsible for automatic tax withholding – will be absent. This places the onus on individuals to self-declare and remit their taxes. For those who already hold cryptocurrency prior to the law's enactment, a special incentive is offered: sales made in 2026 will be subject to a reduced tax rate of 5%, a significant departure from the standard rate. Certain crypto transactions will also be exempt from taxation. These include exchanges between different cryptocurrencies and sales below the minimum wage threshold. Further exemptions cover newly created virtual assets (like those obtained through mining) or those received gratis from an issuer or offeror, including instances where crypto is exchanged for personal user data.

Implications for Businesses and Service Providers

The legislative push extends beyond individual investors to encompass cryptocurrency service providers. Companies and platforms operating within the crypto space will be required to undergo authorization or registration with the designated regulator within 60 days of commencing operations. Annual reporting will also become mandatory, with penalties for non-compliance escalating over time, starting with smaller fines and progressing to more substantial sanctions. The bill also outlines tax obligations for service providers, specifically addressing the taxation of profits derived from virtual asset operations and sales. Furthermore, it establishes mechanisms for regulating advertising and combating fraudulent activities. A key restriction prohibits crypto service providers from operating under the simplified taxation system.

Navigating Potential Pitfalls and Criticisms

While the bill represents a significant stride towards a regulated crypto market in Ukraine, it is not without its contentious aspects. Several provisions have sparked debate and raised concerns among experts. Ambiguities in definitions, such as who will determine what constitutes a "virtual asset entity," are a recurring issue. The proposed broad powers granted to the regulator – including unannounced inspections, document seizure, and even the right to conduct "test purchases" – are seen by some as encroaching on police functions and potentially infringing upon individual rights. The expedited 96-hour timeframe for judicial review of asset seizure or information access requests is also viewed as excessively rapid, raising concerns about superficial deliberation. Privacy issues loom large, with questions about the regulator's potential to access private data and trace connections between individuals, including privileged lawyer-client communications. In essence, the draft law lays the groundwork for a legal cryptocurrency market, introducing taxation and operational rules for services. However, it grapples with significant challenges, from overly expansive regulatory powers to the risk of double jeopardy. Experts caution that without crucial amendments, the law could inadvertently create more problems than it solves. Notably, Member of Parliament Yaroslav Zhelezniak has indicated that numerous changes are expected during the second reading.