Crypto Asset Guide 2022: Ukraine

1. How are crypto assets defined in your jurisdiction?

According to the Law of Ukraine on Virtual Assets (the “Law No. 2074-IX”), crypto assets are defined as intangible benefits subject to civil rights, which have value and are expressed as a set of data in electronic form.

2. What is the legal status of crypto-assets in your jurisdiction?

Crypto-assets are intangible benefits, which are not a means of payment on the territory of Ukraine and cannot be exchanged for goods or services. At the same time, crypto assets are subject to civil rights, which can be freely transferred from one person to another.

3. Are crypto assets regulated in your jurisdiction?

Not exactly. The legislative framework regulating crypto assets in Ukraine consists of Law No. 2074-IX, signed by the President of Ukraine on March 15, 2022. Although Law No. 2074-IX is not yet in force, it will only enter into force after its adoption. changes in tax legislation relating to the taxation of transactions with cryptographic assets.

4. If crypto assets are regulated in your jurisdiction, which key regulatory authorities are responsible for regulation and enforcement in your jurisdiction? How are they regulated?

The main regulatory authorities responsible for the regulation and enforcement of crypto assets in Ukraine are: the National Securities and Exchange Commission and the National Bank of Ukraine. These authorities carry out their activities within the framework of their competences defined by the law n° 2074-IX.

In particular, the National Commission for Securities and the Stock Exchange:

  • formats and implements state policy on the development of the crypto-asset market, promotes the adaptation of crypto-asset legislation to international standards;
  • interacts with other state authorities on the functioning of the crypto asset market in Ukraine;
  • promotes the development of the crypto asset market;
  • implements state regulation and control over the turnover of crypto assets;
  • protects the rights of market participants;
  • ensures and exercises control over the AML requirements;
  • generalizes the practice of enforcement of legislation on virtual assets in Ukraine, develops proposals for its improvement;
  • provides financial monitoring.

In turn, the National Bank of Ukraine:

  • develops proposals for the improvement of laws and other regulations on the turnover of crypto assets;
  • conducts international cooperation;
  • issues, cancels, re-issues licenses for the provision of services related to the turnover of crypto assets;
  • determines the list of monetary values ​​that can secure the crypto assets and against which the crypto assets can be exchanged;
  • approves rules for the exchange of crypto assets backed by monetary securities and establishes relevant restrictions;
  • supervises the activities of service providers, carries out inspections and applies sanctions;
  • determines the cybersecurity requirements related to the turnover of cryptographic assets secured by the monetary values ​​secured by the monetary values.

5. Have specific anti-money laundering measures been introduced in relation to activities related to crypto assets in your jurisdiction?

Yes. Law No. 2074-IX provides for the establishment of a register of service providers relating to the circulation of cryptographic assets. This ledger is designed as an anti-money laundering measure that will identify “grey” crypto assets. In addition, transfers of crypto-assets will be financially tracked.

6. How is the use of blockchain in the financial services industry regulated in your jurisdiction?

Despite the legalization of crypto-assets in Ukraine, blockchain technologies are not regulated in Ukraine. Law No. 2074-IX does not contain a concept such as “blockchain”.

At the same time, at the beginning of 2018, Ukraine became one of the top ten countries where blockchain is used at the state level.

Also, there are organizations in Ukraine working on these issues. In particular, such an organization is the Blockchain Association of Ukraine. This non-profit organization has promoted the integration of blockchain technology into the Ukrainian economy since 2014 and continues to work on this issue today.

7. How are crypto assets taxed in your jurisdiction?

Unfortunately, to date, the Ukrainian legislature has not adopted amendments to tax legislation on taxation of transactions with crypto assets. According to the current legislation, income from transactions with crypto assets is taxed due to general rules – the total amount of income received by a person from transactions with crypto assets is subject to tax. Crypto-assets themselves are not taxable in Ukraine.

8. Are crypto-assets recognized as a type of property in your jurisdiction?

In Ukraine, crypto assets are recognized as intangible benefits – a type of civil rights object. The status of crypto-assets as property is only established by Law No. 2074-IX. So far, the Civil Code of Ukraine does not provide rules governing the characteristics of such an advantage as crypto assets.

9. How does your jurisdiction deal with the application of property laws to intangibles and conflict of laws with other jurisdictions (e.g., a cryptographic asset created by a company in jurisdiction A, a server in jurisdiction B that is sold to a person in jurisdiction C)?

According to Law No. 2074-IX, there are four cases in which Ukrainian law is applicable instead of the law of any other country: (1) the parties to the legal relations of crypto assets are registered or have a permanent establishment in Ukraine; (2) the parties have agreed to apply Ukrainian law to dealings with Crypto Assets; (3) both parties to the legal relationships of Crypto Assets are residents of Ukraine; (4) the acquirer of the crypto assets is a resident of Ukraine.

10. Can smart contracts transferring ownership of a crypto asset be considered legally binding in your jurisdiction?

No, according to Law No. 2074-IX, smart contracts transferring ownership of a crypto asset are not considered legally binding in Ukraine.

11. Is it possible to secure a crypto asset in your jurisdiction? If yes, please provide a brief overview.

No, Law No. 2074-IX does not establish special mechanisms for ensuring the security of a crypto asset in Ukraine. However, security mechanisms may be provided later.

12. Does your jurisdiction provide relief from inheritance tax in situations where market fluctuations cause a beneficiary to pay disproportionate tax?

No, because the issue of taxation of transactions with virtual assets is currently not regulated in Ukraine.

13. Is there any upcoming or proposed legislation in your jurisdiction regarding crypto assets?

Yes, there is upcoming legislation regarding crypto assets. Since March 13, 2022, the legislator has been working on a bill n°7150, which provides rules for the taxation of transactions with virtual assets. It is the only bill relating to crypto assets that is registered in Parliament for further consideration.

14. Is there a supranational view of crypto assets in your region and if so, what is it?

Ukraine has not signed any international treaty on crypto-assets. At the same time, according to Ukrainian law, if an international treaty, accepted and binding by the legislative power, establishes rules other than those provided for by Ukrainian law, the rules of the international treaty apply. Crypto asset legislation is no exception to this rule.

In Ukraine, crypto-assets are governed by both local laws and international rules, whichever has the greatest legal force.

15. Is there anything else that you think is unusual or different in the way your jurisdiction treats crypto assets or transactions in crypto assets?

The peculiarity is that Ukrainian legislation in this area is still being created. In fact, to date, the only legislative framework regulating crypto assets in Ukraine is Law No. 2074-IX, which has not entered into force. We are currently awaiting changes to the tax legislation. It would seem that the legislator will further create a regulatory framework in this area. However, legislative activity in this direction is complicated by the war against Russia.