NSSMC Publishes Proposals for Taxation of Crypto Assets

The National Securities and Stock Market Commission has published an overview of the main ideas of the NSSMC regarding options for taxation of various transactions with virtual assets. This guide “Virtual Assets Taxation Matrix” contains descriptions of the taxonomy, typology, calculation methods, proposals for taxation of income of individuals and VAT on transactions with virtual assets. According to the matrix, options are considered for the following aspects:

Taxation Object

1. Net income (Income-Expenses). Allows taxation of net value gains. The object is similar to taxation of income from transactions with securities, corporate rights and is the most acceptable option for stablecoins (EMT/ART), which have a stable value, and decentralized currencies, which have high volatility. There is no tax in the presence of losses from the transaction. However, such a model is difficult to administer, and losses can be manipulated.

2. Income (Revenue). It is characterized by a simple calculation, especially when choosing the moment of determining income only when exchanging for currency values ​​(crypto to fiat). In certain cases, the accrual and payment of taxes may be entrusted to the CASP (when providing services for exchanging virtual assets for cash or the activities of the operator of a trading platform for virtual assets, if settlements are made through the operator) or the bank or payment service provider (when crediting the relevant income). Nevertheless, this option is economically burdensome for tokens with high volatility, since even in the absence of net income it requires the payment of taxes.

Moment of Determining Income

1. Under a general rule – income is recognized at the time of receipt as compensation for goods/services or at the time of alienation of virtual assets in exchange for other assets, including other virtual assets. This is the standard approach of the EU countries.

2. Moment of exchange of virtual assets for currency values ​​or for other (non-digital) assets – only transactions of alienation of virtual assets in exchange for other currency values ​​or for other assets that are not virtual assets are considered as taxable transactions.

Tax Rates

1. Standard: 18% personal income tax + 5% military levy.

2. Preferential: two options – 5% and 9%.

Value-Added Tax

It is noted that, when comparing the experience of other states, approaches to VAT taxation of transactions with virtual assets remain unregulated or differ significantly between jurisdictions. Some EU Member States grant such transactions the status of VAT exempt, while others do not have a clear regulatory framework, which causes ambiguity in tax treatment.

Scope of Tax Agent Responsibilities

1. Reporting and withholding tax – a traditional model, according to which, following the general rule of the Tax Code of Ukraine for investment assets, a tax agent has a full tax obligation (accrual, withholding and transfer) regarding the income of individuals.

2. Reporting only – independent declaration of income by individuals. This approach will further allow for the most simple introduction of the Crypto-Asset Reporting Framework and the subsequent implementation of DAC8.

Virtual Asset Taxation Matrix