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The idea that cryptocurrency is not recognized as an official currency, and therefore the sale and purchase of cryprocurrency shall not be taxed is false. Lets consider the situation in which a physical person who is a resident buys and sells cryptocurrency without mining.


             Artem Sereda

How the transactions with cryptocurrency shall be treated?
Sales transactions of cryptocurrancy shall be treated as an activity that has an aim to receive profit, and therefore actually shall be recognized as an entrepreneurial activity.

Shall purchase-sale transactions of cryptocurrency be taxed in Ukraine?

Provisions of Art. 165.1 of Tax Code of Ukraine contain information on non-taxable income. Art. 165.1 of the Tax Code of Ukraine (hereinafter referred to as the "Tax Code") does not exempt the sale and purchase of cryptocurrancy from taxation. That is why such transactions shall be taxed if a person receives income.

What exactly shall be taxed in purchase-sale transactions of cryptocurrency?

The purchase and sale of cryptocurrancy is carried out by an individual. According to Art. 163.1 of Tax Code, the subject of taxation of a resident is: the total monthly (annual) taxable income; income from the sources of their origin in Ukraine, which are finally taxed when they are charged (payment, provision); foreign incomes - income (profit) received from sources outside of Ukraine. In fact, only sales of cryptocurrency shall be taxed if the revenue was received by the individual.

What will be the origin of funds received from the sale and purchase of cryptocurrancy?

It should be noted that an individual selling and purchasing cryptocurrency from Ukraine, but all transactions occurring outside of Ukraine. Confirmation that the operation took place outside of Ukraine may be the fact that trade exchanges themselves, where transactions were hold, were registered outside of Ukraine. An example is the exchange www.yobit.net. According to the web resource www.whois.com, it is registered in Russia. In fact, the place of the transaction with cryptocurrency is the country of registration of the exchange.

Consequently, transactions of cryptocurrency must be regarded as "foreign income" received from sources outside of Ukraine, because the sale and purchase process itself and the process of obtaining profit took place outside of Ukraine.

Shall the sale-purchase operations with cryptocurrancy be treated as operations with "investment assets" and can they be taxed at a rate of 5%?

The sale and purchase transactions of a cryptocurrency shall not be regarded as an operations with investment assets. Provisions of clause 170.2 of the Tax Code contains the exclusive list of terms that refer to "investment assets" and "investment income". Information about assets that are similar to cryptocurrency are not listed in it.

Shall the transaction of the purchase of cryptocurrency be a subject of taxation?

Acquisition of cryptocurrency is not taxable. The fact of acquiring a cryptocurrency does not confirm the fact of receiving a profit.

What transactions with critpocurrency shall be subject to taxation and at what rates?

If the cryptocurrency was sold at a higher price than purchased, for example, 1 "Bitcoin" was purchased for 1000 dollars USA, and sold for 7000 dollars USA. That positive difference is 6000 dollars. In its legal nature, such profits are passive profits, since the buyer-individual did not directly affected the growth factors of increasing the value. However, the current provisions of Art. 170.2 of the Tax Coude do not recognize the cryptocurrency as "investment income" and "investment asset", and therefore the profit from such sale can not be taxed in accordance with the provisions of Art. 170.2 of the Tax Code at a reduced rate of 5%. Such income should be treated as "any income received by residents" and "other income from any activity outside the customs territory of Ukraine" in accordance with Art. 14.1.55 of Tax Code. Therefore it is subject to taxation on general grounds at the rate of 18 %, which is stipulated in Art. 167.1 of Tax Code. 18% from 6 000 dollars USA is 1 080 dollars. US dollars, shall be exchanged at the official rate of the National Bank of Ukraine on hryvna.

When does the tax liability arises on personal income?

The duty to pay tax arises on the day of receiving a profit. It is the day when the money were transferred on the bank account or bank card of a individual. The tax shall be paid until August 1st of next year.

Shall the exchange of one cryptocurrency to another be taxable?

Only income will be a subject of taxation. That is why, those cryptocurrency which were exchanged for cash and transferred to a bank account/individual card shall be taxed. Transactions for exchanging one cryptocurrency for another will not be taxed, because the fact that the exchange of one cryptocurrancy to another is not an income. When exchanging cryptocurrency, the individual should pay attention to the value of the first investment, that is, the amount for which the first criptocurrency was purchased, as well as the amount for which the last cryptocurrency was exchanged (sold) for a monetary unit.

For example, 1 "Litecoin" was purchased for 1000 USD, exchanged for 1 Bitcoin. Later, 1 "Bitcoin" was exchanged for 6,000 dollars USA, and the positive difference was 5,000 dollars USA. In this case, the positive difference will be taxed at a rate of 18%.

That is why, when selling cryptocurrency, only the positive difference between the purchase and sale shall be the subject of taxation.

Shall the transactions with cryptocurrency of non-residents be taxed in Ukraine?

Taking into account the provisions of Article 163.2 of the Tax Code, non-resident’s income from transactions with cryptocurrency shall not be taxed, even if the non-resident is physically located in Ukraine. The cybercurrency’s transactions are carried out outside of Ukraine, on the stock exchange. A non-resident must pay taxes in the country of which he is a resident. Exceptions will be non-resident’s transactions for buying and selling of cryptocurrency, which was carried out on Ukrainian exchanges. Such operations will be subject of taxation according to a general rule, which is the taxation of residents.

When is it necessary to file a tax return and pay tax?

The tax return must be filed until 1st of May of the following year, and the tax must be paid until August 1st. The declaration for 2017 shall be submitted until 1st May 2018, and the tax shall be paid until1st of August 2018.

What responsibility for the tax evasion from transactions with cryptocurrency?

Individuals have criminal and financial responsibility for tax evasion for the transactions with cryptocurrency. In the case of tax evasion on significant, large, or especially large amounts, an individual may be prosecuted accotding to part 1, 2 or 3 of Art. 212 of the Criminal Code of Ukraine. In the end of criminal proceedings, a person may be fined in the amount of 17,000 to 425,000 hryvnias, depending on part of Article 212 of the Criminal Code of Ukraine, and may also be subject to confiscation of property. In the case of non-prosecution, an individual may be brought to justice to financial liability, as provided in Art. 123.1 of Tax Code, and can be fined for 25% of the hidden tax amount.

Artem Sereda

tax advisor

allTax

legal and tax advisers