The Ukrainian legislation currently does not have a single provision aimed at regulating relations that arise from circulation of digital assets and cryptocurrencies.

The first step towards legal regulation of the mentioned field was made on September 14, 2018, when, at the initiative of twenty-three people’s deputies of Ukraine, the Draft Law “On Amendments to the Tax Code of Ukraine Regarding the Taxation of Transactions with Virtual Assets” No. 9083 was entered into the Apparatus of the Verkhovna Rada of Ukraine (hereinafter — “VRU”).

This Draft Law provides for amendments to the Tax Code of Ukraine (hereinafter — “TC of Ukraine”). Therefore, based on paragraph 5.1 Article 5 of the TC of Ukraine, the terms, which the TC of Ukraine will be supplemented with should this law be adopted, will be used exclusively to regulate relations that arise in the field of charging taxes and fees.

The Draft Law No. 9083 does not specify the term “digital asset” separately, using the category “virtual asset” in its place, which is any form of record within the distributed ledger of records in digital form and can be used as a medium of exchange, accounting unit or means of storing value.

The proposed meanings of the term “virtual asset” are cryptocurrencies and asset tokens. This means that the initiators of the Draft Law No. 9083 view “virtual asset” as a general term, which includes cryptocurrencies and asset tokens.

Cryptocurrency is defined as a virtual asset in the form of a token that functions as a medium of exchange or storing value. Whereas an asset token is a virtual asset in the form of a token that confirms property and/or non-property rights of the token owner corresponding to the obligations of the token issuer. The crucial component of the reviewed terms is “token”, which the Draft Law No. 9083 describes as a digital unit of account within the distributed ledger of records in digital form, which has cryptographic protection.

The Opinion of the Leading Scientific and Expert Department of the Verkhovna Rada Secretariat states that the terminological apparatus of the Draft Law No. 9083 is classified as one that needs improving. In particular, it notes that the proposed definitions of “virtual assets”, “cryptocurrency” and “asset tokens” are too broad and do not allow for a clear definition of an object of taxation by distinguishing it from other objects of civil rights, first and foremost, from the ones similar in essence i.e. electronic money or securities.

In September 2018, the Draft Law “On Amendments to the Tax Code of Ukraine Regarding the Taxation of Transactions with Virtual Assets” No. 9083-1 was introduced as an alternative to the Draft Law No. 9083.

Even though the alternative Draft Law uses the term “digital asset”, it does not provide its official definition and, unlike Draft Law No. 9083, does not define virtual assets, only mentioning that they include tokens and cryptocurrencies. The Draft Law No. 9083-1 defines “cryptocurrency” as an intangible digital asset that determines units of value, the direct property right to which is recorded in accordance with the records in the distributed ledger of transactions (blockchain). In turn, “token” is defined as a record in the distributed ledger of transactions (blockchain), which confirms the existence of the claim right or property right of the owner to the objects of civil right.

Draft Laws No. 9083 and No. 9083-1 give different meanings to the similar reviewed terms, which is why it is important to note the differences between them. Firstly, in accordance with the Draft Law No. 9083 the types of virtual assets are cryptocurrencies and asset tokens, whereas in accordance with the Draft Law No. 9083-1 they are tokens and cryptocurrencies. Secondly, the main Draft Law does not classify a token as a type of virtual assets, but defines it as a digital unit of account within the distributed ledger of records, while the alternative classifies it as virtual assets and defines it as a record in the distributed ledger of transactions (blockchain). Thirdly, the Draft Law No. 9083 specifies the term “cryptocurrency” regardless of the essential characteristics and its form, whereas the Draft Law No. 9083-1 focuses more on the essence noting that cryptocurrency is an intangible digital asset, which determines units of value. Fourthly, the definition of cryptocurrency in the main Draft Law indicates its functional purpose as a means of exchanging or storing value, while the alternative Draft Law has no connection to the functions.

At the beginning of February 2019, both Draft Laws were entered into the agenda of the session of the VRU, which is confirmed by the Decision of the VRU “On the Agenda of the Tenth Session of the Verkhovna Rada of Ukraine of the Eighth Convocation”.

On November 15, 2019, the VRU registered the Draft Law “On Amendments to the Tax Code of Ukraine and Other Laws of Ukraine Regarding the Taxation of Operations with Crypto-Assets”. The Draft Law contains the following definitions:

token is an electronic unit of account in the form of a record in the distributed ledger;
virtual asset is a special type of property that is a value in digital form, which is created, accounted and alienated electronically. Virtual assets include crypto-assets, token-assets and other virtual assets;
crypto-asset is a type of a virtual asset in the form of a token, which is created, accounted and alienated in the distributed ledger and does not confirm property and/or non-property rights of the owner of a crypto-asset;
token-asset is a type of a virtual asset in the form of a token, which is created, accounted and issued in the distributed ledger that confirms property and/or non-property rights of the owner of a token-asset, which correspond to the obligations of a person that issued a token-asset. Operations with a token-asset are taxed according to the rules applied to property and/or non-property rights, which a token-asset confirms.

Taking into account the above-mentioned terms, “virtual asset” is the widest term that covers all other objects related to this Draft Law.

Conclusion

The legal fate of the given Draft Laws has not been decided yet, and it is hard to predict how the implementation of such changes into tax legislation will develop in the future. However, we have to focus on the fact that Ukraine has no special legislation regarding digital assets and cryptocurrencies defining their legal nature regardless of tax legislation.

Additional comment:

On June 11, 2020, the Draft Law of Ukraine “On Virtual Assets” was registered in the Verkhovna Rada of Ukraine. The first version was sent for improvement due to numerous contradictions and violations of legislative technique. On September 16, 2020, the Verkhovna Rada Committee received the improved Draft Law. According to the Draft Law, virtual assets are intangible goods and represent a collection of data in electronic form, which has a value and exists in the system for accounting of virtual assets. The Draft Law also defines the terms “virtual asset wallet”, “virtual asset key”, “backed virtual asset”, “unbacked virtual asset”, “virtual asset market” and others.

On February 17, 2022, based on this Draft Law, the Verkhovna Rada adopted the Law “On Virtual Assets” No. 2074-IX.

Source: https://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=69110

The Draft Law of Ukraine “On Amending the Code of Criminal Procedure of Ukraine Regarding the Increase in Effectiveness of Combatting Cybercrime and Applying Electronic Evidence” was registered in the Verkhovna Rada on September 1, 2020. The Draft Law defines electronic evidence and uses the term “virtual asset”.

Source: http://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=69771

In the autumn of 2020, the Draft Law “On Tokenized Assets and Crypto-Assets” No. 4328 dated November 5, 2020 was registered in the Verkhovna Rada of Ukraine.

The main objective of the Draft Law is to define the legal framework for tokenized assets and crypto-assets, as well as create the foundation for regulating legal relations arising in the field of use of virtual assets, in particular the ones that exist in the digital data accounting system based on the distributed ledger (hereinafter referred to as the “virtual asset distributed ledger”) — tokenized assets and crypto-assets.

Tasks that the Draft Law aims to solve:

define the legal nature of distributed ledger virtual assets;
enshrine the classification of distributed ledger virtual assets, as well as the terms popular in the field of circulation and use of distributed ledger virtual assets;
create the legal framework for lawful attraction of additional investments by Ukrainian companies and entrepreneurs using distributed ledger virtual assets and for keeping corresponding financial and accounting reports;
create legal conditions for using modern products and integral systems based on the distributed ledger technology in Ukraine in order to realize their extensive commercial potential;
create legal basis for developing standards in the field of circulation of distributed ledger virtual assets.

The Draft Law “On Tokenized Assets and Crypto-Assets” is specific for the field of regulating distributed ledger virtual assets and establishes the legal framework for distributed ledger virtual assets and legal status for subjects in the field of distributed ledger virtual assets.

The main idea laid down in this Draft Law is to establish legal certainty for the field of distributed ledger virtual assets.

This Draft Law is based on the approach that defines the “distributed ledger technology” as a digital data accounting system, and the “distributed ledger token” as an inventory item of such a system. Such definitions allow using a digital data accounting system based on the distributed ledger technology in any field, in particular aiming to improve civil legal relations. At the same time, the legal framework for distributed ledger virtual assets and relations in the field of their use was established based on the current legislation of Ukraine.

The Draft Law proposes definitions for the following terms:

digital data accounting system based on the distributed ledger technology;
distributed ledger;
distributed ledger token;
identifier;
tokenized asset;
source asset;
crypto-asset.

Source: https://w1.c1.rada.gov.ua/pls/zweb2/webproc4_1?pf3511=70353

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