The Law on Virtual Assets adopted in Ukraine in 2022 established the role of the main market regulator of the National Securities and the Stock Market Commission (NSSMC).
\nThe agency has already established a digital asset regulation office and an advisory board that brings together representatives of relevant bodies and industry.
\nDespite the ongoing war, Ukraine continues to work on improving legislative initiatives that will bring the cryptocurrency market out of the gray zone. ForkLog UA talked about the changes that are being prepared and future regulation with Yurii Boiko, Commissioner.
\nIn Ukraine, it has been almost a year since the Law on Virtual Assets was adopted. However, full-fledged legalization of the digital currency market has not yet taken place, and the law has not begun to function. Why?
\nIn order for the law, which was adopted last year, to enter into force, it was necessary to make changes to the Tax Code.
\nIn essence, the text of the law was relevant to the market at the time of its development \u2014 a couple of years ago. The market of virtual assets is very dynamic and rapidly developing.
\nCurrently, we chose the path of European integration, because during this time several global changes took place in our country. This is war and our way to become a member of the EU.
\nEarlier, Ukrainian regulators told ForkLog UA that in view of Ukraine receiving the status of a candidate for EU membership, the norms of our legislation regarding the cryptocurrency industry must be adapted to European standards. In particular, taking into account the regulation of MiCA.
\nThe MiCA regulation was developed by the world’s most influential specialists who gathered the best expertise and practice of the virtual assets market that existed throughout Europe.
\nAccordingly, there is already an absorption of errors and corrections that have been put on paper by EU experts. As a future member of the European Union, we also take all these aspects into account.
\nAt the time of the conversation, MiCA has not yet been finally adopted in the EU. Will Ukraine monitor potential changes to these regulatory rules?
\nThe regulation was developed for more than four years with constant consultations, the involvement of major market players, and public discussions of the document. At this time, the version of the regulation has been approved by the Council of the EU, and in February it will be put to the vote of the European Parliament.
\nWe are currently holding consultations with European experts who participated in the development of the regulation, and hope for its adoption within the specified time frame.
\nYes, we do have information, and Western colleagues emphasize that there will be changes to the current version of the regulation. We are ready for it. And I will repeat once again that the market of virtual assets is changing rapidly and such changes are a normal process.
\nIs it correct to understand that the classification of the types of such assets and services prescribed in the Law on Virtual Assets will be changed? Currently, it is quite different from MiCA standards.
\nYes, everything is correct. MiCA gives a broader definition of the terms but, on the other hand, clearly divides them into three categories.
\nThese are Asset referenced tokens (ARTs) \u2014 tokens linked to assets, Electronic money tokens (EMTs) \u2014 tokens of electronic money and all other cryptoassets (including service tokens). Such a classification will be included in the Ukrainian legislation.
\nTen services are also clearly defined in MiCA, among which there is an exchange license as a separate type. These services will be reflected in the updated Law, namely:
\n\u2022 storage and administration of virtual assets on behalf of third parties;
\n\u2022 functioning of the trading platform for virtual assets;
\n\u2022 exchange of virtual assets for cash;
\n\u2022 exchange of virtual assets for other virtual assets;
\n\u2022 fulfillment of orders for virtual assets on behalf of third parties;
\n\u2022 placement of virtual assets;
\n\u2022 providing services for the transfer of virtual assets on behalf of third parties;
\n\u2022 receiving and transferring orders for virtual assets on behalf of third parties;
\n\u2022 providing advice on virtual assets;
\n\u2022 activities for managing a portfolio of virtual assets.
\nUnfortunately, the Law on Virtual Assets did not have all of this and a different approach was described there. In particular, in order for the exchange to function, it was necessary to obtain a license for two or three types of services. In total, there were four types of services in the Law. (According to the approved edition, we are talking about the storage or administration of virtual assets or their keys, exchange, transfer and provision of intermediary services related to such assets. \u2014 ForkLog UA).
\nMiCA also provides that licenses for several types of services must be obtained for the exchange to function. Is it correct to say that given the way the market functions now, the exchange can act as a custodian of virtual assets, as a trade organizer and as a broker at the same time?
\nI do not want to analyze in detail the business models of each individual exchange. However, everything is true. In order to provide the entire necessary set of services to the end user, there must be several licenses that the exchange will receive. MiCA has understanding and requirements for all types of licenses and licensees.
\nThe question that probably interests everyone is the concept of taxation. How does the NSSMC see it?
\nIndeed, this is the most difficult question. Why? Because our industry as a whole depends on it. With the support of the USAID Financial Sector Reform project, we and Ernst&Young specialists in Ukraine developed a concept in which we analyzed the experience of world jurisdictions where the rules for regulating the virtual assets market were specified.
\nIn their concept, most countries prescribed taxation of operations with virtual assets as an investment activity. That is, the approach is similar in principle to the taxation of transactions with securities.
\nStudying the international experience, we saw that in all countries the very concept of taxation is quite complex. You cannot take and copy the practice of another country and start it [in your own country].
\nIt is important to understand that there are different transactions with virtual assets. However, there are only five main transactions with virtual assets that are taxed in the world:
\n\u2022 creation (mining);
\n\u2022 sale of cryptocurrency for money;
\n\u2022 one-to-one exchange of cryptocurrencies;
\n\u2022 cryptocurrency payment for goods and services;
\n\u2022 growth of the market value.
\nTaking into account the analyzed experience of other countries and the existence of five types of transactions that are subject to taxation, we wrote a concept that is similar to the existing mechanism of taxation for securities in Ukraine. This means that the concept of [cryptocurrency] taxation in Ukraine will cover all five types of transactions mentioned above.
\nHow will it work for those who already own virtual assets? How do they confirm the price, according to the concept?
\nThis is a difficult question, but I can say the following – those who have already purchased cryptocurrency, according to the concept we proposed for discussion, should provide information on confirming the cost of purchasing a virtual asset.
\nYes, there may be problematic moments for those owners who will not be able to confirm this, if we speak frankly. However, we will be looking at other designs to make this easier for asset owners.
\nIs it about the fact that cryptocurrency owners have to provide information about the value of the asset at the time of its purchase? Will the commission prescribe a procedure on how to do this? And what exactly do the owners have to pay taxes on?
\nSo. There must be proof of the cost price so that there is a basis for taxation. But the final decision has not been made yet, it will be decided by our elected officials. For example, there may be some preferential amnesty.
\nIn the matter of regulation, the majority of countries did not choose the path of building international legislation, or pan-European legislation, but preferred experimental concepts at the national level. Why didn’t Ukraine follow a similar path?
\nWe considered such a conceptual approach, but it would be too long for our country. Also, we already had a work in progress, the Law on Virtual Assets.
\nUkraine is one of the leaders in the circulation of virtual assets in the world, we have more than 5 million crypto wallets. And we can become a \u00ablegislator of fashion\u00bb.
\nTaking into account the pressure of the market, in a good sense, and its rapid development – all this gives us an impetus to act quickly. This industry needs the legalization of virtual assets in Ukraine for business development right now.
\nWe have chosen for ourselves the concept of introducing MiCA into our basic law. Next, we will have so-called \u00absandboxes\u00bb because MiCA does not cover certain markets, such as DeFi and NFT. Why? Because the European regulation itself does not have a high-quality practice in the supervision of these sectors of the industry.
\nWe cannot be away from these segments. I am sure that the regulators of our basic law will have \u00absandboxes\u00bb where such points will be tested.
\nWhich professional participants of the bitcoin market do you expect to be among the first to receive a license to work in Ukraine?
\nWe see interest from exchanges that want to build their work specifically in Ukraine, taking into account our potential. There are also many people who want to build business models in their commercial interests. Conventionally, they can be called issuers.
\nHow will the circulation of already existing virtual assets take place on the territory of Ukraine?
\nEverything is quite simple. The concept that is embedded in the MiCA defines such a concept as a public offer.
\nAfter the legalization of circulation of virtual assets in Ukraine, these offerors must fulfill the conditions of the public offer. Those companies that do not meet the requirements, unfortunately, will not have a public offering in Ukraine.
\nIn general, it all boils down to the requirements for the white paper, which should describe the nature of the risks for the investor, the essence of the technology, etc.
\nWho is it about? About issuers of digital assets, such as Tether? Does it mean that such a company should be registered in Ukraine? What does \u00abthere will be no circulation with a public offer in Ukraine\u00bb mean?
\nThis will be the new term \u00abofferor\u00bb – a person (individual or legal entity) who can make a public offer of virtual assets.
\nIf we talk about a public offer, then this is the communication of third parties in any form and by any means. It contains sufficient information about the terms of the offer and the virtual assets being offered for potential holders to make a decision to purchase such virtual assets. That is, an offer for an undefined circle of persons.
\nIs it correct to claim that the adoption of the draft law on taxation automatically leads to the entry into force of the law on Virtual Assets?
\nThese documents are interrelated and cannot exist without each other.
\nWhat will the legalization of virtual assets bring to Ukraine?
\nWe will bring out of the \u00abgray zone\u00bb what is there now. First, it is business development. When there are clear rules and an understanding of how to build a business, it becomes attractive for investment, corruption factors are removed. Secondly, it is taxation.
\nWhat volume of budget revenues can the legalization of virtual assets bring to Ukraine?
\nThere must be clear reasons for this. There are no concrete figures, because there are no statistics. There are only analytical data from consulting companies. We cannot talk about money, because we have not approved the concept and the issue of the tax rate itself. All this will be decided by our body of deputies.
\nThere are restrictions on the movement of capital in Ukraine. With the legalization of virtual assets in Ukraine, they are leveled off. How will it correlate with the norms of the National Bank?
\nThe NBU is the head of monetary policy in the country, and no laws should circumvent the norms established by the National Bank. Also, we should not forget that there is a war in Ukraine, which affects all processes in the state.
\nHowever, we consult with NBU specialists. We cannot yet say what the model will be. It will be included in the draft law.
\nDo you expect that companies, receiving licenses, will be able to attract citizens and allow them to open accounts in other jurisdictions?
\nIf a Ukrainian wants to open his wallet somewhere, that is his right. However, now we are talking about regulating activities on the territory of Ukraine, where everything will be as licensed and understandable as possible. But this does not mean that such legalization is the maximum protection of such activity.
\nWhen will draft laws – tax and updated on Virtual Assets – be presented?<\/p>\n
We are working on it. The goal was set by the end of January 2023. But, frankly speaking, we see that we will not have time.<\/p>\n