On 6 December 2019, Verkhovna Rada of Ukraine adopted the Draft Law "On the prevention of and counteraction to legalization (laundering) of criminal proceeds, financing of terrorism and proliferation of weapons of mass destruction" (the "Draft AML Law"). Subject to being signed by the President of Ukraine, it will come into effect 4 months after its official publication.
Importantly, the Draft AML Law follows the 5th EU AML Directive and the respective FATF guidance and introduces the concept of a "virtual asset". "Virtual asset" is defined as the digital expression of value, which can be traded in a digital form, transferred and used for payment or investment purposes.
The Draft AML Law recognizes and makes as a new type of an obliged entity a number of business models dealing with the virtual assets. In particular, it refers to a virtual asset service provider as an individual or a legal entity acting for another individual or a legal entity with respect to:
- exchange of virtual assets;
- transfer of virtual assets;
- custody and/or administration of virtual assets or instruments, which enable their control;
- participation and provision of financial services related to offering of the issuer and/or sale of virtual assets.
The Draft AML Law designates the Ministry of Digital Transformation (MDT) as the regulator for these entities. Reportedly, MDT together with the team of experts will now work on the development of new terms for the virtual assets industry, which are expected to be adopted by early spring next year.
In addition, there is another draft law registered in the Verkhovna Rada of Ukraine which seeks to introduce a separate taxation regime for transactions involving crypto assets, which are regarded as a type of virtual assets. Thus, if a transaction involves a conversion (sale) of a crypto asset into fiat currency, income generated from such conversion may be subject to tax. Income is defined as a positive margin between the revenue received from the sale of the crypto asset and its value (that is, the confirmed expense to purchase or mine such asset). Moreover, this draft introduces a favorable individual income tax regime of five percent for five years since the adoption of this law and exempts the sale of crypto assets from VAT.
As reported earlier, the new regime for virtual assets has been promoted by the inter-factional association “blockchain4Ukraine”, which has been set up in the newly elected Ukrainian Parliament to promote blockchain-related initiatives.