Ukraine Proposes Radical 23% Tax on Crypto

Ukraine’s proposed 23% crypto tax could punish holders for “paper profits” that vanish when markets crash, leaving them with tax bills but no actual gains.

At a Glance

Ukraine’s Securities Commission proposes a 23% total tax on crypto income (18% income tax plus 5% military levy)
The crypto tax structure faces unique challenges including taxing “paper profits” that may disappear due to market volatility
Taxpayers, not intermediaries, must self-report crypto income through difficult-to-track decentralized platforms
The proposal includes simplified reporting methods and taxation primarily at fiat currency conversion points
Ukraine aims to formalize its digital asset sector while generating revenue for national defense

Ukraine’s Dual-Purpose Crypto Tax Initiative

Ukraine’s National Securities and Stock Market Commission (NSSMC) has unveiled a detailed taxation framework for virtual assets that would impose a combined 23% tax on cryptocurrency income. The proposal merges an 18% personal income tax with a 5% military levy, explicitly targeting additional revenue for the country’s defense capabilities while the war with Russia continues. The tax matrix, shared by NSSMC head Ruslan Magomedov on Telegram, represents the country’s first comprehensive attempt to capture revenue from its growing digital asset economy.

The proposal comes as Ukraine seeks to formalize its crypto sector and align with global regulatory trends. Under the proposed system, taxable events would primarily occur when virtual assets are converted to traditional currency or non-virtual assets. This approach mirrors practices in countries like Austria, France, Singapore, Malaysia, and Georgia, where crypto-to-crypto transactions remain untaxed. The framework also establishes specific taxation approaches for various crypto activities including mining, staking, hard forks, and airdrops.

The Self-Reporting Challenge

Unlike traditional income sources where employers or financial institutions handle tax withholding, cryptocurrency transactions place the reporting burden entirely on individual holders. The commission acknowledges this fundamental challenge in its consultation document, noting the decentralized and often anonymous nature of cryptocurrency transactions makes conventional tax enforcement mechanisms ineffective. Most crypto operations occur through decentralized platforms or self-hosted wallets that remain largely invisible to tax authorities without voluntary disclosure.

“Unlike traditional income (salary, dividends), where the tax obligation is fulfilled by a tax agent (for example, an employer or a bank), in the case of virtual assets this function is most often performed by the individual.” – Ukraine’s Securities and Exchange Commission

This self-reporting requirement creates substantial compliance challenges. Many users may be entirely unaware of their tax obligations or lack the technical knowledge to properly document their crypto activities. The commission acknowledges that records of acquisition costs “are often absent, especially if they were obtained through a peer-to-peer exchange, airdrop, or mining,” making accurate income calculations nearly impossible for many transactions.

The “Paper Profit” Problem

Perhaps the most problematic aspect of the proposed framework is how it handles cryptocurrency’s notorious price volatility. Under traditional tax systems, investors could face tax obligations on significant profits that subsequently evaporate before taxes are due. The commission acknowledges this critical flaw, noting that crypto price fluctuations “can lead to situations where a person is obliged to pay tax on ‘paper profit’ that disappeared due to a market drop.”

“In the digital age, taxation of cryptocurrencies is no longer a hypothesis – it’s a rapidly approaching reality. That’s why the NSSMC has developed a matrix presenting various taxation options for virtual asset transactions – from mining to airdrops. The model draws on international practices and has been adapted for the Ukrainian legal framework.” – Ruslan Magomedov

This reality of crypto markets means investors could potentially owe taxes on gains they never actually realized or had the opportunity to use. This is among the most serious concerns for cryptocurrency holders, who could face substantial tax bills during a market downturn with no way to pay except by liquidating assets at losses. The proposal attempts to address this by suggesting taxes be implemented primarily at the point virtual assets are converted to fiat currency.

Implementation Timeline and Solutions

The taxation matrix has been presented to the parliamentary finance, tax, and customs policy committee, with a draft bill already prepared. The commission is also developing a broader bill on virtual assets that will outline regulatory powers, expected by October 2025. This timeline aligns with Ukraine’s intention to model its approach after the European MiCA directive, suggesting the country is seeking international alignment despite its unique wartime financial pressures.

To address the complexities of crypto taxation, the commission proposes simplified reporting models and digital tools to assist individuals in meeting their tax responsibilities. The focus on taxing at fiat conversion points represents a pragmatic compromise, capturing revenue when crypto wealth enters the traditional financial system while avoiding the accounting complexities of tracking every transaction in a volatile market. For Ukraine’s crypto users, the proposal signals the importance of maintaining detailed records and seeking professional tax advice as the regulatory landscape evolves.