On 15 March 2022, the President of Ukraine signed the Law of Ukraine "On Virtual Assets" (the "Law").
We remind that the Verkhovna Rada of Ukraine passed the Law still on 8 September 2021, however the President of Ukraine vetoed it. It was noted then that establishment of a new agency governing the circulation of virtual assets is inexpedient and the proposed that the relevant matters shall be referred to the competence of the National Securities and Stock Market Commission.
The Law legalizes the virtual assets market, introduces comprehensive regulation of legal relations arising out of the circulation of virtual assets in Ukraine, and determines the rights and obligations of participants of the virtual assets market, fundamental principles of the state policy in the area of virtual assets circulation.
Please note that the Law will only enter into force on the day on which the Law of Ukraine "On Amendments to the Tax Code of Ukraine with Regard to Peculiarities of Taxation of Virtual Asset Transactions" becomes effective. So far, several versions of amendments to tax laws have been developed, which govern the taxation of virtual asset transactions. At the same time, so far as we are aware, no such draft laws have been scheduled for consideration in the nearest future.
Scope of Application
The Law is intended to set rules for providers whose services involve the circulation of virtual assets, and imposes liability for violation of such rules and, as stated, is based on actual standards of the international Financial Action Task Force (FATF) in terms of regulation of virtual asset transactions. The Law does not govern the taxation of transactions relating to virtual assets.
The scope of application of the Law is limited to a specific range of legal relations, in particular, when:
the parties have determined that the law of Ukraine shall be applicable to a transaction in whole or in part, which subject matter is a virtual asset;
both parties to a transaction the subject matter of which is a virtual asset are residents of Ukraine;
the person carrying out virtual asset transactions in its own interests (the transferee of a virtual asset) is a resident of Ukraine;
in case of provision of services relating to the circulation of virtual assets, the parties to legal relations have their registered address or permanent representative office in Ukraine.
The Law determines the virtual asset as an intangible benefit being the object of civil rights, that has the value, and is expressed as data set in electronic form. The virtual asset may certify property rights, in particular, rights of claim to other objects of civil law rights.
The Law distinguishes the following types of virtual assets:
unsecured - virtual assets not certifying any property or non-property rights (e.g., Bitcoin);
secured - virtual assets certifying any property rights, in particular, rights of claim to other objects of civil law rights (e.g., certain stablecoins);
financial - virtual assets backed by securities or Ukrainian Hryvnias (e.g., security tokens).
Providers of services relating to the circulation of virtual assets are among key virtual assets market participants. Only legal entities engaged in business operations who carry out, in the interests of third parties, any one or more of such types of activity that require obtaining a special permit in accordance with the Law (see Section 4 below) shall be recognised to be such providers.
Virtual Asset Transactions
Under the Law provides title to a virtual asset can be acquired by its creation, as a result of carrying out and performance of a transaction in respect of it, and in accordance with the provisions of law or under a court decision. The title to a virtual asset shall be certified by the ownership of the key to such virtual asset, except as otherwise provided in the Law.
The Law stipulates that the disposal of property right to a secured object of such virtual asset shall be deemed to be the disposal of a secured virtual asset. That said, if any transaction is carried out regarding a secured virtual asset, the Law requires to comply with the requirements set to the form or material terms of a transaction involving disposal of the secured object of a virtual asset.
One of key restrictions provided in the Law is the prohibition to use virtual assets as the means of payment in Ukraine and exchange them for property (goods), works (services). Hence, if a transaction involving property (goods), works (services) is subject to regulation by the Law, any payments using cryptocurrencies will be impossible.
Apparently, the above restriction should not be applicable to cases of transfer of the secured object of a virtual asset to its owner when it is redeemed (its circulation is terminated)
Services Related to the Circulation of Virtual Assets
The Law stipulates a requirement to obtain a permit for carrying out the following types of activity relating to the circulation of virtual assets:
custody / administration of virtual assets or virtual asset keys;
provision of services on exchange of virtual assets for other virtual assets and currency assets;
provision of services on virtual assets transfer;
provision of intermediary services related to virtual assets.
There is a set of requirements imposed on the providers of services relating to the circulation of virtual assets, in particular, regarding the composition of management bodies, owners of a substantial interest and beneficial owners, the amount of share capital. Under certain circumstances, a foreign legal entity may be a provider of services relating to the circulation of virtual assets.