Ukraine wants to build a top crypto jurisdiction, not the Wild West

October 23, 2021, 11:42 AM UTC
Ukrainian citizens have already embraced crypto assets.
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In Ukraine, we are building a high-tech state by performing several roles at once: experimenter, regulator, and promoter. Ukraine is the first state in the world in which digital passports in a smartphone have become full legal counterparts of paper documents and the fourth country in Europe with digital driving licenses. We have the world’s fastest business registration—two seconds.

From September 2021, Ukraine has put a paperless regime in place. “Paperless” means that public authorities will not be able to demand paper documents from Ukrainians. Our goal is to build the most comfortable and user-friendly country in the world in the next 50 years.

To boost the new digital economy, we are also building a top jurisdiction for crypto and blockchain companies. Last month, Ukraine took one more important step by granting legal status to virtual assets. In September, Parliament passed a bill that makes cryptocurrency and other virtual assets legal in Ukraine. We became one of the world’s first countries to take a comprehensive approach toward establishing a quality regulatory framework for the virtual asset market, in which the creation of state infrastructure is a key issue.

Ukrainians are tech-savvy. We’re top-five ranked by the percentage of cashless payments in the world. We have a strong blockchain developer community. Startups like Bitfury, Hacken, and Propy have been founded by teams originally from Ukraine. Ukrainian crypto startups attracted $171.4 million in investments from 2017 to 2019. Ukraine leads global crypto adoption, so our citizens already know how to work with crypto assets.

The virtual assets market in Ukraine has a significant turnover, even on a global scale, but most of it is concentrated in a gray area. This creates potential risks for all players: the state, businesses, and users.

While some companies are not interested in working legally and contributing to the country’s economy, there are also companies that are interested in structuring and capitalizing their business, expanding their activity in the “real” sector, and integrating with the banking system. Thus, regulation of the market and legalization of business processes became a must.

Nevertheless, digitalization in Ukraine has proven to be an effective tool against corruption. After all, the computer does not accept bribes. Digitalization of services helps to save billions of hryvnias of the state budget. The legislation governing virtual assets has implemented FATF recommendations on the prevention of money laundering, crime, terrorist financing, and proliferation. Strengthening legislation will help maintain our reputation as a quality jurisdiction for crypto business.

The bill defines basic concepts, determines types of service providers, establishes a permit system, and addresses financial monitoring issues. It’s important to note that our regulation is technology-neutral, focused only on regulating economic relations. We do not regulate cryptocurrencies and tokens as a technology. The regulation is focused on virtual assets service providers (VASPs). 

We would like to incentivize crypto companies to register their business in Ukraine by offering them excellent tax planning opportunities. The exception is business from the Russian Federation, which will not be able to operate legally in Ukraine due to the occupation of Crimea. The most likely scenario concerning taxation of operations with virtual assets in Ukraine is an exemption from VAT.

Today, the only question that remains open is who should be the main regulator of the new domain. On Oct. 5, Ukraine’s President Volodymyr Zelensky returned the bill On Virtual Assets to Parliament with his proposals regarding changing regulators of the market. 

It is still under consideration whether the Ministry of Digital Transformation can hold all responsibilities for regulation or the National Commission on Securities and Stock Market would more effectively function as the main crypto regulator. 

After the president’s proposals are submitted, the law will be scheduled for another hearing. That process should take a couple of months. Future regulation, expected in 2022, will allow Ukrainian crypto companies to work officially with the banking system. 

The National Bank of Ukraine can also become an impactful player in the virtual asset market. It may launch its own digital currency, which would help it attract investments and maintain the stability of the banking system.

We are following a balanced approach to managing risks and opportunities as we adapt legislation to the realities of the crypto industry. The tech companies, huge crypto exchanges, hedge funds, and institutional investors that we want to attract need order аnd a controlled environment in which to conduct their business.

Oleksandr Bornyakov is the deputy minister of Digital Transformation of Ukraine.

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