We’ve decided to write this legal review because we’ve received very much requests from our clients regarding this business in Ukraine. Bitcoin price jump in 2017-2018 effected cryptomining and cryptocurrency exchange businesses very profitable and popular among investors and individuals.
First of all, we would like you to know that unfortunately cryptocurrency is not recognized as a payment tool in Ukraine. Bitcoin, Ethereum, or any other crypto currency is out of the law in Ukraine. It is not in the system and is not recognized by the government. But it is not illegal and many individuals use it for investment and/or as a tool of payment. There are few big companies in Ukraine where you can buy, sell or exchange cryptocurrency. But honestly, it is not possible to make a crypto exchange in a way that fully corresponds to Ukraine’s laws. Usually, such companies use other legal tools and dual accounting and in official documents, cryptocurrency is never mentioned. Some companies in official documents use “intellectual property rights” instead of crypto currency. Anyway, it is not going to work officially.
Regarding bitcoin mining in Ukraine, it is absolutely legal. Moreover, there are few big crypto mining farms in Ukraine and thousands of small domestic miners. Due to cheap electricity (compared to Europe) and cold climate Ukraine is a good place for cryptocurrency mining. Electricity prices in Ukraine are from 0.06 EUR – 0.1 EUR (including VAT) per one kilowatt-hour. Also, the fact that cryptocurrency is not recognized as an asset, means that there is no need to declare the profit and pay any taxes. From the legal point of view, the crypto mining farm can be registered as a data processing center.
How to set up a crypto mining farm in Ukraine?
The first step is to find the right place where the mining rig will be located. Ukraine is not a big country, but still, the medium temperature in the north is at least 5 degrees colder than in the south. The main for the property is to have a good electrical connection. Some places are really good, but there can be no electric lines nearby and it may take a lot of time and money to handle this. Consider that the electricity is supplied by so-called Oblenergo company. It is a kind of regional electricity supplying private companies. Always remember that you need to hire a good property lawyer in Ukraine to buy or to rent a real estate in Ukraine successfully.
The second stage is company formation in Ukraine. Using Ukrainian based company it is possible to transfer investments and funds needed to buy or to rent a real estate and to buy needed equipment. There is no taxes on investment in Ukraine. With this company, you can also order reconstruction or works and in the future use it to hire employees.
What are the taxes for crypto mining in Ukraine?
As it was mentioned above, cryptocurrency in Ukraine is out of the legal system. So the taxes you will pay only from your profit. The main thing is that it is better not to register a crypto wallet on the name of the company, so you will totally avoid or at least minimize profit taxes. Consider that you will have to pay a value-added tax from everything the company will buy in Ukraine. But no worries as it is already included in the price of goods and stuff. But if you will decide to import hardware or any machines for mining (including application-specific integrated circuit ASIC) or computers, consider that VAT shall be paid right at the customs.
Except for VAT, also salary taxes are to be paid. If you will employ Ukrainian labor, in total 41,5 % of the salary taxes. Of course, the company will have expenses every month for salary, electricity, maybe rental payments. So it is important to have a way of money flow that will allow minimizing taxes. Regarding profit tax, there are financial and legal structures in Ukraine that will allow transferring money to the Ukrainian companies at 0-2% from the transferred amount. There is an unwritten rule that medium and small business has to pay at least some minimum profit tax to avoid questions from tax of fiscal government authorities.
It would be a good solution to use some offshore company (from a jurisdiction that accepts money for cryptocurrency sale) that will be invoiced by a Ukrainian company that makes crypto mining. In this way, an offshore company will be as a king of money pocket that will accumulate all the revenue for sold crypto. Ukrainian company will invoice every month (or more oftentimes) only for the amount needed to pay expenses in Ukraine + 1-2% for profit tax. As the purpose of the invoice can be mentioned data saving services, software development, and other IT services. Actually, it will be almost impossible to check by the government. As it was mentioned above, the main taxes are VAT and salary taxes. The tax structure shall be decided during company formation in Ukraine process. At the end of the legal side, the crypto farm can position itself as a data processing center, that is providing services to its foreign clients. Lately, in Ukraine, we’ve had a lot of fundamental currency deregulations, so money transfer to and from Ukraine is not an issue anymore.
How can I ensure my bitcoin mining business in Ukraine?
It is safe to invest in Ukraine if you have proper documents. Still, the legislation in Ukraine is not perfect so you must be sure that your attorney is a good one. But there are some things that will bring more confidence:
- use a foreign legal entity to establish a Ukrainian company. Company jurisdiction matters, because you will be considered as a foreign investor. So if you want your investment to be protected by other countries, use the proper country for parent company setup. The best are the United States (Delaware, California), Israel, Switzerland, Luxembourg, and Ireland. Avoid more popular offshore zones, like Panama, Belize, British Virgin Islands, as some transactions from such countries can be blocked as Ukraine has an official list of offshore jurisdictions. Consider that Hong Kong and Malaysian Labuan are not considered as offshore zones by the Ukrainian Government.
- properly pay an official salary. In Ukraine it technically possible to pay the salary (or some part of the salary) in cash. It is illegal but possible and many employers do so. But if you pay the full amount officially and all the taxes, it will make your company more confident.
- NDA is a must for every employee.
Ukraine is one of the leading countries in blockchain software technologies. Despite the blockchain technology is not widespread in Ukrainian governmental institutions and state bodies, there are dozens of private software development companies and thousands of qualified programmers working in this field in Ukraine. And of course, cryptocurrency mining and exchange are very popular topics today.