Electronic money equated to regular one: What can be paid for with it and what to be expected from tax authorities
How and when innovations will come into effect

On January 30, 2023, President Volodymyr Zelensky signed Bill No. 4366 "On Amendments to the Tax Code of Ukraine (In Relation to Payment Services)". Now it is Law No. 2888-IX.
The principal novelties of this act stipulate that electronic money now has the same status as fiat money, and that e-wallet accounts are equivalent to bank accounts, and they will be subject to control by the tax authorities. Besides, electronic money will be used to pay taxes and utilities.
Mind examined how the new law will affect transactions with electronic money and what nuances those who are accustomed to using this means of payment need to know.
What is electronic money anyway? A clear definition of this payment instrument is contained in the Law on Payment Services No. 1591-IX.
According to the law's Sub-clause 14, Clause 1 of Article 1, electronic money is a unit of value that is stored electronically and issued by an electronic money issuer for payment transactions (including using special payment cards) that can be accepted as payment for goods and services.
Thus, the main difference between electronic money and traditional money is that it exists only in a virtual form. Furthermore, while only the National Bank can issue fiat money in Ukraine, banks and non-bank institutions can issue electronic money (they were given this capability in August 2022).
According to the NBU, in 2023, six banks will issue electronic money: Sense Bank (Alfa-Money, electronic payment instruments within the MasterCard and Visa systems), Tascombank (Maxi), Ukrgasbank and Vostok Bank (Prostir), Raiffeisen Bank (electronic payment instruments within the MasterCard and Visa systems), MTB Bank (XPAY, electronic payment instruments within the MasterCard and Visa systems).
The National Bank statistics show that in 2021, the volume of electronic money transactions in Ukraine amounted to UAH 10.2 million, the amount of issued electronic money was UAH 37.3 million, and the number of e-wallets exceeded 23 million.
What is going to change in e-money transactions in the context of the adoption of Law No. 2888-IX? The main innovations are as follows:
- electronic money can be used to pay not only for goods and services, but also for taxes, fees (e.g., personal income tax, unified social tax, etc.), and utilities;
- business entities have the right to pay with electronic money for goods sold and/or services rendered;
- banks and other issuers/operators of electronic money are obliged to notify the State Tax Service (STS) when opening electronic wallets (including to individual entrepreneurs and legal entities);
- the issuance of electronic money and transactions with it are not subject to VAT;
- the tax authorities will be able to initiate the blocking of electronic wallets and seizure of funds deposited on them.
How are these innovations going to be applied in practice? Experts from the Ukrainian Interbank Payment Systems Member Association "EMA" have analysed the provisions of Law No. 2888-IX and highlight the following:
- From now on, any account or e-wallet opened with any financial (payment) service provider is regulated by the current legislation on the same general principles. That is, from the point of view of conducting transactions, it makes no difference whether the client uses a current account, a card account or an electronic money wallet.
- Any account or e-wallet can be used to collect funds to pay off a tax debt. This means that electronic money can be seized, just like regular bank accounts and the debtor's property. But only by court order.
- The requirements and procedures for information verification by authorised state bodies that carry out collection, seizure and forced debit of funds apply to all accounts (including e-wallets) opened with any payment service provider.
- Payment of taxes and duties by means of electronic money does not mean that the State Tax Service also receives electronic money, as the funds are credited to a regular account at the State Treasury. Therefore, the taxpayer must be 100% sure that the e-money operator will ensure the repayment of e-money and the transfer of fiat currency to the State Tax Service. Otherwise, "hunging up" of the tax payment somewhere will result in penalties from the tax authorities.
- Newly opened (in accordance with the law) e-wallets will become active only after they are registered with the tax authorities. In case the State Tax Service refuses to approve an electronic money account (due to incorrect data, court injunctions, tax debts, etc.), using the e-wallet will be impossible.
- Proceeding from this, we can conclude that electronic money has been legislatively recognized as a full-fledged payment (cash-settled) instrument.
This, on the one hand, greatly expands the scope of electronic money use. On the other, it will now be very difficult to conceal income from the tax authorities, as the State Tax Service will be able to track the electronic wallets turnover and demand repayment of tax debts through electronic money.
Some other changes are set forth in Law No. 2888-IX. Among the important provisions worth paying attention to:
- taxpayers will not be able to withdraw approved payments debited during a transaction by a bank or other financial service provider, claiming that they are not satisfied with the amount of commission;
- holders of corporate bank cards (e.g., companies that have issued them to their employees) will be able to provide tax documents on transactions with such cards not only in paper but also in electronic form. The State Tax Service will be obliged to accept them in any of these forms;
- the bank to whose accounts the funds stolen by fraudsters have been credited will be obliged to return the money to the victim within 10 days if the transaction was proven to be illegal. In other words, bank customers who have become victims of fraud have a real opportunity to get their money back.
When will the new rules come into force? Law No. 2888-IX will come into full force on April 1, 2023. Yet some of its provisions are already in force.
The first is the clause authorising the NBU Board to establish the Committee on Supervision and Regulation of Banks and Payment Infrastructure Oversight and delegate to it the power to supervise the payment infrastructure, including the application of enforcement measures (sanctions) for violations.
Second, it extends the period for renewal of licences for issuing electronic money and conducting transactions with it. Financial institutions that already have such licences will be able to submit the necessary documents for their renewal by May 1, 2023, rather than by February 1, 2023, as was required before the adoption of the law.
In addition, there is another important point. Starting from February 24, 2022, the NBU temporarily suspended operations on issuing, distributing electronic money and replenishing electronic wallets due to martial law (NBU Resolution No. 18 "On the Operation of the Banking System During the Period of Martial Law"). Therefore, the law's provisions relating to electronic money (payment of taxes, opening wallets, etc.) will come into force only after the National Bank lifts its restrictions. And this will happen after the martial law is cancelled.
If you have read this article to the end, we hope that means it was useful for you.
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