Business took part in the presentation of an alternative draft law on Diia City

25/ 11/ 2020

Today, November 25, there was the presentation of an alternative draft law on the creation of a special legal regime for IT companies - Diia City (№4303-2), with the participation of representatives of the IT Committee of the European Business Association. It is worth noting that earlier this month the Verkhovna Rada of Ukraine registered and promulgated the draft law №4303 on stimulating the development of the digital economy in Ukraine. Thus, the legal concept of the future regime to boost the IT industry has finally come to light. Although the industry players express conceptual support of Diia City, it should be noted that the registered draft contains some key provisions that impose risks on the development of the IT industry in the future. Thus, the IT community has repeatedly emphasized these critical points, such as: · Significantly increased regulatory burden on the industry, creation of new regulatory bodies with broad powers; · Lack of transparency in declarative procedure for acquiring the status of a Diia City member, as well as its loss; · Incomplete list of IT activities that a resident can carry out under the proposed regime; · Restrictions on the cooperation of companies with individual entrepreneurs. Olga Kunychak. IT Committee Manager of the European Business Association. The European Business Association has repeatedly supported the Diia City innovative regime and the goals of the Ministry of Digital Transformation, aimed at developing the IT industry, the desire to create hundreds of thousands of new jobs, increase investment attractiveness, increase the share of IT in Ukraine′s GDP to 10% so that our country can become a new operating platform for multinational companies, which will facilitate the inflow of investment and foreign currency, as well as ensure the sustainable development of the domestic economy. However, in the current version, the implementation of the Diia City initiative by the Draft Law №4303 does not take due account of the general principles of the industry. On November 18, to eliminate these risks, the Peoples Deputies of Ukraine headed by Kira Rudyk, leader of the Voice party, and Andriy Nikolayenko from Batkivshchyna faction, member of the VRU Committee on Finance, Taxation and Customs Policy, submitted an alternative draft law №4303- 2. This document was supported by 16 representatives of the following political forces: the Voice party, the All-Ukrainian Batkivshchyna faction, the European Solidarity party, the Servant of the People, and the parliamentary group “For the Future”. The draft law was developed in close cooperation with the industry representatives from the largest business associations in Ukraine: the European Business Association, the IT Ukraine Association, the American Chamber of Commerce in Ukraine, the Ukrainian Venture and Private Equity Association with the involvement of Sayenko Kharenko Law Firm. Among the main differences provided by the alternative draft law, Kira Rudyk, MP, and leader of the Voice party, highlighted the following: · Replacing the overpowered regulator with simple and clear rules of entry and exit from the Diia city legal regime, ie the creation of a fully declarative principle; · There is no instrument of hidden additional taxation in the form of mandatory membership fees; · Preserving the existing model of unrestricted cooperation between companies and individual persons-entrepreneurs and preventing its forced transformation into employment relations. Andriy Nikolayenko, a representative of the VRU Committee on Finance, Taxation and Customs Policy, noted that the tax amendments to the main draft law provide restrictions of 20% of total costs on cooperation contracts with private individuals and this share will decrease annually. It is worth noting that over the past 2 months, Andriy Nikolayenko has headed a working group on the development of the provisions of the draft law on taxation in the IT sector. Besides, the introduction of the gig employment concept is a rather time-consuming process, as it is necessary to make numerous changes to the outdated Labor Code, and most importantly - it is not known how such a system will be adopted by the IT community. The best option now, along with the introduction of new rules of the game is to leave the existing ones, which have been proving their effectiveness for more than 10 years and helped Ukraine to become one of the TOP IT countries in the world. It is important to follow a completely democratic and liberal path: to allow companies to choose a system that is convenient for them (either gig-employment regulated by the Labor Code or unrestricted cooperation with individual entrepreneurs). If the new system of gig employment proves itself to be flawless, then the market will naturally adjust to it as the better model of cooperation. According to business, one of the main aspects of IT development is the lack of regulation, freedom of choice, and transparent conditions. These key points allowed to reach $ 4.5 billion in exports in 2019, 200,000 professionals, and stable growth of companies by 20-30% annually. This emphasizes the importance of providing existing mechanisms along with creating new ones. Therefore, the business unequivocally supports the Diia City concept and thanks to the Ministry of Digital Transformation of Ukraine for the initiative. However, we consider that the alternative draft law №4303 -2 is more consolidated and democratic to be suitable for all IT players as it enables to avoid significant bureaucratic and regulatory risks, to take into account the necessary mechanisms that have shaped the current IT development and provide a win-win platform for government and industry. We hope that in the end, we will be able to combine our efforts to achieve the goal that unites us - to create a technologically modern and powerful country that has impressive IT potential. Be the first to learn about the latest EBA news with our Telegram-channel – EBAUkraine.

Today, November 25, there was the presentation of an alternative draft law on the creation of a special legal regime for IT companies – “Diia City” (№4303-2), with the participation of representatives of the IT Committee of the European Business Association. It is worth noting that earlier this month the Verkhovna Rada of Ukraine registered and promulgated the draft law №4303 on stimulating the development of the digital economy in Ukraine. Thus, the legal concept of the future regime to boost the IT industry has finally come to light.

Although the industry players express conceptual support of Diia City, it should be noted that the registered draft contains some key provisions that impose risks on the development of the IT industry in the future. Thus, the IT community has repeatedly emphasized these critical points, such as:

· Significantly increased regulatory burden on the industry, creation of new regulatory bodies with broad powers;

· Lack of transparency in declarative procedure for acquiring the status of a “Diia City” member, as well as its loss;

· Incomplete list of IT activities that a resident can carry out under the proposed regime;

· Restrictions on the cooperation of companies with individual entrepreneurs.

Olga Kunychak IT Committee Manager of the European Business Association

The European Business Association has repeatedly supported the Diia City innovative regime and the goals of the Ministry of Digital Transformation, aimed at developing the IT industry, the desire to create hundreds of thousands of new jobs, increase investment attractiveness, increase the share of IT in Ukraine′s GDP to 10% so that our country can become a new operating platform for multinational companies, which will facilitate the inflow of investment and foreign currency, as well as ensure the sustainable development of the domestic economy. However, in the current version, the implementation of the Diia City initiative by the Draft Law №4303 does not take due account of the general principles of the industry.

On November 18, to eliminate these risks, the People’s Deputies of Ukraine headed by Kira Rudyk, leader of the Voice party, and Andriy Nikolayenko from Batkivshchyna faction, member of the VRU Committee on Finance, Taxation and Customs Policy, submitted an alternative draft law №4303- 2. This document was supported by 16 representatives of the following political forces: the Voice party, the All-Ukrainian Batkivshchyna faction, the European Solidarity party, the Servant of the People, and the parliamentary group “For the Future”.

The draft law was developed in close cooperation with the industry representatives from the largest business associations in Ukraine: the European Business Association, the IT Ukraine Association, the American Chamber of Commerce in Ukraine, the Ukrainian Venture and Private Equity Association with the involvement of Sayenko Kharenko Law Firm.

Among the main differences provided by the alternative draft law, Kira Rudyk, MP, and leader of the Voice party, highlighted the following:

· Replacing the overpowered regulator with simple and clear rules of entry and exit from the Diia city legal regime, ie the creation of a fully declarative principle;

· There is no instrument of hidden additional taxation in the form of mandatory membership fees;

· Preserving the existing model of unrestricted cooperation between companies and individual persons-entrepreneurs and preventing its forced transformation into employment relations.

Andriy Nikolayenko, a representative of the VRU Committee on Finance, Taxation and Customs Policy, noted that the tax amendments to the main draft law provide restrictions of 20% of total costs on cooperation contracts with private individuals and this share will decrease annually. It is worth noting that over the past 2 months, Andriy Nikolayenko has headed a working group on the development of the provisions of the draft law on taxation in the IT sector.

Besides, the introduction of the gig employment concept is a rather time-consuming process, as it is necessary to make numerous changes to the outdated Labor Code, and most importantly – it is not known how such a system will be adopted by the IT community. The best option now, along with the introduction of new “rules of the game” is to leave the existing ones, which have been proving their effectiveness for more than 10 years and helped Ukraine to become one of the TOP IT countries in the world. It is important to follow a completely democratic and liberal path: to allow companies to choose a system that is convenient for them (either gig-employment regulated by the Labor Code or unrestricted cooperation with individual entrepreneurs). If the new system of gig employment proves itself to be flawless, then the market will naturally adjust to it as the better model of cooperation.

According to business, one of the main aspects of IT development is the lack of regulation, freedom of choice, and transparent conditions. These key points allowed to reach $ 4.5 billion in exports in 2019, 200,000 professionals, and stable growth of companies by 20-30% annually. This emphasizes the importance of providing existing mechanisms along with creating new ones.

Therefore, the business unequivocally supports the Diia City concept and thanks to the Ministry of Digital Transformation of Ukraine for the initiative. However, we consider that the alternative draft law №4303 -2 is more consolidated and democratic to be suitable for all IT players as it enables to avoid significant bureaucratic and regulatory risks, to take into account the necessary mechanisms that have shaped the current IT development and provide a win-win platform for government and industry. We hope that in the end, we will be able to combine our efforts to achieve the goal that unites us – to create a technologically modern and powerful country that has impressive IT potential.

Be the first to learn about the latest EBA news with our Telegram-channel – EBAUkraine.