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Business highlighted 5 important points of Diia.City concept

24/ 07/ 2020
  This week, the IT community of the European Business Association met with Mykhailo Fedorov, Deputy Prime Minister - Minister of Digital Transformation of Ukraine and Oleksandr Borniakov, Deputy for IT Development. The ITU and ACC representatives also took part in the event. The main purpose of the meeting was to discuss the critical moments of the Diia.City concept - a virtual free economic zone for IT companies. From their part, representatives of the IT business voiced the red lines - the five most acute and important points of the Diia.City concept, which will affect both the efficiency of the proposed economic zone and the further success of the industry as a whole. The first is the declarative principle of companies joining the Diia.City Digital Enterprise. So, to make the process as transparent, legal, and simple as possible, the industry proposes to form several criteria by which the IT company will be easily identified. Such criteria will allow us to filter out those who are not employed in the IT industry and intend to abuse the terms of the Diia.City Digital Enterprise. To prevent the establishment of additional state regulators, it was proposed that the State Tax Service of Ukraine check companies for compliance with all conditions and criteria for it to become residents of the Diia.City. The second is the governing body of Diia.City. According to the initial concept, the governing body should be a state-owned enterprise, however, this format may lead to the risks of additional regulation and corruption. Therefore, the IT community has proposed the creation of a non-governmental non-profit self-governing organization that cannot introduce any additional regulation on residents. Its main function is the practical implementation of the principles of Diia.City, the achievement of its goal, and upholding the principles of a special legal regime for the IT industry. The third is to maintain the currently effective rules of the game. This issue turned out to be the most resonant and controversial because it concerns the maintenance of a contractual model of cooperation between companies and sole proprietors (FOP). The industry stressed the importance of maintaining this mechanism, as it helped the creative and flexible IT sector to achieve significant growth and easily compete with other countries in the global market. Given the current quarantine restrictions and the global crisis, such a tool fits perfectly into todays remote work reality. That is why IT proposes to keep cooperation with sole proprietors (FOP) not to force the industry to work in a new framework and allow it to develop organically in the future. While other countries are looking for a solution, we already have a working model which has proved its effectiveness for 15 years. The Ministry of Digital Transformation assured that the planned system of official employment in the Diia.City zone will be no less flexible, convenient for IT, as it will completely duplicate the current company-FOP model. So far, the concept of such an employment relationship has not been presented, so it is difficult to conclude its future impact. We hope that we will still be able to reach a compromise on this issue. Fourth is the term of the regime. Previously, the creation of Diia.City was envisaged only for 10 years with a possible extension. However, the IT community sees some risks in 10 years, as businesses and investors need predictability particularly during these uncertain times. Therefore, it is now necessary to prescribe clear and transparent conditions for the prolongation of the regime or to increase the initial duration of the regime to 40-50 years. The fifth is the taxation conditions. Given the global crisis and the protectionist policy of many leading countries, it will become increasingly difficult to compete in such circumstances. Therefore, the IT community has proposed to leave the current tax conditions until the consequences of the current situation are overcome. At the same time, a gradual increase in the tax burden remains possible after the crisis and its level (PIT / single tax + SSC) after the increase should not exceed 10%. In general, the Ministry of Digital Transformation understands the needs of the IT sector and assures that the main goal of Diia.City is to create comfortable and innovative conditions for the industry to allow it to continue to develop. Given this common goal, we have managed to reach a compromise on most issues, and the business community hopes that the controversial issues will also be resolved over time. So, we thank Mykhailo Fedorov and Oleksandr Borniakov for their openness to dialogue and continue our joint work on the Diia.City project.

This week, the IT community of the European Business Association met with Mykhailo Fedorov, Deputy Prime Minister – Minister of Digital Transformation of Ukraine and Oleksandr Borniakov, Deputy for IT Development. The ITU and ACC representatives also took part in the event. The main purpose of the meeting was to discuss the critical moments of the Diia.City concept – a virtual free economic zone for IT companies. From their part, representatives of the IT business voiced the “red lines” – the five most acute and important points of the Diia.City concept, which will affect both the efficiency of the proposed economic zone and the further success of the industry as a whole.

The first is the declarative principle of companies joining the Diia.City Digital Enterprise. So, to make the process as transparent, legal, and simple as possible, the industry proposes to form several criteria by which the IT company will be easily identified. Such criteria will allow us to filter out those who are not employed in the IT industry and intend to abuse the terms of the Diia.City Digital Enterprise. To prevent the establishment of additional state regulators, it was proposed that the State Tax Service of Ukraine check companies for compliance with all conditions and criteria for it to become residents of the Diia.City.

The second is the governing body of Diia.City. According to the initial concept, the governing body should be a state-owned enterprise, however, this format may lead to the risks of additional regulation and corruption. Therefore, the IT community has proposed the creation of a non-governmental non-profit self-governing organization that cannot introduce any additional regulation on residents. Its main function is the practical implementation of the principles of Diia.City, the achievement of its goal, and upholding the principles of a special legal regime for the IT industry.

The third is to maintain the currently effective “rules of the game.” This issue turned out to be the most resonant and controversial because it concerns the maintenance of a contractual model of cooperation between companies and sole proprietors (FOP). The industry stressed the importance of maintaining this mechanism, as it helped the creative and flexible IT sector to achieve significant growth and easily compete with other countries in the global market. Given the current quarantine restrictions and the global crisis, such a tool fits perfectly into today’s remote work reality. That is why IT proposes to keep cooperation with sole proprietors (FOP) not to force the industry to work in a new framework and allow it to develop organically in the future. While other countries are looking for a solution, we already have a working model which has proved its effectiveness for 15 years. The Ministry of Digital Transformation assured that the planned system of official employment in the Diia.City zone will be no less flexible, convenient for IT, as it will completely duplicate the current “company-FOP” model. So far, the concept of such an employment relationship has not been presented, so it is difficult to conclude its future impact. We hope that we will still be able to reach a compromise on this issue.

Fourth is the term of the regime. Previously, the creation of Diia.City was envisaged only for 10 years with a possible extension. However, the IT community sees some risks in 10 years, as businesses and investors need predictability particularly during these uncertain times. Therefore, it is now necessary to prescribe clear and transparent conditions for the prolongation of the regime or to increase the initial duration of the regime to 40-50 years.

The fifth is the taxation conditions. Given the global crisis and the protectionist policy of many leading countries, it will become increasingly difficult to compete in such circumstances. Therefore, the IT community has proposed to leave the current tax conditions until the consequences of the current situation are overcome. At the same time, a gradual increase in the tax burden remains possible after the crisis and its level (PIT / single tax + SSC) after the increase should not exceed 10%.

In general, the Ministry of Digital Transformation understands the needs of the IT sector and assures that the main goal of Diia.City is to create comfortable and innovative conditions for the industry to allow it to continue to develop. Given this common goal, we have managed to reach a compromise on most issues, and the business community hopes that the controversial issues will also be resolved over time. So, we thank Mykhailo Fedorov and Oleksandr Borniakov for their openness to dialogue and continue our joint work on the Diia.City project.

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