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Business took part in the presentation of a special tax regime for IT – “Diia.City”

29/ 09/ 2020
  Yesterday, representatives of the EBA IT Committee took part in the presentation of the Concept of special tax regime for IT - Diia.City, conducted by the Ministry of Digital Transformation of Ukraine, the Verkhovna Rada Committee on Digital Transformation, and the Verkhovna Rada Committee on Finance, Tax, and Customs Policy. It should be noted that currently, the concept looks much better and more attractive than the previous versions, which were provided by the already registered draft laws №3933 and №3933-1. Among the main details of the proposed taxation regime: Solving employment problems by introducing a new form of employment - GIG (a cross between an employee and an individual entrepreneur) - is an analog of the existing model used in Canada and the UK. Such form of employment provides for the conclusion of flexible civil contracts with certain progressive solutions, such as the possibility of terminating such a contract with a gig-worker with the notification of 1 month, or immediately by paying compensation for one or more salaries (depending on the seniority and conditions of the agreement). The tax burden on such labor relations is indicated as follows: personal income tax - 5%, SSC - 22% of the minimum wage, and 1.5% of the military tax. It should be noted that no restrictions or quotas on work with FOPs are currently provided. For resident companies of Diia.City, it is proposed to introduce a withholding tax of 9% (instead of the current personal income tax). Increasing the protection of resident companies from illegal actions of law enforcement agencies (by increasing the sanction of investigative actions to the level of the Prosecutor General / Deputy Prosecutor General, limiting the arrest/seizure of original documents, ensuring that investigative actions shall be conducted exclusively by units of the Security Service of Ukraine / the Ministry of Internal Affair / the State Tax Service). Introducing instruments of English law that will increase confidence and predictability for investors, as well as the creation of mechanisms to improve the protection of intellectual property of residents. Ensuring the constant conditions for 15 years. At the same time, the criteria for companies to enter the special legal regime remain unspecified as it is difficult to find the generalized term that covers the entire IT industry (service/product companies/startups), as well as areas such as e-sports or cryptocurrency while avoiding the risk of abuse conditions. Thus, at present, the following criteria are being proposed. The company conducts the IT activity provided in NACE (Statistical Classification of Economic Activities) and ensure the average salary of 1200+ euros. The third criterion can be optionally chosen from the followings: the volume of exports should amount to 70% +, the companys contributions to the payroll fund amount to 70% +, or revenue from the monetization of software rights (licenses, subscriptions, technical support, etc.) amounts to 70% +. The IT Committee of the European Business Association thanks the authors of the concept for the significant positive changes that have been made since the publication of the first draft laws. At the same time, it is more important than ever for the state and business to continue close cooperation in order to finalize the concept and prepare the final text of the Law, which will create a win-win situation for the domestic IT industry and Ukraine as a whole.   Be the first to learn about the latest EBA news with our Telegram-channel – EBAUkraine.

Yesterday, representatives of the EBA IT Committee took part in the presentation of the Concept of special tax regime for IT – “Diia.City”, conducted by the Ministry of Digital Transformation of Ukraine, the Verkhovna Rada Committee on Digital Transformation, and the Verkhovna Rada Committee on Finance, Tax, and Customs Policy.

It should be noted that currently, the concept looks much better and more attractive than the previous versions, which were provided by the already registered draft laws №3933 and №3933-1. Among the main details of the proposed taxation regime:

  1. Solving employment problems by introducing a new form of employmentGIG (a cross between an employee and an individual entrepreneur) – is an analog of the existing model used in Canada and the UK. Such form of employment provides for the conclusion of flexible civil contracts with certain progressive solutions, such as the possibility of terminating such a contract with a gig-worker with the notification of 1 month, or immediately by paying compensation for one or more salaries (depending on the seniority and conditions of the agreement). The tax burden on such labor relations is indicated as follows: personal income tax – 5%, SSC – 22% of the minimum wage, and 1.5% of the military tax. It should be noted that no restrictions or quotas on work with FOPs are currently provided.
  2. For resident companies of Diia.City, it is proposed to introduce a withholding tax of 9% (instead of the current personal income tax).
  3. Increasing the protection of resident companies from illegal actions of law enforcement agencies (by increasing the sanction of investigative actions to the level of the Prosecutor General / Deputy Prosecutor General, limiting the arrest/seizure of original documents, ensuring that investigative actions shall be conducted exclusively by units of the Security Service of Ukraine / the Ministry of Internal Affair / the State Tax Service).
  4. Introducing instruments of English law that will increase confidence and predictability for investors, as well as the creation of mechanisms to improve the protection of intellectual property of residents.
  5. Ensuring the constant conditions for 15 years.

At the same time, the criteria for companies to enter the special legal regime remain unspecified as it is difficult to find the generalized term that covers the entire IT industry (service/product companies/startups), as well as areas such as e-sports or cryptocurrency while avoiding the risk of abuse conditions. Thus, at present, the following criteria are being proposed. The company conducts the IT activity provided in NACE (Statistical Classification of Economic Activities) and ensure the average salary of 1200+ euros. The third criterion can be optionally chosen from the followings: the volume of exports should amount to 70% +, the company’s contributions to the payroll fund amount to 70% +, or revenue from the monetization of software rights (licenses, subscriptions, technical support, etc.) amounts to 70% +.

The IT Committee of the European Business Association thanks the authors of the concept for the significant positive changes that have been made since the publication of the first draft laws. At the same time, it is more important than ever for the state and business to continue close cooperation in order to finalize the concept and prepare the final text of the Law, which will create a win-win situation for the domestic IT industry and Ukraine as a whole.

 

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