Business urges not to make ill-considered decisions concerning IT
Last week, the Verkhovna Rada registered a draft law No.3933 “On Amendments to the Tax Code of Ukraine on the Peculiarities of Taxation of IT Industry Entities.” Thus, it proposes to establish special taxation of income for employees working in the IT sector under the Labor Code, for the period from 2021 to the end of 2030, namely:
- setting the tax burden on employees’ salaries at 10%, ie: 5% PIT rate (instead of 18%) + 5% SSC (instead of 22%). Also, it is proposed to exempt the payment of 1.5% military tax.
- the income tax rate is applied to the income of the industry entity with a coefficient of 0.5, ie – 9%.
To join this tax regime, the company must meet simultaneously all the following 5 criteria for four consecutive (tax) reporting quarters:
- conduct economic activities from the specified list. (altogether, 6 activities types according to the Classification of economic activities DK 009: 2010);
- at least 90% of income must be derived from conducting those 6types of economic activities;
- the share of labor costs must be at least 50%;
- not have any outstanding tax debts;
- not be declared bankrupt under the Law of Ukraine on Restoring Solvency of Debtors or Recognition of Debtors’ Bankruptcy.
The application of reduced PIT and SSC rates is possible provided that the minimum amount of tax/fee on wages is not less than the tax/fee on five times the minimum wage at the standard rate. In other words, personal income tax and SSC at the rate of 5% must be higher than UAH 4,250 and UAH 5,195, respectively.
Thus, the reduction of tax rates on personal income tax and SSC is possible only if the salary of an IT specialist exceeds $ 3743 per month. Although the IT industry proposes a good level of salaries, such a “threshold” is currently much higher than the industry average, even in Kyiv. Meanwhile, a fine of 200% of the accrued tax liability is imposed for violation of taxation conditions.
The European Business Association has been cooperating closely for a long time with the Ministry of Digital Transformation of Ukraine on the creation of the Digital Park Diia.City. In the last few months, the industry has been openly and publicly discussing this large-scale project with the Ministry of Finance to create a kind of virtual economic zone for the IT sector. So, I hope that those cooperative efforts were not in vain and will not be crossed out by one ill-considered document.
According to the EBA IT community, the draft law No.3933 contradicts to the stated goal of supporting the IT sector. Thus, the draft law does not consider key provisions for the industry such as maintaining a contractual form of employment. On the contrary, it initiates the transition to inflexible and inconvenient employment under the Labor Code. Besides, the duration of the taxation regime is rather short.
Therefore, the European Business Association hopes for a more balanced approach to creating new initiatives. At present, it is important for the EBA IT Committee to maintain the existing agreements, mutual understanding with the Ministry of Digital Transformation, and to continue working together on a large-scale Diia. City concept to complete the stated plans successfully. Thus, the business urges not to support the current draft law No.3933. We hope that the voice of business will be heard and the rapid development of the industry over the past few years will not be crossed out.
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