The EBA proposes to save the opportunity of contractual taxation for IT

24/ 01/ 2020

At the beginning of 2020 The Ministry of Digital Transformation shared the initiative regarding IT industry taxation. The main motive of the initiative is to shift all the employees to Labour relationships. According to this, Personal Income Tax proposes to be canceled, adding earnings tax (3-7% increment for 5 years). At the same time, the military tax will be 1,5% and Single Social Tax – 22% of 2 minimal salaries. Also, all the taxes will be paid by the company, so, companies will be as tax agents for their employees. Olga Kunychak. The EBA IT Committee Manager. The peculiarities of creative industries are project employment and contractual relations, flexible roles in the process of product creation, contractor work, and possible contractor involvement in several projects at the same time. Therefore, it is important to retain such opportunities for the industry to assure its growth. As a working solution, the European Business Association IT Committee suggests the next one. As a basis could be taken the previously proposed initiative regarding 5th group of Self-Employed individuals (Single tax of 5% + 1% increment annually till overall 10%, 1,5% military tax and Single Social Tax – 22% of 1 minimal salary) with a combination of Ministry of Digital Transformation initiative related to corporate employees. On the one side, it will increase contributions to the governmental budget. On the other side, the business model of contractual form between Self-Employed individuals and the Legal body will remain to provide industry sustainable development. At the same time, the EBA IT Committee would like to pay attention to the Draft Law on labor, which has to be the regulation of the problem of employment on a contractual basis, including IT specialists. But in the Draft Law is no concrete mechanism that could replace a contractual relationship between Self-Employed individuals and Legal bodies and with the help of which IT industry has become so developed in Ukraine. Instead, stringent criteria are set and this can only increase the risk of re-qualification of contractual relationships. In order to fuel the development of the industry and economy in general, it is worth to support the stability of the circumstances, which became components of success for the industry. Without any doubt, these components must be learned and spread to other spheres. That’s why business is ready for a dialogue in order to develop a complex approach and create an attractive taxation model that will be suitable for most of the economic actors including specific industries like creative one.

According to this, Personal Income Tax proposes to be canceled, adding earnings tax (3-7% increment for 5 years). At the same time, the military tax will be 1,5% and Single Social Tax – 22% of 2 minimal salaries. Also, all the taxes will be paid by the company, so, companies will be as tax agents for their employees.

Olga Kunychak The EBA IT Committee Manager

The peculiarities of creative industries are project employment and contractual relations, "flexible" roles in the process of product creation, contractor work, and possible contractor involvement in several projects at the same time. Therefore, it is important to retain such opportunities for the industry to assure its growth.

As a working solution, the European Business Association IT Committee suggests the next one. As a basis could be taken the previously proposed initiative regarding 5^th group of Self-Employed individuals (Single tax of 5% + 1% increment annually till overall 10%, 1,5% military tax and Single Social Tax – 22% of 1 minimal salary) with a combination of Ministry of Digital Transformation initiative related to corporate employees. On the one side, it will increase contributions to the governmental budget. On the other side, the business model of contractual form between Self-Employed individuals and the Legal body will remain to provide industry sustainable development.

At the same time, the EBA IT Committee would like to pay attention to the Draft Law on labor, which has to be the regulation of the problem of employment on a contractual basis, including IT specialists. But in the Draft Law is no concrete mechanism that could replace a contractual relationship between Self-Employed individuals and Legal bodies and with the help of which IT industry has become so developed in Ukraine. Instead, stringent criteria are set and this can only increase the risk of re-qualification of contractual relationships.

In order to fuel the development of the industry and economy in general, it is worth to support the stability of the circumstances, which became components of success for the industry. Without any doubt, these components must be learned and spread to other spheres. That’s why business is ready for a dialogue in order to develop a complex approach and create an attractive taxation model that will be suitable for most of the economic actors including specific industries like creative one.