IT business supports Diia.City tax rates at 5% + 22% of the minimum wage + 1.5%

27/ 05/ 2021

Given the destructive impact of the pandemic and the intensification of global competition among IT industries in neighboring countries, Ukraine is actively in search of the right model to stimulate the successful development of the domestic IT economy, because now all developed countries are fighting to attract talents. As a result of all discussions on optimal tax rates for the IT industry, a compromise solution was developed in the form of draft law №5376 On Amendments to the Tax Code of Ukraine to Stimulate the Development of the Digital Economy in Ukraine, which the Verkhovna Rada Committee recommended to include in the agenda and adopt as a whole almost two weeks ago, provided that the problem with the single social contribution payment is corrected (ie, set SSC under gig contracts at 22% of the minimum wage, as currently due to a mechanical error the amount of SSC was not tied to the minimum wage). That is, in the final, agreed version, the tax burden for one IT specialist (under the gig contract) is calculated as follows: 5% PIT + 1.5% military tax + SSC at 22% of the minimum wage. The IT Committee of the Association supported the tax rates declared in draft law №5376, because this level of the tax burden, according to EBA experts, is optimal and should maintain the current growth rate of the industry and stimulate its further development. Most attention should be paid to the taxation issue in the context of global competition in IT markets - as many countries around the world create exclusive, lenient tax regimes for their own IT sector - in order to scale it and compete successfully in the international field. It should be understood that currently Ukraine’s domestic demand for IT services is no more than 10% of the volume offered by our industry, and the other 90% - depends on the global market. And given the impact of the pandemic, both direct and indirect, competition in the international arena (not only in IT) has increased significantly, which also affects Ukrainian IT exports. Therefore, the IT community of the Association conceptually supports draft law №5376 and hopes for its inclusion in the agenda of the next plenary sessions of the Verkhovna Rada, as its adoption will clearly strengthen Ukraines competitiveness in the global IT services market. However, in the draft, there are still some remarks that we would like to include in the final text between 1 and 2 readings, in particular: increase of the threshold from UAH 1 million to UAH 7 million for mandatory registration by VAT payers; establishment of 5% taxation of personal income tax not only for wages but also for other payments (eg bonuses, etc.). Besides, the IT Committee of the Association hopes that the size of the tax burden specified in the project №5376 (5% + 1.5% + 22% of the minimum wage) will be maintained for the 15 years as it is declared. At the same time, we are open to the conceptual elaboration of all details of both tax and framework draft laws between the first and second readings so that in combination with the mentioned attractive tax regime for the IT community, the industry could get a breakthrough that can fully transform Ukraine into IT.nation. Be the first to learn about the latest EBA news with our Telegram-channel – EBAUkraine.

As a result of all discussions on optimal tax rates for the IT industry, a compromise solution was developed in the form of draft law №5376 “On Amendments to the Tax Code of Ukraine to Stimulate the Development of the Digital Economy in Ukraine”, which the Verkhovna Rada Committee recommended to include in the agenda and adopt as a whole almost two weeks ago, provided that the problem with the single social contribution payment is corrected (ie, set SSC under gig contracts at 22% of the minimum wage, as currently due to a mechanical error the amount of SSC was not tied to the “minimum” wage). That is, in the final, agreed version, the tax burden for one IT specialist (under the gig contract) is calculated as follows: 5% PIT + 1.5% military tax + SSC at 22% of the minimum wage.

The IT Committee of the Association supported the tax rates declared in draft law №5376, because this level of the tax burden, according to EBA experts, is optimal and should maintain the current growth rate of the industry and stimulate its further development.

Most attention should be paid to the taxation issue in the context of global competition in IT markets – as many countries around the world create exclusive, lenient tax regimes for their own IT sector – in order to scale it and compete successfully in the international field. It should be understood that currently Ukraine’s domestic demand for IT services is no more than 10% of the volume offered by our industry, and the other 90% – depends on the global market. And given the impact of the pandemic, both direct and indirect, competition in the international arena (not only in IT) has increased significantly, which also affects Ukrainian IT exports.

Therefore, the IT community of the Association conceptually supports draft law №5376 and hopes for its inclusion in the agenda of the next plenary sessions of the Verkhovna Rada, as its adoption will clearly strengthen Ukraine’s competitiveness in the global IT services market.

However, in the draft, there are still some remarks that we would like to include in the final text between 1 and 2 readings, in particular:

increase of the threshold from UAH 1 million to UAH 7 million for mandatory registration by VAT payers;
establishment of 5% taxation of personal income tax not only for wages but also for other payments (eg bonuses, etc.).

Besides, the IT Committee of the Association hopes that the size of the tax burden specified in the project №5376 (5% + 1.5% + 22% of the minimum wage) will be maintained for the 15 years as it is declared. At the same time, we are open to the conceptual elaboration of all details of both tax and framework draft laws between the first and second readings so that in combination with the mentioned attractive tax regime for the IT community, the industry could get a breakthrough that can fully transform Ukraine into IT.nation.

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