The tax component of Diia.City was discussed with business

14/ 05/ 2021

On May 13, at the sitting of the VRU Committee on Finance, Tax and Customs Policy, there was a discussion of the tax component of Diia. City, namely draft law №5376, which is the resonant and crucial part of the initiative. It should be noted that the tax issues were being discussed for the first time. The discussion of the committee members regarding the tax conditions seemed surprisingly heated and contentious: the participants comments were both for and against the current text. The following suggestions were voiced regarding the draft law: · Setting the single social contribution payment for gig contracts at 22% of the minimum wage, which was promised earlier, but now according to the text, the single social contribution is set at 22% without reference to the amount of minimum contribution; · Establishing 5% personal income tax not only on wages but also on other payments, for example, bonuses; It is worth noting that these changes were proposed, in particular, by the IT Committee of the European Business Association during the discussions and various appeals forwarded to the main stakeholders Diia.City. Besides, during the discussion, participants drew attention to additional risks that need to be addressed: · Securing the possibility of interaction with FOP (eliminating the risks of reclassification of such relations into labor comes) as an alternative, so that the Diia.City remains a truly voluntary mechanism, not coercive; · Negative conclusion of the Ministry of Finance of Ukraine regarding tax revenues and the difficulty of arguing the expediency of such a regime to the IMF. However, according to the results of the voting by the Tax Committee of the Verkhovna Rada, draft law №5376 was recommended to be included in the agenda and adopted as a whole, provided that the problematic issue of the single social contribution is amended by setting it at 22% of the minimum wage. Nevertheless, the IT Committee of the Association emphasizes the importance of revising the tax component for the IT industry, and, in addition to the above proposals, also take into account the following: · Increasing the threshold from UAH 1 million to UAH 7 million for mandatory registration by VAT payers; · Maintaining the extension of the rules of taxation following the terms of the Diia.City regime to taxpayers who have successfully appealed the exclusion from the Diia.City regime - in the period of such appeal. If these key provisions are taken into account, the IT Committee of the Association will be able to support draft law №5376. At the moment, it is important not to force its adoption so that between the potential first and second readings there is an opportunity to thoroughly revise the text and conditions to really create a well-functioning mechanism to stimulate the development of the Ukrainian IT industry. For its part, the business is open to dialogue and joint revision of all important details for the industry. Be the first to learn about the latest EBA news with our Telegram-channel – EBAUkraine.

On May 13, at the sitting of the VRU Committee on Finance, Tax and Customs Policy, there was a discussion of the tax component of “Diia. City”, namely draft law №5376, which is the resonant and crucial part of the initiative. It should be noted that the tax issues were being discussed for the first time. The discussion of the committee members regarding the tax conditions seemed surprisingly heated and contentious: the participants’ comments were both for and against the current text. The following suggestions were voiced regarding the draft law:

· Setting the single social contribution payment for gig contracts at 22% of the minimum wage, which was promised earlier, but now according to the text, the single social contribution is set at 22% without reference to the amount of minimum contribution;

· Establishing 5% personal income tax not only on wages but also on other payments, for example, bonuses;

It is worth noting that these changes were proposed, in particular, by the IT Committee of the European Business Association during the discussions and various appeals forwarded to the main stakeholders Diia.City.

Besides, during the discussion, participants drew attention to additional risks that need to be addressed:

· Securing the possibility of interaction with FOP (eliminating the risks of reclassification of such relations into labor comes) as an alternative, so that the Diia.City remains a truly voluntary mechanism, not coercive;

· Negative conclusion of the Ministry of Finance of Ukraine regarding tax revenues and the difficulty of arguing the expediency of such a regime to the IMF.

However, according to the results of the voting by the Tax Committee of the Verkhovna Rada, draft law №5376 was recommended to be included in the agenda and adopted as a whole, provided that the problematic issue of the single social contribution is amended by setting it at 22% of the minimum wage.

Nevertheless, the IT Committee of the Association emphasizes the importance of revising the tax component for the IT industry, and, in addition to the above proposals, also take into account the following:

· Increasing the threshold from UAH 1 million to UAH 7 million for mandatory registration by VAT payers;

· Maintaining the extension of the rules of taxation following the terms of the Diia.City regime to taxpayers who have successfully appealed the exclusion from the Diia.City regime – in the period of such appeal.

If these key provisions are taken into account, the IT Committee of the Association will be able to support draft law №5376. At the moment, it is important not to force its adoption so that between the potential first and second readings there is an opportunity to thoroughly revise the text and conditions to really create a well-functioning mechanism to stimulate the development of the Ukrainian IT industry. For its part, the business is open to dialogue and joint revision of all important details for the industry.

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