Another initiative on IT taxation needs to be revised

14/ 08/ 2020

This week, the Verkhovna Rada registered another package of draft laws for IT – No.3979 On measures to stimulate the development of the IT industry in Ukraine and No.3933-1 (on tax changes). Despite the improved conditions and more realistic criteria for participation, this initiative covers only a minority part of the market, namely the IT product companies. There are some problems regarding the regulation of the IT service companies (which constitute 80-90% of the market) that make it impossible to support the current version of the project. Thus, the document proposes the following changes for IT companies that intend to be residents of Diia.City: The SSC payment rate per employee is updated to 5% but it should be not less than twice the amount of the SSC minimum (more than UAH 2,078.12) + payroll tax on a full-time employee (PIT) at 5%. The withholding tax is introduced at 18% for the IT industry instead of the income tax. Thus, when the capital is withdrawn from a company (distribution of dividends, for example), it will have to pay 18% of the withholding tax. To become a resident of Diia.City, a company must meet the following criteria: 70% of the companys total revenue should be generated from export activities; the share of labor costs must be at least 70%. the salary of IT employees should exceed 1200 euro at the rate of the NBU (however, another document of this package provides a different salary amount, namely 1500 euro). the company is included in the IT register, a proposed list of IT professions and activities. After analyzing the document, the IT Committee of the European Business Association proposes to revise the project and scale it to all participants in the IT market. It is necessary to consider the basic principles that the IT service industry has already developed and voiced. Thus, the business has the following suggestions: Preserving the 3rd group of FOP (individual entrepreneurship) as a de facto standard format of an employment relationship in the IT industry which proved to be effective during the last 15 years. Thus, it is extremely important to provide Diia City residents with the opportunity to work with the 3rd group of individual entrepreneurs, as well as to prevent changing such relations into the labor ones. Securing an employment relationship in the form of a contract. Preventing an increase in the tax burden on IT business during the global economic crisis. Prohibiting the management of the Diia.City Digital Park from the introduction of additional regulation for residents. Giving priority to the interests of the residents over the tasks of state supervision (control) authorities in matters concerning economic activities, except in cases when it comes to human life and health, human rights, and legitimate interests. We hope the voice of business will be heard. The community is confident that close cooperation between the state and the business will bring results. Eventually, it will be possible to reach a compromise on important aspects for the IT service industry and finally prepare a quality version of the document that will benefit all market players, not just the minority ones. Be the first to learn about the latest EBA news with our Telegram-channel – EBAUkraine.

This week, the Verkhovna Rada registered another package of draft laws for IT – No.3979 “On measures to stimulate the development of the IT industry in Ukraine” and No.3933-1 (on tax changes).

Despite the improved conditions and more realistic criteria for participation, this initiative covers only a minority part of the market, namely the IT product companies. There are some problems regarding the regulation of the IT service companies (which constitute 80-90% of the market) that make it impossible to support the current version of the project. Thus, the document proposes the following changes for IT companies that intend to be residents of Diia.City:

The SSC payment rate per employee is updated to 5% but it should be not less than twice the amount of the SSC minimum (more than UAH 2,078.12) + payroll tax on a full-time employee (PIT) at 5%.
The withholding tax is introduced at 18% for the IT industry instead of the income tax. Thus, when the capital is withdrawn from a company (distribution of dividends, for example), it will have to pay 18% of the withholding tax.

To become a resident of Diia.City, a company must meet the following criteria:

70% of the company’s total revenue should be generated from export activities;
the share of labor costs must be at least 70%.
the salary of IT employees should exceed 1200 euro at the rate of the NBU (however, another document of this package provides a different salary amount, namely 1500 euro).
the company is included in the IT register, a proposed list of IT professions and activities.

After analyzing the document, the IT Committee of the European Business Association proposes to revise the project and scale it to all participants in the IT market. It is necessary to consider the basic principles that the IT service industry has already developed and voiced. Thus, the business has the following suggestions:

Preserving the 3rd group of FOP (individual entrepreneurship) as a de facto standard format of an employment relationship in the IT industry which proved to be effective during the last 15 years. Thus, it is extremely important to provide Diia City residents with the opportunity to work with the 3rd group of individual entrepreneurs, as well as to prevent changing such relations into the labor ones.
Securing an employment relationship in the form of a contract.
Preventing an increase in the tax burden on IT business during the global economic crisis.
Prohibiting the management of the Diia.City Digital Park from the introduction of additional regulation for residents.
Giving priority to the interests of the residents over the tasks of state supervision (control) authorities in matters concerning economic activities, except in cases when it comes to human life and health, human rights, and legitimate interests.

We hope the voice of business will be heard. The community is confident that close cooperation between the state and the business will bring results. Eventually, it will be possible to reach a compromise on important aspects for the IT service industry and finally prepare a quality version of the document that will benefit all market players, not just the minority ones.

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