February 9, 2023
Folks paintings on the Inventive State of Arsenal coworking house in Kyiv on March 5, 2021 (Oleg Petrasiuk)

President Volodymyr Zelensky on Dec. 18 signed a invoice developing a distinct taxation device for tech companies.

Invoice №5676, authorized by means of the parliament on Dec. 14, is the second one of 3 regulations which are important to create the Diia Town device. Diia Town is a number of tax, employment and criminal advantages that Ukrainian and international IT companies will likely be granted in an try to spice up Ukraine’s tech business.

Below the most recent invoice, tech companies that take part in Diia Town and use exertions contracts can pay fewer taxes, whilst companies that already save on taxes by means of contracting staff as person marketers is not going to obtain particular advantages. The invoice calls for them to regularly transfer to exertions contracts over the following 5 years.

The concept that of Diia Town has been arguable amongst tech companies. They have got mentioned the present device works, argued that it brings hundreds of thousands of greenbacks to the state they usually don’t perceive why the state would disrupt an already operating device.

The federal government, alternatively, says Diia Town will draw in international funding and inspire tech firms to sign up in Ukraine. Ukraine’s Ministry of Virtual Transformation submitted the primary invoice, defining how Diia Town works, to parliament in November 2020. It used to be handed on July 15.

Taxation

The brand new invoice reduces taxes for tech consultants that experience complete employment contracts: as a substitute of 18% source of revenue tax, they are going to pay 5%. Different taxes, together with a 1.5% army levy and a social safety contribution of $52 (22% of the minimal salary) stay unchanged.

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The entire tax levy for tech companies below the brand new invoice has been modified to twenty-eight.5% from 41.5%. Those adjustments are handiest carried out if the tech specialist earns lower than 240,000 euros a yr.

The invoice additionally introduces a brand new 9% company tax imposed on dividends, royalties, hobby or monetary help. Ukrainian firms pays it as a substitute of source of revenue tax.

Through introducing the company tax the state needs to inspire tech companies and startups to sign up their companies in Ukraine fairly than in offshore nations like Malta or Cyprus the place those taxes are smaller.

Employment

As an alternative of hiring full-time staff in Ukraine, maximum tech companies want to rent person marketers, who paintings as contractors.

The brand new Diia Town invoice will permit tech companies to stay hiring person marketers till 2024. Then, firms will have to transfer to gig contracts or employment contracts, decreasing their expenditures on personal marketers to 50% in 2024 and to twenty% in 2025.

That’s the requirement that sparks probably the most controversy within the native tech neighborhood. As of these days, over 95% of tech consultants paintings as personal marketers in Ukraine. They don’t signal employment contracts, however pay a 5% source of revenue tax – one of the most lowest in Europe.

Ukrainian tech companies love this type of employment as a result of they are able to save so much on taxes and feature extra versatile phrases of labor. Then again, lately native startups have began to whinge that they fight to provide an explanation for to international traders that exact marketers are criminal and clear entities in Ukraine.

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The federal government mentioned that by means of using person marketers, tech companies wish to save on taxes and social advantages for staff which are regulated by means of Ukraine’s exertions code.

To make the transition to professional employment more straightforward the invoice introduces the brand new tech employment class – a gig employee. Gig employees don’t must sign up as person marketers and they don’t seem to be regulated by means of exertions legislation.

Their operating stipulations are decided by means of gig contracts between tech consultants and employers. In comparison to employment contracts that stay legitimate even after firms go away Diia Town, gig contracts expire 3 months after employees go away the industrial zone.

Standards

The principles of Diia Town handiest observe to firms that paintings within the knowledge era business, make use of no less than 9 other folks and pay salaries of no less than 1,200 euros per 30 days. Startups pays decrease salaries within the first yr in their place of abode.

Diia Town will settle for tech consultants that increase instrument and laptop video games, paintings with digital property and robotics, supply cybersecurity products and services, personal e-sports companies or create virtual commercials. The federal government will make bigger this listing one day.

Tech firms can sign up for and go away Diia Town at will – it doesn’t substitute the present device. The federal government guarantees that it received’t alternate this model of the invoice for the following 25 years.

What’s subsequent

To completely enact Diia Town, the parliament has to move the 3rd invoice that determines how tech firms will have interaction with legislation enforcement. The Ministry of Virtual Transformation expects Diia Town will get started accepting its first citizens subsequent yr.

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After masses of amendments to the primary model of the invoice, Ukrainian tech companies have after all permitted it however mentioned that they want extra time to investigate it.

“We’re cautiously positive concerning the Diia Town challenge as the federal government thought to be lots of the amendments recommended by means of tech companies,” mentioned Olena Samborska, HR director of Ukrainian tech corporate Luxoft.

“We settle for the invoice, however our perspective remains to be ambiguous. Diia Town has many arguable sides that may negatively have an effect on the paintings of IT firms on the whole and each and every worker particularly,” in line with Serhiy Skurikhin, CEO of tech corporate ZONE3000.

Ukrainian startups are even warier. They mentioned that by means of registering their trade in Ukraine they couldn’t draw in international funding. But even so, many startups merely can not meet Diia Town’s standards for place of abode.

“Startups frequently shouldn’t have prime salaries and the choice of other folks they make use of adjustments repeatedly,” CEO of the startup Recoshelf Yaroslav Parkhisenko informed Ukrainian media dev.ua.