The innovation of 2021 in the IT-sphere was the adoption of the Law of Ukraine, “On Stimulating the Development of the Digital Economy in Ukraine.” Its purpose is to create the newest legal regime called Diia.City, relevant to companies engaged in computer programming, software development, IT consulting, and other types of IT activities (clearly defined in the Law).
Diia.City taxes
It should be noted that the said Law is a framework, i.e., in general, it regulates the provision of the legal regime. It was supplemented by the Law “On amendments to the Tax Code of Ukraine to stimulate the development of digital economy in Ukraine,” the main novelties of which are as follows:
- Diia.City residents can opt for a corporate tax, namely an 18% income tax or a tax on withdrawn capital (there is no specific definition in the draft law, but its legal nature derives from the taxable base) of 9%
- a business on the Diia.City register, which is a taxpayer on a general basis, may decide to switch to tax as a resident of Diia.City
The procedure is very simple: apply to the supervisory authority no later than 15 days before the beginning of the next calendar quarter. If such an application was not submitted, it is concluded that the resident opted for the 18% corporate tax. Thus, the above taxes are equivalent to the performance of duties as a Diia.City resident taxpayer and may substitute for each other.
Terminology and taxation system Diia.City
First, a resident of Diia.City is a company that has expressed a desire to join the legal regime. However, its will alone is not enough. It must meet the requirements spelled out in the relevant Law. In particular:
- Carry out the activities provided for in the Law (specified above)
- To employ at least 9 full-time employees or gig workers and to pay them remuneration of at least 1200 EURO
- the amount of qualifying income of the company must be at least 90% of the total income for the period specified by Law
- Also, there must be no negative circumstances stipulated by the Law concerning a resident of Diia.City (e.g., non-profit organizations, bankrupt companies, legal entities in the state of termination (except for transformation), companies under sanctions, etc., cannot obtain resident status)
If your company and its activities meet these requirements, there is a right to choose between two corporate taxes. The first of them is known for the Ukrainian tax legislation — a corporate tax on profit in the amount of 18%. Joining the Diia.City, you automatically become a subject of taxation on a common basis, i.e., the payer of 18% tax.
However, you have the right to choose a special regime with a rate of 9% when only the withdrawn capital and certain transactions are taxed. Such tax applies to the withdrawal of funds from the company’s turnover — dividends, royalties, interest, etc.
- payment of income from joint ventures to Diia.City residents who do not pay withdrawal capital gains tax
- payment of dividends and royalty transactions
- transactions for the provision of property (works, services) free of charge and irrevocable monetary aid to persons who are not residents of Diia.City — taxpayers on the withdrawn capital
- payment of interest, commissions, refunds, penalties, fines to attract and/or use of funds
For example, suppose an investor refuses to receive funds earned by their Ukrainian company in dividends and invests them in other Ukrainian projects. In that case, they will not pay corporate tax.
The main idea of these innovations is to stimulate the development of the IT industry and attract foreign investors and national companies to increase the investment attractiveness of Ukraine, including the IT industry.
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