Presentation of the concept of "Dia City" - a reactive blind start

On September 28, the presentation of the concept of development of the IT industry – the project “Dia City” took place. The event was organized by the Ministry of Digital Transformation, and experts from the IT Ukraine Association, the European Business Association, the American Chamber of Commerce and top managers of IT companies joined the discussion.

Authorities position Dia City as a global technology hub for the creative class from around the world. It is planned that this will be an all-Ukrainian state project, which provides for the introduction of a special legal regime for IT business without being tied to any specific territory.

What does “Dia City” previously offer for IT business 

Terms:

• “Dia City” will be extended to the entire territory of Ukraine, and the conditions of its operation will remain unchanged for 15 years;
• Only companies operating under NACE 62.01 (software development), NACE 62.02 (system integration), NACE 72.19 (ICT research), NACE 63.11 (SAAS) + E-sports can be residents of Dia City;
• The resident is asked to choose another criterion (additional to the NACE and the average salary): 1) export 70+%, 2) the company’s expenditures on the wage fund 70+%, 3) 70% of the proceeds from the monetization of software rights. A criterion such as the average salary of its employees will be mandatory. It must be at least 1,200 euros;
• The Ministry of Digital Transformation acts as a regulator of the newly created regime for the IT industry. It decides on membership in the “Dia City”, the compliance of potential members with the criteria for participation, the exchange of information between authorities.

Personnel policy and taxes:

• Labor taxes provide for 5% of personal income tax, SSC in the amount of 22% of the minimum wage and 1.5% of the military tax;
• Replacement of income tax with a tax on withdrawn capital at the rate of 9%;
• Introduction of a new form of employment “GIG”, by analogy with the new concept of “Worker” in the law of Canada and the UK. The Ministry of Digital Transformation explains that this form provides something in between the sole proprietor and the employee (flexibility of work with staff, the possibility of concluding NCA, NSA, NDA; termination of the contract with GIG for 1 month, payment in lieu of notice, garden leave, etc.);

Other legal aspects:

• Introduction to domestic law of elements of the Anglo-American legal system;
• Legislative proposals on “Masks Show Stop-3”:
• increasing the sanctioning of investigative actions to the level of the Prosecutor General and his deputies;
• restrictions on the arrest / seizure of equipment and documents;
• conducting investigative actions exclusively by investigators of the central offices of the SBU / MIA / DPS-BEB.

The export IT industry in Ukraine has all the prerequisites for maintaining the growth rate that we have seen over the past 10 years. When the authorities talk about creating a special regime for IT professionals, it is necessary to take into account and strengthen all the factors that led the industry to success. Therefore, the question arises why the concept does not take into account the possibility of cooperation of enterprises with contractors of private individuals of the third group. But the emergence of a new state regulator can lead to corruption risks, administrative difficulties and non-transparency of the new tax regime. That is, to the opposite effect. Finally, the concept did not include the most important issue for the industry – the development of education.

The presented concept needs careful elaboration with all stakeholders. However, all bills are scheduled to be submitted to the Verkhovna Rada on October 15, and from January 1, all mechanisms should already be working in practice. How realistic this is is a rhetorical question.