The IT Ukraine Community Attitude to Tax Draft Law No. 5376

The IT Ukraine Community Attitude to Tax Draft Law No. 5376

Last week, the Verkhovna Rada Committee on Finance, Tax and Customs Policy considered and approved draft law No. 5376, which is a tax part of the Diia City special legal regime. This means that in the near future in the session hall of the Verkhovna Rada there will be a vote for the draft law in the wording developed together with the IT industry. The detailed text of the draft law can be found at the link.

For over 2 years, IT Ukraine Association has been conducting an active dialogue with the authorities in the context of Diia City and has provided numerous comments and suggestions from the IT industry. We are grateful that we were heard and that the “red lines” were followed. At the same time, we are waiting for the results of the vote for the tax part of Diia City in the version that was developed in dialogue with the business.

It is worth reminding that the IT industry managed to defend the tax burden for Diia City residents: tax on withdrawn capital — 9%, tax for individuals — 5%, military tax — 1.5%, as well as the ability to attract private entrepreneurs to perform work/provide services for the next 3 years.

Vitaliy Sedler, President of the Association, Intellias CEO and co-founder, emphasizes the paramount importance of draft law No. 5376 for the industry:

Draft law No. 5376 is very important for the industry, for its provisions determine the tax burden in Diia.City over the next 25 years. Therefore, active market participants are closely monitoring it. After the adoption of the document by the Verkhovna Rada in the first reading, business associations submitted a number of their proposals to the specialized Committee. In particular, they advocated maintaining the existing tax rates.
The IT market was extremely negative about statements that some MPs wanted to withdraw from the agreements at the last minute. After all, many engineers are skeptical about the concept of Diia.City, and such news only worsens the attitude of the community to it. Therefore, supporting the draft law in accordance with previous agreements is positive news.
We are currently waiting for the final document to be put to a vote in the Verkhovna Rada. It is critical for the further growth of the IT industry to ensure the stability of legislation and the tax system.

Dmytro Ovcharenko, IT Ukraine Association VP for Legal and Financial Matters and Alcor CEO, praised the results of the vote and called for the consolidation of efforts to adopt the final decision:

The Tax Committee supported the draft law on the tax part of Diia City and we welcome this decision. Now our struggle is moving to the session hall, so it is important to stay consolidated and defend this text of the draft law to the end. Despite the fact that there are still many controversial points for the industry, it is important that we managed to defend the transition period of 3 years. This will allow the industry, which has been developing independently for 30 years, to adapt more correctly to the new regime.

Currently, IT Ukraine Association is the largest specialized association of IT companies in Ukraine. As of October 20, we unite 76 companies, a third of which are medium-sized companies with 200 to 800 employees. Therefore, we asked the heads of the member companies of the Association to comment on the results of the vote on draft law No. 5376. We share their comments below.

Yuriy Antonyuk, Vice President, Head of EPAM in Central and Eastern Europe, stressed that he welcomed the decision of the specialized committee of the Verkhovna Rada while emphasizing that the most important stage is still ahead.

Of course, the decision of the specialized committee of the Verkhovna Rada to maintain tax rates for IT business in the framework of Diia City can only be welcomed. I am glad that once again we are able to restore dialogue and balance in creating favorable conditions for the industry. However, the final conclusions can be drawn when the concept and its provisions, in a form acceptable to IT professionals and businesses, will be implemented. The most important stage is ahead of us, so unity around the fundamental positions for the industry is now paramount,

commented Yuriy Antonyuk.

At the same time, Dmytro Vartanian, Managing Partner, Finance & Legal, Sigma Software, notes that if the current version of draft law No. 5376 is adopted, we will get an “interesting cooperation model” based on a civil law agreement without the need to keep accounts for private entrepreneurs.

Apart from the military tax, there will be no difference in the taxation of the gig model compared to private entrepreneurs, as was previously discussed. We will receive an additional interesting cooperation model on the basis of a civil law agreement without the need to keep accounts for private entrepreneurs. Such innovations can only be welcomed, as well as the mood of the MPs to adopt a 9% tax on withdrawn capital, which will definitely make Ukraine a rather interesting country to do business. Now the main thing is for the draft law to be voted in the Verkhovna Rada in this form,

says Dmytro Vartanian.

Olena Samborska, Managing and HR Director of Luxoft Ukraine, said that she hopes to maintain the current level of taxation for the IT business, which will allow the industry to continue to grow. She also noted that from now on it is important to wait for the results of voting for the draft law in the current version, developed by the authorities together with the business:

For us, the current draft amendments to the Tax Code look like a harmonious part of the Diia City concept, and we expect that while maintaining the current level of taxation, the IT industry will continue to grow rapidly. It is gratifying that the industry has demonstrated a consolidated position at all stages of the discussion of the draft law and defended its own position. But it is also very important that this project is voted on by the parliament in this very form, without unexpected changes.

Andriy Oksenyuk, CFO at Ciklum, said that creating a special legal and tax regime for the IT sector in Ukraine is the right and progressive decision:

Although the draft law still contains a number of unresolved issues, it takes into account the joint efforts of business and authorities. In particular, we support the protection of the rights of individual entrepreneurs working in the IT industry. At the same time, we believe that the positive impact of the Diia City concept on the industry is possible only if the conditions created and agreed upon in the dialogue with the industry are maintained, as well as if the government adheres to the commitments to the stability of such a regime.

Serhii Denysenko, MGID CEO, emphasizes that it is very important for the business now that the state keeps its promises regarding the transparency of Diia City, equal access to the initiative and consistency of the tax regime:

The purpose of the Diia City concept is to build an ecosystem within the country that would provide a special model of taxation and protect the interests of Ukrainian and international IT companies. Therefore, it is extremely important that the state’s implementation of promises regarding Diia City’s transparency, equal access to initiative and consistency of the tax regime is enshrined in law. 
The tax draft law, supported by the specialized committee on October 12, is the result of joint efforts of relevant associations, IT business and the Ministry of Digital Transformation. And as a company responsible for over 500 employees in Ukraine, we very much hope that the interests of individual MPs will not stand in the way of finding a compromise and transparent development of the IT industry in Ukraine.