Gig-specialist and gig-contract in Diia City: new concepts consideration

On August 14, 2021, the Law of Ukraine № 1667-IX on Diia City came into force, which aims to develop the IT environment in Ukraine by introducing alternative mechanisms and forms of activity of companies and specialists in this field. In particular, Diia City resident status, new rules of preferential taxation, reporting, forms of attracting specialists, etc., are being introduced for companies.

Among the innovations, we will pay special attention to cooperation between a resident of Diia City and a specialist based on a “gig-contract” and identify the key features of such a relationship.

A company that has acquired the status of a resident of Diia City can choose one of three ways of relationship:

1. Concluding an employment contract with an IT specialist. Such an employee is subject to the general conditions, rights, and obligations provided by labor legislation (right to leave, requirements for working hours, compliance with internal labor regulations, etc., in accordance with the Labor Code of Ukraine).
2. Concluding a regular contract for the performance of works and/or provision of services (usually concluded with private entrepreneurs). Today, companies and entrepreneurs often use these agreements (for example, service agreements, software development contracts, design contracts, etc.).
3. The signing of a gig-contract with an IT specialist. This is a new form of contract. The law stipulates that a “gig contract” is a civil law contract under which a gig specialist undertakes to perform work and/or provide services in accordance with the tasks of a resident of Diya City as a customer. A resident of Diia City undertakes to pay for them and provide the gig-specialist with appropriate conditions for the performance of tasks and appropriate social guarantees.

A gig-specialist is a natural person who acts as a contractor and/or executor under a gig contract.

What are the features of a gig-contract?

• A gig-contract can only be signed with an IT company that has acquired the status of a resident of Diia City, and an IT specialist receives the status of a gig-specialist. In addition, a gig contract is considered as such if it is explicitly stated in the contract. The form of the contract is written or electronic using EDS.
• The gig-contract by agreement of the parties specifies the conditions of rights and responsibilities of the gig specialist, remuneration, working hours (not to exceed 8 hours per day / 40 hours per week), annual paid break (not less than 17 working days ), place of performance of works/provision of services, term of the contract, the responsibility of the gig specialist, conditions of termination of the agreement, etc.
• This form of cooperation is essentially something between the employment contract and the contract for the provision of services/performance of works. Because the gig-contract can provide conditions and guarantees, mainly social, specified in the employment contract, in this case, the gig-specialist is not considered a full-time employee of the resident Diia City and performs work/provides services/performs duties as a position in the company.
• The gig contract may be accompanied by references to the resident’s internal documents. They must notify the gig specialist (no later than 30 days).
• Providing services or performing work by a gig specialist is not considered a business activity.

What is the reward of a gig-specialist?

The law stipulates that a gig-specialist receives remuneration in the amount, procedure, and terms specified in the gig-contract. In this case, the amount of remuneration can be measured in one of the following ways:

– remuneration set for a specific period of cooperation;

– remuneration is proportional to the actual results of work/provision of services;

– remuneration in proportion to the time spent on work/services.

The gig contract may additionally provide for the conditions of increasing the payment of remuneration in the event of certain results or the event of other circumstances.

The amount of remuneration in the gig-contract may be determined in foreign currency.

What are the grounds for termination of the gig-contract?

The law provides grounds and mechanisms for termination of a gig contract, including termination by mutual agreement, expiration, etc., but special attention should be paid to atypical bases:

1. Unilateral refusal of a resident of Diia City or a gig-specialist from a gig contract.

Each party has the right to terminate the gig contract at its discretion without good reason. However, the agreement may set a different procedure and deadlines. The party who wishes to withdraw from the gig contract is obliged to notify the other party in writing (electronically) no later than 30 calendar days before the scheduled termination date.

      2. Termination of the gig contract due to the company’s loss of resident status in Diia City.

In this case, to continue cooperation, it will be advisable to enter into an employment contract or a regular service contract.

Thus, a wide range of grounds for termination of the gig-contract is introduced, which are pretty loyal, both for the resident of Diia City and for the gig-specialist.

Taxation under the gig-contract

On January 1, 2022, Act № 1946-IX on taxation issues in the Diia City regime came into force, which introduced the possibility of choosing the preferential taxation regime for Diia City residents.

The following taxes/fees are set for gig-specialists:

– 5% (instead of 18%) of personal income tax from the gig-specialist’s remuneration;

If the income of the gig specialist is higher than 240,000 euros/year, the rate of 18% is applied to the amount of the excess, and the obligation to declare arises.

– 1.5% military fee;

– 22% of SDRs from the amount of the minimum wage.

Can a foreigner become a gig-specialist in Ukraine?

The special Diia City mode allows you to sign gig-contracts with foreign nationals. In this case, a resident of Diia City can receive work/services without a work permit for such a foreigner. At the resident’s request, the permit can be obtained voluntarily.

In addition, based on a gig-contract, a foreigner (gig-specialist) can obtain a temporary residence permit in Ukraine.

Who owns the intellectual property rights?

As a result of providing services/works under a gig contract, intellectual property rights (developments, software, codes, formulas, etc.) may be created. Yes, the intellectual property rights to the object created by the gig specialist belong to the resident of Diia City, unless the gig contract provides other conditions regarding the intellectual property regime. It follows that the resident of Diia City can further use and dispose of the results of the work of the gig specialist, including prohibiting the latter from using their development.

Conclusion

The launch of Diia City took place on February 8, and there are already the first potential residents. Gig-contract is a new form of cooperation, which can be chosen along with the employment contract or contract to provide services/performance of works. The gig contract is characterized by the flexibility of its terms and provides for social guarantees, although it does not equate a specialist to an employee under labor law. We hope that cooperation under such an agreement will benefit future residents of Diia City and gig-specialists.