The president has signed a law on Diia City, but the regime is not yet working. We tell why and when to expect the start of working

The president has signed a law on Diia City, but the regime is not yet working. We tell why and when to expect the start of working

On August 11, President of Ukraine Volodymyr Zelensky signed the Law “On Stimulating the Development of the Digital Economy in Ukraine.” Thus, he launched a special legal regime for the IT industry – Diia City. However, in practice, this does not change anything for professionals and companies.

We clarified when the regime would be launched and what is missing for it in the project office of Diia City and the attorney of intellectual property and IT, managing partner of Trustme Law Firm Serhiy Barbashin.

What did the president sign?

On August 11 of the current year, Volodymyr Zelensky signed a law that establishes a general procedure for considering applications for Diia City resident status and requirements for residents, explains the attorney Serhiy Barbashin. The Parliament passed this law on July 15. Read its detailed analysis.

“The law came into force on August 14. All of its provisions have already entered into force, except for the provisions on the activities of service providers related to the circulation of virtual assets as an activity promoted by Diia City. Virtual assets are the type of property that is valuable in electronic form. These are virtual currencies and cryptocurrencies. These provisions will become effective in six months, i.e., on February 14, 2022, as the law “On Virtual Assets” has not yet been adopted in its entirety, “- said the attorney.

Has Diia City been already working?

No. Both the attorney Mr. Barbashin and representatives of the Diia City project office emphasize this.

“Signing the Diia City law is a big first step. However, the work does not end there. At the present stage, nothing is changing for employees or companies. As it may not change in the future, if the company is not interested in residency in Diia City “- the project office explained for DOU.

The law is a fundamental document under which specific implementation mechanisms will already be implemented, says the attorney. Therefore, its provisions have not been applied for today.

“Companies can no longer enter into gig-contracts with gig-specialists, as gig-contracts are an agreement under which a gig-specialist provides services by the tasks of a resident of Diia City as a customer, and a gig specialist is an individual who the contract is a contractor and/or executor. At present, companies cannot become residents and use all the opportunities of such residency,” the attorney adds.

What exactly is required to launch Diia City now?

According to Serhiy Barbashin’s point of view, the Cabinet of Ministers of Ukraine has not adopted additional regulations for the operation of the law (instructions, rules). Also, for today there is no register of the Diia City. The mechanisms by which it is possible to get the residential status or deprive it are not registered. In addition, the Parliament must approve amendments to the Tax Code for the special regime to become operational.

The attorney said, “Currently, the bill “5376” On Amendments to the Tax Code of Ukraine to stimulate the development of the digital economy in Ukraine” is under consideration. It was adopted in the first reading,”.

According to the bill, residents of Diia City will be able to choose a special tax regime, which provides:

  • tax rate of 9% on certain types of operations (certain types of dividends, interest payments, royalties, return of the founder’s contribution, etc. – a complete list in paragraph 141.9.2. of the project);
  • a rate of 5% (instead of the current 18%) for personal income tax, which will be deducted from employees’ salaries and/or gig specialist remuneration, and a 1.5% military tax;
  • single social contribution (for employees in the amount of the minimum insurance contribution – 22% of the minimum wage, and today it is 1320 UAH, for gig-specialists – 22% of the remuneration under the gig-contract, which must be not less and not more than the minimum and the maximum size of single social contribution established by the legislation of Ukraine).

“In addition, for the new tax regime to function, the tax service needs to decide how to ensure the operation of such a regime. We are talking about instructions on calculations, reporting forms, invoices for the relevant taxes, etc.,” the attorney explains.

The project office of Diia City says that the document may be considered in the second reading in early autumn this year. In addition, a draft law is currently being drafted to strengthen the protection of residents from illegal actions of regulatory and law enforcement agencies. In parallel, the team is developing bylaws that will ensure the functioning of the special regime.

For today, the work is primarily focused on the “Procedure for submitting and reviewing an application for the status of a resident of Diia City” and the “Procedure for the formation and maintenance of the register of Diia City.”

In addition, prepare:

  • regulatory legal act, which determines the form of the report on compliance of the resident of Diia City, the procedure for submission and consideration of the information on the observation of the resident of Diia City and the process for submission and care of an independent opinion;
  • the procedure for electing members of the public to the appeal commission of the authorized body;
  • the procedure for filing and reviewing complaints against the decision of the authorized body on the loss of resident status of Diia City in the administrative order and the conclusion of the Appeals Commission on them;
  • list of stock exchanges;
  • the procedure for notifying the central executive body, which implements the state policy on administering a single contribution to the obligatory state social insurance, about the conclusion of a gig contract.

When will Diia City function?

At the official level, the launch is promised in early 2022. According to the project office, they will have time to prepare the entire legal framework during this period.

“We plan to implement the project in the form in which it was announced. At the same time, the Diia City team is constantly in dialogue with the industry and listens to suggestions and wishes. For example, in the process of finalizing the basic bill № 4303, which has now become law № 1667-IX, received more than 300 amendments from MPs and industry. More than 70% of them accepted. In preparation for the second reading, the document’s editors took into account another 172 amendments, “- said the project office of Diia City.

Mr. Barbashin says: “In order the regime start working from 2022, the parliament must pass a bill on the tax regime this year, and the Cabinet of Ministers must introduce a mechanism for creating and maintaining the Diia City register, a form, procedure for submitting and reviewing applications for resident status, and the compliance report of Diia City residents.

“All regulations will likely be adopted by the end of the year but provided that the Cabinet today would have all the necessary drafts of such decisions and technically able to ensure the regime (functioning of the register, etc.), and Parliament would adopt in the second reading a bill on taxation. Whether they will have time or not is difficult to predict, as it depends on the decisions of the government and the Council,” the attorney added.

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The author of the material:

Serhiy Barbashin – the IT attorney, managing partner at Trustme Law Firm