Lviv IT Cluster Reaction to the Results of Voting for the Diia City Bill on April 15, 2021

20 Apr, 2021

Lviv IT Cluster is actively involved in many of the relevant discussions on the legal aspects of the functioning of Diia City. Although bill №4303-d was adopted in the first reading, the Cluster considers it necessary to supplement the draft law with a number of important provisions.

Lviv IT Cluster, as well as most of the IT community in Ukraine, finds it necessary to highlight some critical remarks in the Diia City bill adopted in the first reading that the Cluster had discussed with its member companies. Before the remarks offered by the IT industry, and in particular, Lviv IT Cluster, which is the largest business association of technology companies in the country, are taken into account, the draft law of Diia City cannot be considered acceptable for the IT industry or taken to the second reading.

  1. Maintaining the existing model of individual entrepreneurs (IE) for IT companies outside of Diia City, both to prevent pressure on companies to join the project, and to eliminate problems for companies that will operate outside Diia City; this can be achieved if the legitimacy of the IE model is confirmed by adopting appropriate security guarantees of security for IT companies from illegal actions of the government agencies, in particular uncontrolled and illegal reclassification of relations with individual entrepreneurs as labor relations.
  2. Ensuring a minimum three years transition period (after signing the first gig contract by the participating company), during which tech companies that have become residents of Diia City will be able to work with individual entrepreneurs without increasing the existing single tax rate of 5%, and with the status of the resident company being withdrawn capital taxpayer.
  3. Ensuring a stable level of taxation for a 15-year period: 5% income tax on employees/gig contractors, 22% Single Social Security tax on one minimum wage, 1.5% military tax. Predictability and stability should be one of the strengths of Diia City.
  4. Mandatory annual audit replacement for small and micro businesses (for companies with less than 300 gig contractors/individual entrepreneurs/employees) by submission of standard financial reporting to reduce the unbearable additional financial burden for small and medium-sized companies.
  5. Application of the authorized body decision (The Ministry of Digital Transformation of Ukraine) on deprivation of an IT company of the Diia City resident status only after the relevant court decision enters into force, after exhaustion of domestic remedies in court.
  6. The self-governing organization should be completely removed from the bill and the concept of Diia City. To avoid possible risks of introducing additional fees or inappropriate regulations, the Diia City regime should not include any self-governance rules. Instead, residents of Diia City should be able to create NGOs on a general basis, which does not require a special rule in the legislation.
  7. Maintaining a cohesive approach in the adoption of all bills that together constitute the legal basis of Diia City. This applies both to the invariability of the norms already submitted within the framework of the draft law 4303-d, and to the compliance of the following draft laws, in particular, tax and law enforcement draft laws, with the obligation declared by the Ministry of Digital Transformation of Ukraine. The terminological and regulatory compliance between all bills related to Diia City is also important.
It should be noted that failure to take into account the above-mentioned position creates the likelihood of fragmentation of the IT market and failure to achieve the expected breakthrough goals of the special Diia City regime.