13:39 14.12.2021

Rada passes law on 'Diia City'

3 min read
Rada passes law on 'Diia City'

The Verkhovna Rada at second reading adopted bill No.5376 on amendments to the Tax Code of Ukraine regarding stimulating the development of the digital economy in Ukraine, which regulates the tax conditions of the Diia City special legal mode.

Some 285 MPs voted for the relevant document at a meeting on Tuesday.

The law introduces special conditions for taxation of companies-residents of Diia City, the income of their employees and involved gig-specialists. In particular, residents of the special mode will be able, at their discretion, to choose which corporate tax to pay: tax on withdrawn capital in the amount of 9% or income tax (18%).

In order to stimulate investment in the IT industry, income of individuals in the form of dividends accrued by a resident company will be exempt from taxation, provided that they are paid no more than once every two years, in order to encourage companies to reinvest funds in their development.

There will also be a tax rebate for individuals when buying a stake in a startup company that is a resident of Diia City.

The following tax rates will apply to the income of employees and gig-specialists of Diia City residents: personal income tax some 5%, unified social tax some 22% of the minimum wage, military tax some 1.5% (from the employee's salary or gig-employee remuneration). If a specialist earns more than EUR 240,000 per year, then all income above this limit will be taxed at 18% personal income tax.

Taxation of sole proprietors who will cooperate with residents of the special mode will remain at the level of the current rates.

From 2024, the expenses of resident companies on single tax payers (including sole proprietorship of three groups) should not exceed 50%, and from 2025 some 20%.

Residents who will pay income tax and whose annual income does not exceed UAH 40 million will be able to work with an individual entrepreneur without restrictions for the entire period of their residence.

Amounts in excess of the withdrawn capital tax limit will be taxed at 9%. Income tax payers will have to include all expenses on sole proprietorship in excess of the permitted 20% in the financial result.

However, resident companies that will pay income tax with an annual income of not more than UAH 40 million will cooperate with an individual entrepreneur without restrictions for the entire period of residence.

The Diia City conditions will be valid for 25 years and will be extended to all employees of the resident companies.