President of Ukraine Volodymyr Zelensky signed Law “On Stimulating the Development of the Digital Economy in Ukraine” № 1667-IX, which introduces a special legal regime “Action City” for the IT sphere and determines the organizational, legal and financial principles of its functioning.
The Verkhovna Rada supported the relevant bill, the basic bill № 4303 on Action City in the second reading on July 15 – and we have repeatedly talked in detail about this initiative.
Council passes Act on Action City – it provides a special tax scheme for the IT industry
The special regime “Action.City” is introduced as an alternative to the current conditions, and joining the special regime will be voluntary – the law contains a rule on the inadmissibility of direct or indirect coercion of legal entities to acquire resident status.
The special regime will not be limited territorially, but will operate throughout the country. Only legal entities registered under Ukrainian law will be able to become Diya.City residents. The document establishes a clear list of qualified activities within the special regime. The state guarantees the IT industry the invariability of “Diya.City” conditions for 25 years.
“Action.City” provides special conditions of taxation, which will be determined by the Tax Code of Ukraine. The relevant bill was passed by the Rada in the first reading in early June, and is now being prepared for the second reading.
New tax terms in Action City
personal income tax is reduced from 18% to 5%, a single social contribution of 22% of the minimum wage, the ability to choose which corporate tax to pay – income tax (18%) or withholding tax (PnVK) for at a rate of 9%, the military tax will be 1.5% .0% income tax on the sale of a natural person’s share in a resident company Action City – provided that she owned the share for more than 1 year; 0% on the income of individuals in the form of dividends accrued by the resident company, provided they are paid no more than once every 2 years, tax rebate (with PIT) on the amount of investment in Ukrainian startups.
The Ministry of Finance has prepared a comparative table, which on the example of a conditional company with an annual turnover of $ 200 thousand and a net profit of $ 25 thousand clearly demonstrates the benefits of a special tax scheme of the “Action.City” regime.
The law also contains rules related to temporary disability and social guarantees for gig specialists, their compulsory state social insurance, as well as intellectual property rights to the object created in connection with the implementation of the gig contract.
The law enters into force on the day after its publication, except for paragraph 9 of the fourth part of Article 5 (classification of the activities of the service provider related to the circulation of virtual assets to activities encouraged by creating a legal regime “Action City”). This paragraph shall enter into force six months after the date of entry into force of the law of Ukraine, which determines the specifics of legal relations in the field of circulation of virtual assets.
The Ministry of Finance expects that thanks to “Action City” revenues of the IT industry in Ukraine by 2025 may grow to $ 16.5 billion, the number of jobs in the industry will increase to 450 thousand, and the IT industry will be able to reach 10% of GDP ( now the share is about 3.7-4.2%).
