TOP-5 reasons to launch the IT-business in Ukraine

1. Diia City regime

In Ukraine, a special tax regime Diia City has been introduced, which provides special conditions for the activities of IT business companies.

Including:

• the possibility of paying income tax at the rate of 9% or 18% under general conditions;
• a new form of relationship with IT specialists – signing a gig contract;
• foreigners in Ukraine who will provide their services may not issue an employment permit;
• the expert’s refraining from competitive actions is formalized by a written contract;
• dividend taxes – 5% personal income tax, 1.5% military levy; no taxes are paid if there has been no dividend payment for 2 consecutive years.

There is no obligation for the entire IT sector to join Diia City. Each company independently decides whether it needs it or not.
The admission process is not automatic. There is a procedure for acquiring Diia City resident status for IT companies.

To join Diia City, you have to meet certain conditions:

• conducting specifically defined types of activities that are allowed in Diya City (computer programming, publishing of computer games and other software, educational activities in the field of IT, digital marketing and advertising services, e-sports and others);
• at least 90% of the income from such activities (calculated for the calendar year);
• at least 9 employees and gig specialists;
• the average monthly remuneration of employees and specialists is 1,200 euros or more.

In addition, there are certain limitations. The following companies cannot be residents of Diia City: they have a registered address abroad, there are tax debts related to Russia, Iran, and other aggressor countries, sanctions have been imposed, and for other reasons.

The application for acquiring the status of a resident of Diia City is submitted in electronic form in two ways. The first is through the web portal city.diia.gov.ua. The second – to the e-mail address of the Ministry of Digital Transformation.

2. Convenient forms of cooperation with IT specialists

IT specialists have the opportunity to cooperate with both ordinary companies and Diya City resident companies. The forms of cooperation are as follows:

• provision of services under the contract as an individual entrepreneur (FOP);
• provision of services under a gig contract as a gig specialist;
• work under an employment contract as an employee.

Private entrepreneur. The customer and the executor (aka FOP) independently agree on the terms and conditions of the provision of services. As a rule, the FOP uses its own gadgets to provide services. Payment for FOP services is a fixed amount or an hourly rate. There are no social guarantees in the form of holidays or sick leave.

Most often, IT specialists choose a simplified tax system, group 3. Tax burden:

• 5% – a single tax (2% during the war);
• 22% of the single social contribution (calculated from the minimum wage and is 38 euros as of December 2022) – the right not to pay for the period of war and 12 months after.

Gig specialist. The parties to the gig contract are a resident of Diia City and a gig specialist. Their mutual relations and the procedure for providing services are regulated by the law “On stimulating the development of the digital economy in Ukraine”. The specialist provides services no more than 8 hours/day and 40 hours/week. Payment is received on an hourly basis or fixed for the result. Every year there is a break in the provision of services.

Taxes:

• 5% – personal income tax (PIT) (for incomes less than EUR 240,000/year, income above – 18% rate);
• 1.5% – military levy;
• 22% – the single social contribution.

Salaried employee. It is included in the staff of the company that provides the workplace and equipment. The salary is not lower than the established minimum amount. Works no more than 40 hours a week. The employee has the right to take vacations and receive sick pay and other social guarantees.

Employee taxes at Diia City:

• 5% – personal income tax (up to incomes of less than 240,000 euros/year, with higher incomes – the rate is 18%);
• 1.5% – military levy;
  22% – the single social contribution.

Taxes of an employee in a company without the status of a resident of Diia City:

18% – personal income tax;
1.5% – military levy;
22% – the single social contribution.

3. Quick opening of a bank account

You can open a bank account quickly and easily. Some banks have the option of opening an account remotely, without visiting a branch. An account can be opened in a few minutes, and a full financial control check can be completed in a day.
Online banking provides online access to your account and banking transactions 24/7. Conducting financial transactions is safe and secure.

As of the end of 2022, there are about 70 different banks operating in Ukraine, the number of branches of such banks in Ukraine is more than 6,000.

4. Digitization

In Ukraine, digital and innovative technologies are highly developed, including in business processes. Electronic registers, electronic taxpayer’s office, electronic digital signature, online reporting, and internet banking. All of the above provides fast remote access to data at any time. Minimizes the number of paper documents. In addition, the digitization of processes means fewer errors in calculations and, analytics, and planning.

5. Low cost of doing business

The costs of registering a company, renting office space, equipment, lawyers’ services, and accounting support are low compared to other countries in Europe and the United States. Sufficiently loyal tax systems also stimulate the opening of an IT business in Ukraine.

Conclusions

As an IT hub, Ukraine has sufficiently favorable conditions for conducting IT activities. Before taking steps to open an IT business, it is important to develop a business plan. Analyze the structure of activity, taxation, and forms of interaction with employees and performers. Determine methods of transfer of IT products and other objects of intellectual property to the customer.

We recommend involving lawyers and tax experts in these processes, who will help choose the best option for conducting business and the form of taxation, a plan for further development.