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Published 22.04.2021 Igor Reutov
Bill #4303 “On Incentives for the development of the digital economy in Ukraine” worked out by the Ukrainian government provides a new legal framework for the IT industry in Ukraine. The Bill will create a new IT cluster, named ‘Diia City’ with favourable and flexible regulation making it clearer and more understandable for big companies when they enter the Ukrainian market. The Bill comprises specific features such as gig-contracts and gig-specialists that align Ukrainian business practice in the IT sector (including individual (private) entrepreneurs) with the expectations of big players who often lack understanding of such practices and have high-risk expectations.
Under the proposed legislation, businesses that meet the legal requirements can be registered as residents of Diia City and benefit from the preferences of that residence. The Diia City residents will be entitled to hire gig-specialists who will be officially entitled to such similar benefits as employees, e.g. annual leave, social insurance, maternity leave, sick leaves, 40-hour week, etc. At the same time, gig-specialists are not considered employees. The Diia City residents will have the right to terminate the gig-contract with a 30-days’ notice period, control and monitor the performance of the contract, bind the gig-specialist by the corporate policies, etc. Copyright, an important issue in IT, has also received its specific regulation consistent with the existing legal framework – economic rights belong to the company's moral rights remain with the gig-specialists. In order to strengthen companies’ position, the Bill recognizes such agreements as non-disclosure agreements (NDA), non-competition agreements (NCA), and non-solicitation agreements (NSA), which are widely used by the parties but currently lack regulatory support and recognition. The bill can make these agreements efficient tools for protecting businesses.
The general requirements for Diia City Residency are as follows: 1) conducting IT business (or other listed in the Bill) and receive at least 90 % of income from such activity; 2) average monthly remuneration of employees and gig-specialists should not be less than EUR1200; 3) the average amount of employees and gig-specialists should not be less than nine per month. There are also certain limitations such as Ukrainian registration of the company, beneficial owners should be disclosed; the company should not have share owned by the Ukrainian government (or local authorities) exceeding 25%; likewise, the shareholders holding 25% or more should not be registered in the territory included in the FATF-list; the direct or indirect shareholders cannot be resident of the state-aggressor and others.
Another major feature of the Diia City system is taxation, which, however, is outside the scope of the bill. The Diia City promoters insist that a separate bill on taxation will set forth low tax rates comparing to a regular regulation and provide the following tax rates: 5% personal income tax; 1,5% military levy and social tax 22% on the minimum salary only.
To sum up, the Bill is aimed at bringing out a compromise between the state and IT-business – the model, which, on the one hand, includes protection of gig-specialists, and provide them almost the same benefits as regular employees have, and on the other hand, the companies receive flexibility in engaging gig-specialists and control over their performance without onerous employment regulation. In addition, reasonable taxes are promised to be an integral part of Diia City regimen.
Igor Reutov
Head of Department, Lawyer, LL.M
UJBL #3-4 March-April 2021
http://www.ujbl.info/article.php?id=1481