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Publication date: 15.05.2024
Lawyer
**Changes in reporting for residents of Diia.City from February 13, 2024**
Diia.City, Ukraine's innovative digital economy environment, has undergone significant changes in reporting requirements for residents. On February 13, 2024, the Cabinet of Ministers adopted Resolution No. 163, which became a turning point in the regulatory environment of companies operating in Diia.City. Let's delve into the details of these changes and their implications.
As you know, the special taxation regime of Diia.City IT companies began to operate on January 1, 2022, before the beginning of the full-scale invasion of Ukraine by the Russian Federation. This regime offers companies a choice between paying income tax at the rate of 18% or tax on the capital withdrawn at the rate of 9%. In addition, IT companies have the option of applying a special personal income tax rate of 5% to the wages of employees on gig contracts, which differs from the standard rate of 18%. The criteria for becoming a resident of Diia.City are such that they require companies to meet certain conditions regarding sources of income, remuneration and number of staff.
**Changes introduced by Resolution No. 163:**
1. **Preservation of resident status:**
In 2024, residents of Diia.City who received the status before the decree came into force will not risk losing their status as residents of Diia.City due to non-compliance with reporting requirements. This provision offers companies a reprieve while they deal with complex regulatory compliance issues.
2. **Exemption from initial compliance report:** Residents are exempted from the obligation to submit an initial compliance report and independent opinion for 2024. This measure recognizes the challenges faced by companies in meeting reporting deadlines in the context of evolving regulatory frameworks and operational activities.
3. **Continuation of Annual Compliance Report:** Despite the exemption from initial reporting, Diia.City residents are still required to submit the 2023 Annual Compliance Report together with the Independent Auditor's Report by June 1, 2024. This ensures transparency and accountability in compliance with regulatory standards.
**Implications and Considerations:**
The reinstatement of reporting requirements for Diia.City residents signals a renewed focus on regulatory oversight and compliance in the digital environment. Several factors may have influenced this decision:
- **Revenue generation:** Renewal of reporting obligations can serve as a mechanism to increase tax revenues. By ensuring regulatory compliance, authorities can reduce potential tax evasion and maintain fiscal integrity.
- **Mobilization Readiness:** Due to the discussions regarding increased mobilization efforts, compliance with the new criteria for Diia.City residents (50% of employees) becomes crucial. Improved reporting mechanisms help identify eligible residents and optimize economic contributions to national defense efforts.
- **Selection of an auditor:** Residents of Diia.City must engage auditors authorized to conduct a mandatory audit of financial statements in accordance with the legislation of Ukraine. Choosing a reputable auditor ensures the credibility and accuracy of compliance reports, strengthening confidence in the regulatory framework.
**Conclusion:**
The adoption of Resolution No. 163 underscores the government's commitment to creating a reliable and transparent regulatory environment in Diia.City. While providing temporary relief for existing residents, it restores the importance of annual compliance reporting and adherence to residency criteria in Diia.City in future years. As Diia.City continues to develop as a leading hub for digital innovation, compliance with regulatory standards remains paramount for sustainable growth and resilience in the face of dynamic challenges.
