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About the nuances of resuming reporting for Diia.City residents in 2024

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Письменна Марія
Письменна Марія
Attorney
Ukraine / Kyiv

i

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Publication date: 16.05.2024

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**About the nuances of resuming reporting for Diia.City residents in 2024**

The recent Resolution of the Cabinet of Ministers No. 163 of February 13, 2024 restored the reporting obligations for Diia.City residents, which marked a significant development of the regulatory environment for Ukraine's digital economy. This recovery comes at a crucial moment, prompting a closer examination of the reporting procedure and the reasons behind the decision of the Cabinet of Ministers.

**Reference: Diia.City and special taxation regime**

Diia.City, created as a special tax regime for IT companies on January 1, 2022, has played a key role in promoting technological innovation and economic growth in Ukraine. According to this regime, residents have the opportunity to flexibly choose between income tax or tax on withdrawn capital, as well as other tax benefits aimed at stimulating investment and entrepreneurship in the IT sector.

**Reporting requirements and compliance**

In order to maintain the status of residents of Diia.City, companies must comply with certain criteria, including a predominant focus on IT services (90%), minimum remuneration thresholds for specialists (€1,200), and the required number of employees and specialists (9). Compliance with these criteria requires the submission of an initial compliance report, followed by annual reports accompanied by an independent auditor's report, a measure put in place to prevent potential abuse of the regime's privileges.

**Changes introduced by Resolution No. 163**

The restoration of reporting obligations by Resolution No. 163 shows the active approach of the Cabinet of Ministers in regulating the digital economy in changing conditions. The regulation mandates the submission of the 2023 annual compliance report by June 1, 2024, allaying concerns about potential reporting gaps during martial law.

**Consequences and motivation**

The decision to restore reporting requirements reflects several key considerations:

1. **Revenue Generation:** With a focus on increasing tax revenue, the government aims to ensure the integrity of the tax regime while reducing opportunities for tax evasion, which is critical in the current economic climate.

2. **National Security Concerns:** Amid geopolitical tensions and the need to strengthen defense capabilities, the government is seeking to strengthen the economic resilience of key sectors, including IT, by strengthening compliance measures and streamlining regulatory oversight.

3. **Strengthening Mobilization Efforts:** By strengthening selection criteria and reporting standards, the government is trying to align incentives for Diia.City residents (the ability to reserve up to 50% full-time employees) with broader national goals, particularly in the context of mobilization readiness and defense preparedness.

**Looking ahead: challenges and opportunities**

While the reinstatement of reporting obligations underscores the government's commitment to transparency and accountability in the digital economy, challenges remain in ensuring effective enforcement and regulatory compliance. As Diia.City continues to develop as a hub for innovation and investment, ongoing dialogue between stakeholders, regulators and industry associations will be essential to address complex issues of regulatory reform and foster sustainable growth.

In summary, the restoration of reporting requirements for Diia.City residents opens a new chapter in the evolution of Ukraine's digital environment, which is characterized by increased control, strategic alignment with national priorities, and an unwavering commitment to fostering innovation and resilience in the face of current challenges.

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