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1. Ukrainian Parliament passes several bills providing for preferential tax treatment for IT industry participants

On 24 May 2012 the Ukrainian Parliament adopted the Law of Ukraine “On Introduction of Changes to Chapter XX ‘Interim Provisions’ of the Tax Code of Ukraine Regarding the Peculiarities of Taxation of Software Industry Participants” (Draft No.9744). It introduces special taxation rules for corporate income tax, VAT and individual income tax for software industry participants from 1 January 2013 to 1 January 2023.

Corporate Income Tax

The Law sets the corporate income tax rate at 5% for software industry participants.

The preferential tax treatment is available to software industry participants that perform the following business activities:

1. release of software, business applications and computer games;
2. computer programming and all types of activities related to creation, modification, testing, provision of technical support and software documenting;
3. rendering advisory services on informatization, including computer system planning and development;
4. computer equipment maintenance;
5. development and implementation of technical information complexes, systems and networks;
6. data processing, allocation of information on websites and related activities.

A software industry participant must meet certain requirements during the last four consecutive tax reporting quarters in order to qualify for preferential tax treatment. Newly established software industry participants are also eligible provided that they meet certain criteria.

VAT

According to the Law, supply of software produced in the course of the above business activities is exempt from VAT.

Personal Income Tax

Software industry employees whose job positions are on the list approved by the Cabinet of Ministers pay personal income tax of 5% on:

1. income in the form of salary;
2. other benefits under labor agreements (contracts).

If the so calculated tax is less than the tax due on two minimum wages (as of 1 January of the reporting year) at a rate of 15%, then the tax rate is calculated according to the following formula:

PIT Rate = 2 x Minimum Wage x Normal Rate / Wages, where:

Minimum Wage – the minimum wage as of 1 January of the reporting year;

Normal Rate – the PIT rate of 15%;

Wages –the amount of wages in the form of salary and other benefits under labor agreements (contracts).

The Law also sets forth a procedure for obtaining a certificate of registration as a software industry participant benefiting from the incentive.

If the President signs it, the Law will take force on the day following the day of its publication.

Unified Social Security Contribution

On 24 May 2012, Parliament also adopted the Law of Ukraine “On State Support for the Development of the Software Industry” (Draft No.8267). This Law prescribes a special procedure for calculating the unified social security contribution and its allocation between the different types of compulsory state social insurance for software industry participants between 1 January 2013 and 21 December 2017.

The unified social security contribution is calculated in the following way:

1. employers use the rate for the first class of professional risk (currently, 36.76%) due on two minimum wages (as of the date of accrual) per each employee (including non-residents), adjusted for the number of days when the employees worked, and on the fees paid to individuals for work (services) under civil contracts;
2. employees, including non-residents, pay at the rate set by the legislation (currently 3.6%) due on two minimum wages (as of the date of accrual) per each employee (including nonresidents), adjusted for the number of days when the employees worked.

If the President signs it, the Law will take force on the day following the day of its publication.

We will keep you informed on any further developments.

Contacts:
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Email: kyiv@ua.ey.com