UKRAINE'S DRAFT TAX CODE IMPACTS NEGATIVELY ON IT OUTSOURCING INDUSTRY
Ukraine is the leading country in Central and Eastern Europe for IT outsourcing. Will it last long?
Igor Ryabets, Softengi software engineering company
Kyiv, Ukraine, Tuesday, September 28, 2010
U.S.-Ukraine Business Council (USUBC)
Washington, D.C., Tuesday, September 28, 2010
KYIV/WASHINGTON, D.C. - Softengi, a large Kyiv, Ukraine, based software engineering vendor and outsourcing service provider, as all software vendors in Ukraine, are today closely following all the developments around the new Tax Code of Ukraine.
The draft Tax Code announced recently by the government of Ukraine wasn’t even close to what had been hoped for in tax reform, and, in fact, contains numerous new provisions that negatively impact the business environment in Ukraine and the IT outsourcing industry in particular according to the U.S.-Ukraine Business Council (USUBC), www.usubc.org, in Washington, D.C.
Discussions about the Tax Code have been underway for almost three months and IT companies are actively seeking improvements to the draft Tax Code as the tax reform may either boost the development and growth of the IT industry in Ukraine or destroy it.
The IT outsourcing industry in Ukraine has shown considerable growth during the last decade. Recent studies indicate that currently Ukraine holds its position among the most attractive outsourcing destinations and is surely moving towards the top of the list.
UKRAINE IN 11TH PLACE IN THE TOP 20 LIST OF LARGEST GLOBAL DELIVERY CENTERS
Thus, according to Annual Global Outsourcing Industry analysis GS100, Ukraine is on 11th place in the Top 20 list of the largest global delivery centers in terms of number of people deployed. Ukraine is the first among Central and Eastern European countries ahead of Russia, Belarus and Poland in this list.
Similar result are shown in the catalogue of IT outsourcing providers from Central and Eastern Europe – www.ITOlist.eu (the project of Central and Eastern European Outsourcing Association – www.ceeoa.org). According to the 2007 and 2008 CEE IT Outsourcing Review, Ukraine holds the first position among CEE countries in terms of market value, number of IT outsourcing companies and number of professionals involved in IT outsourcing services.
IT OUTSOURCING SERVICES IN UKRAINE SHOWS CONSTANT GROWTH
For the last decade the market value of IT outsourcing services in Ukraine showed constant growth, except for the last couple years, where due to the global uncertainties of the economy IT outsourcing activities remain sluggish.
Besides the global uncertainties of the economy, the Ukrainian IT outsourcing industry is greatly affected by the economic and political situation in the country.
Many other countries who are competitors of Ukraine in IT outsourcing have established special tax policies for outsourcing providers thus placing them in more favorable position and promoting industry growth.
For example, India, China, Brazil, Russian Federation, and Romania have several times lower tax rates for software vendors than Ukraine. Belarus has a special Government program for the stimulation of the software development industry.
The Belarus Hi-Tech Park in Minsk provides a comfortable business environment for the IT business with its special taxation conditions which are unprecedented for European countries.
NOW IS A CRITICAL TURNING POINT FOR UKRAINIAN IT INDUSTRY
Now seems to be a turning point for the Ukrainian IT industry. Depending on how wise the decisions are the government will make and what specific steps will be taken towards in the near future to establish a favorable business environment, the IT outsourcing industry in Ukraine will either pick up the pace and blossom over the next years or go into the shadows, lose its competitive advantage and slither into a long depression.
Ukrainian software vendors, through their professional alliances including the U.S.-Ukraine Business Council (USUBC)(www.usubc.org) are working to introduce a new, favorable position for the IT industry, with provisions in the Tax Code aimed to assist software companies sustain and move ahead of the competition.
Softengi, as a member of the Ukrainian Hi-Tech Initiative, a leading Ukrainian alliance in offshore software development, is also engaged in the new Tax Code discussions and hopes that the voice of the IT Outsourcing industry will be heard by officials in the government and legislators in the Parliament and taken into account.
NOTE: Softengi is a Kyiv, Ukraine based software engineering vendor and outsourcing service provider, www.softengi.com. Softengi is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.
LINK: To see additional charts on Ukraine's IT business go to http://www.softengi.com/133-ukraine-it-outsourcing.html and also go to
FOR ADDITIONAL INFORMATION: For additional information contact Ruslan Olkhovsky, CEO & Managing Partner, Softengi, Kyiv, Ukraine, Ruslan.Olkhovsky (at) softengi.com.