During a meeting between Ukraine's Minister of Finance S. Marchenko and the Ukrainian Business Council, pilot options for implementing the Tax on Withdrawn Capital (TWC) were presented, including the possibility of this tax form being used by Diia City residents, a framework currently being developed by the Ministry of Digital Transformation.
However, one of the conditions for participation in the project was the requirement for a significant share of export revenue among project residents. Furthermore, the project provides for a reduced tax burden on the payroll, totaling up to 10%.
The Software Ukraine Association, which unites national companies that have been developing and implementing software products in Ukraine for over 25 years, strongly opposes the "export criterion."
The inclusion of an "export criterion" will trigger an outflow of qualified developers to export-oriented outsourcing companies. This will effectively lead to the loss of developers who currently build the IT products that sustain national IT infrastructure. Furthermore, it will grant unfair competitive advantages to IT export companies, allowing them to incur lower software development costs for the domestic market and offer better pricing in government tenders due to these preferences.
Beyond the IT companies operating in the domestic market, the disparity in compensation between IT specialists in export companies and those in other sectors of the economy (such as the financial sector, industry, etc.) will drain their internal IT departments of talent.
Moreover, WTO regulations classify such export support mechanisms as prohibited "red box" measures, including full or partial exemptions from direct taxes and social security contributions payable by exporting companies.
We understand that the government views the "export criterion" for Diia City residents as a safeguard against the misuse of this special regime for creative industries. However, we must point out that even in this format, such an approach will not prevent abuse; instead, it will lead to a forced symbiosis between IT outsourcers and national IT product companies or firms in other economic sectors, which will undermine the domestic IT market and the very idea of technological development in the country. To address the issue of qualifying potential Diia City residents as IT companies, the Association is ready to propose alternative mechanisms and invites the Ministry of Finance and the Ministry of Digital Transformation to discuss them.