Ukraine: Draft legislation concerning the digital economy

Development of the digital economy in Ukraine

Development of the digital economy in Ukraine

The Ukraine Parliament in June 2021 adopted draft legislation concerning amendments to the tax code of Ukraine regarding the development of the digital economy in Ukraine. The draft law provides for the taxation regime of companies that are registered with “Diia City,” their investors, employees, and “engaged gig-specialists.”

Under the draft law, a resident of Diia City would pay an 18% corporate income tax on the pre-tax income financial result subject to tax adjustments, or may opt to pay (1) 9% corporate income tax on the profit distributions, and (2) 18% corporate income tax on the value of transfer pricing adjustments arising from controlled transactions and CFC income. Dividend or interest payments, investments abroad, settlement of payables, shares/participatory interest buy-back, and certain other transactions may qualify as profit distribution for tax purposes.

According to the draft law, the individual (personal) income tax rate for employees and “gig-specialists” engaged by a resident of Diia City would be less than for employees of a regular Ukrainian company (5% as opposed to 18%). A resident of Diia City would pay a unified social contribution (USC) based on the statutory minimal wage of an employee, whereas a regular Ukrainian company would pay USC based on the actual salary. Wages of employees and gig-specialists engaged by a resident of Diia City would be subject to 1.5% military duty (same as wages of regular employees).

The draft law exempts from individual income tax capital gain realized by an individual on the sale of shares / participatory interests in a resident of Diia City, provided that the individual holds respective shares / participatory interests for more than a year. Dividends received from a resident of Diia City would be exempt from individual income tax if a resident of Diia City does not distribute dividends during the two subsequent years.

The draft law does not mention the tax implications for a company if its employees or gig-specialists were engaged as private entrepreneurs before the company applied for Diia City residency. The current version of the draft law provides that a resident of Diia City would pay USC based on the actual consideration payable to gig-specialist, rather than statutory minimal wage.

KPMG observation

Overall, while the draft law would lower the tax burden on residents of Diia City, conditions of certain tax incentives and historical risks for prospective Diia City residents may need to be addressed in the draft law before the second reading. 

For more information, contact a KPMG tax professional:

Philippe Stephanny | +1 202 533 3082 |



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