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The Ministry of Digital Transformation presents Diia City, free economic zone for creative businesses. So far, it’s just a concept

The Ministry of Digital Transformation is working on the concept of a large-scale Diia City project, a virtual model of a free economic zone for representatives of the creative economy. It will allow Ukrainian and foreign tech companies to open businesses and R&D centers in Ukraine under simplified procedures, to work according to the English Law, and pay 10% of tax.

Thus, the Ministry wants to simplify the conditions for doing business and attract foreign investments to Ukraine.

The concept was presented by Oleksandr Bornyakov, Deputy Minister of Digital Transformation of Ukraine. The editor of AIN.UA talks about the new project.

About Diia City

Diia City is an economic model for testing simplified business rules. If the model shows positive results, it can form the basis for the economic transformation of the whole country.

The “testers” of the model will be tech companies, as well as businesses in the field of the creative economy. Tax breaks, deregulation, and special administrative services will be provided for them.

All services, from business registration to taxes, will be available online for Diia City residents. It is also is planned to create a special embassy for them, as well as a tax office similar to the office of large taxpayers, and in the future – to launch a technology park with infrastructure like in Silicon Valley.

Taxes

There will be only two types of taxes in Diia City: 10% distributed profit tax and 10% labor tax. There will be no other taxes.

It is not yet clear how labor taxes will be calculated since possible forms of employment in Diia City are being discussed. The initiative group proposes to allow both regular employment under the Labour Code and cooperation with individual entrepreneurs. In both cases the tax amount should be reduced to 10% of the profit: 5% will be paid by the employee and another 5% by the company.

Besides, residents will be able to import equipment for their R&D centers without taxes and fees. Also, residents will be offered special currency regulation conditions so that they could freely make settlements with counterparties and partners abroad.

Who can become a resident of Diia City?

Bornyakov said about some restrictions, which are discussed in the project team.

  • It is proposed that only companies with real staff will be allowed to be a resident, but not companies consisting of a director and a deputy director. The minimum number of employees is under discussion.
  • Besides, employees of resident companies should have high salaries. The level is also under discussion, but it is expected to be about $1,500 per month.
  • Residents should also have a significant share of exports of their products or services. The size of this share is not specified yet.

As for the economic spheres and business directions, the list is small. According to Bornyakov, only companies with specific types of economic activity will be accepted as residents.

What are the benefits?

According to the project initiators’ calculations, 80,000 new jobs will be available in Ukraine in 2021, thanks to the launch of Diia City. The market of the creative industry will grow to $11.8 billion by 2025 (in 2019, it was $6.2 billion).

However, the project is unlikely to be launched this year.

Launch date plans

At the moment, Diia City is in the discussion phase. Legislative amendments are needed for the first steps of implementation. As Bornyakov noted, in its essence, Diia City is a bill that will have special conditions for the creative class.

Currently, the team is negotiating with the responsible ministries in order to agree on some issues: in the field of taxation, employment, in particular, work with individual entrepreneurs, as well as the implementation of the principles of English law in Ukrainian courts.

Bornyakov emphasized that the roadmap of the project is also at the idea stage. It is not necessary to wait for realization this year “It is the more likely prospect of the future 5-10 years.”

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