What personal income tax rate is applicable calculating wages (remuneration) to employees who are in the staff of a resident of Diia City and who are not the gig specialists (for example, cleaners, accountants)?

Organizational, legal and financial principles of operation of legal regime of Diia City, which is introduced with aim of stimulating development of digital economy in Ukraine by creating favorable conditions for conducting innovative business, development of digital infrastructure, attracting investments, as well as talented specialists are determined by the Law of Ukraine № 1667-IX as of 15.07.2021 "On stimulating development of digital economy in Ukraine" (hereinafter – Law № 1667).

Article 4 of the Law № 1667 stipulates that for carrying out economic activities resident of Diia City has a right to involve employees on the basis of labor contracts (agreements), gig specialists – on the basis of gig contracts according to Law № 1667, as well as contractors and executors, including individuals-entrepreneurs – on the basis of other civil-law or economic-law contracts in the legislative manner.

Peculiarities of income taxation of Diia City resident specialists are established in Paragraph 170.14 Note 1 Article 170 of the Tax Code of Ukraine № 2755-VI as of 02.12.2010 with changes and amendments (hereinafter – TCU); as well as to Sub-paragraph 170.14 Note 1.1 which stipulates that tax agent of taxpayer – resident specialist of Diia City during the accrual (payment) of income in the form of wages, other incentive and compensation payments or other payments and rewards in his / her favor, accrued (paid, provided) to the taxpayer in connection with labor relations or in connection with performance of the gig contract concluded in manner prescribed by the Law № 1667, are residents of Diia City.

Sub-paragraph 170.14 Note 1.2 Paragraph 170.14 Note 1 Article 170 of the TCU stipulates that 5% rate, determined in Paragraph 167.2. Article 167 of the TCU, is applicable to income of the taxpayer – resident specialist of Diia City, paid to him / her by resident of Diia City in the form of:

a) wage;

b) remuneration under the gig contract concluded according to the procedure provided for by the Law № 1667, including remuneration for creation and transfer of rights to works created to order;

c) royalties for creation of official works and transfer of rights to official works.

Herewith, Diia City resident specialists are the gig specialists who perform work (provide services) to the order and for the benefit (in interests) of Diia City resident on the basis of gig contract concluded in order, according to the Law № 1667 and / or persons who are in labor relations with resident of Diia City (Sub-paragraph 14.1.283 Paragraph 14.1 Article 14 of the TCU).

In addition, according to Sub-paragraph 170.14 Note 1.3 Paragraph 170.14 Note 1 Article 170 of the TCU, provisions of Sub-paragraph 170.14 Note 1.2 Paragraph 170.14 Note 1 Article 170 of the TCU are applicable to the total (annual) taxable income in the form of wages or remuneration accrued (paid, provided) to the taxpayer in connection with labor relations or in connection with performance of the gig contract, amount of which does not exceed the equivalent of 240 thousand EUR per calendar year at the official exchange rate of UAH to EUR, established by the National Bank of Ukraine as of January 1 of the reporting tax year. At the same time, for purposes of calculating this amount, income of resident specialist of Diia City taxed by the tax agent – resident of Diia City should not be included in order, provided for by Sub-paragraphs 170.14 Note 1.4 and 170.14 Note 1.5 Paragraph 170.14 Note 1 Article 170 of the TCU, at the rate established by Paragraph 167.1 Article 167 of the TCU (18%). In case that amount of received income exceeds the specified amount, rate established by Paragraph 167.1 Article 167 of the TCU is applicable to the amount of such excess and the taxpayer is obliged to reflect amount of such excess as a part of the total monthly (annual) taxable income for relevant reporting year and to submit annual property and income declaration according to the TCU and independently pay personal income tax on the amount of such excess.

In case that the tax agent who is a resident of Diia City in the relevant calendar month did not meet requirements specified in Sub-paragraphs 2, 3 of Part 1 Article 5 of the Law № 1667, such tax agent is obliged within the scope of tax calculation of the amounts of income accrued (paid) in favor of taxpayers-individuals and amounts of tax withheld from them, as well as amount of accrued single contribution to obligatory state social insurance to independently calculate the personal income tax at rate, established by Paragraph 167.1 Article 167 of the TCU, regarding income of Diia City resident specialists, provided for in Sub-clauses "a" – "b" of Sub-paragraph 170.14 Note 1.2 Paragraph 170.14 Note 1 Article 170 of the TCU, that were paid during such calendar month and to pay it before submitting tax calculation.

At the same time, amount of such tax paid by the tax agent is not included in the total monthly (annual) taxable income of Diia City resident specialists (Sub-paragraph 170.14 Note 1.5 Paragraph 170.14 Note 1 Article 170 of the TCU).

Given above specified, income in the form of wages, accrued to employees who are in labor relations with resident of Diia City, is subject to the personal income tax at 5% rate, subject to compliance with all requirements, determined in Paragraph 170.14 Note 1 Article 170 of the TCU.

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