Acknowledging the importance of the IT sector in Ukraine's economy, the government has provided tax breaks to qualified companies and individuals in the IT sector that fall under the category of "subjects of the software product industry". From the period of January 1, 2013 until January 1, 2023, qualified IT companies and individuals are subject to a reduced profit tax rate of only 5%, provided they maintain a separate accounting of income and expenses of their activity in this sphere.
In order to qualify for the tax benefits, IT companies and individuals must meet the following criteria over the previous four tax quarters:
- The proportion of income from qualified IT activity must be no less than 70 percent of the income from all types of activity involving the sale of goods, performance of works and provision of services;
- The initial value of fixed assets and/or intangible assets must exceed 50 minimum monthly salaries established on January 1 of each reporting year (currently 50 x 1,147 UAH = 57,350 UAH);
- Absence of a tax debt before the state budget;
- Absence of court ordered bankrupt status.
IT companies and individuals, which are registered after January 1, 2013, need only meet the above criteria for a period of at least two full tax quarters. The following activities in the IT sector qualify for the IT tax benefits:
- The publication of software, including publication, sale, lease and/or licensing of software systems, service and game platforms, non-system software (including the translation or adaptation of non-system software for the initial market: operational systems, business and other applications, gaming platforms, etc.);
- Computer programming and all types of activities involving the writing, modification, testing and technical support of software, including the development of structures and content and/or writing of command systems necessary for the creation and performance of system programs, applications, databases, websites, etc.
- Consulting on informatization issues, including the planning and development of computer systems which connect computer equipment, software and communications technology, consulting on the types and configuration of computer technology and software (analysis of technical needs, optimal solutions, etc.) and consulting on all technical aspects of computer systems, servicing and technology;
- Administration of computer equipment, including local management for clients, data processing and other related services, etc.
- The creation and implementation of IT systems and networks;
- The processing of data and placement of data on websites and database activity (access to data, public or limited data requests or computerized management, etc.).
Moreover, those qualified IT companies and individuals which supply certain software products are temporarily exempt from VAT from January 1, 2013 until January 1, 2023. Such software products include (i) the results of computer programming (operational systems and system, application, recreational and/or educational computer programs and their components) and Internet sites and/or on-line services; and (ii) cryptographic protection of information.
Notably, services involving the planning, publication, programming, testing, installation, implementation and servicing of software and software technology is not exempt from VAT, as these services do not fall under the definition of "supply of software" in the Tax Code of Ukraine. Operations involving the delivery of discs and computers with previously installed software also do not qualify for VAT exemption.
Procedurally, IT companies and individuals must register with the tax authority at their place of location in order to receive the status of a subject of the software product industry and enjoy the IT tax benefits. It's that easy!
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.