Minister of Digital Transformation of Ukraine on booking and new industries in Diia.City

Diia.City's special legal regime turned two years old in February. It was launched on the eve of the full-scale invasion. Currently, it has over 830 resident companies with more than 62,000 professionals. In February 2024, the Ministry of Digital Transformation announced plans to extend the regime to manufacturers of electric vehicles and bionic prostheses to stimulate the industries. Other plans include increasing the number of resident employees.

Amid these shifts and the anticipation of the mobilization bill's adoption, anxiety in the industry is growing. IT professionals urge not to support the bill in its current form and complain that the document "creates tension between the business environment, society, and state institutions."

"The main problem is that many IT specialists are not registered and do not want to go to the Territorial Centres of Recruitment and Social Support," says Oleksandr Bornyakov, Deputy Minister of Digital Transformation of Ukraine on IT industry development. Liga.Tech discussed with him the issues of electric vehicle production in Ukraine, draft exemptions, and changes in Diia.City.

Electric vehicles and bionic prostheses

- You plan to extend the Diia.City regime to manufacturers of electric vehicles and bionic prostheses. Are there any prerequisites for the development of the electric vehicle industry in Ukraine?

- The world is moving towards abandoning internal combustion engines. By February 2024, Ukraine had a very good dynamic in the percentage of electric vehicle usage. Their number was increasing annually, and the charging infrastructure was developing. Its development continues now. We are fifth in Europe for electric transport development. For example, we had 80,000 vehicles in 2023, and Poland had 90,000. We have 12,000 charging stations and 80,000 fast chargers, and there are incentives.

But we face a dilemma – we have problems with both fuel and electricity. However, fuel prices will rise – it's all imported, and economically it's still more advantageous to invest in the electric vehicle industry. All our oil refineries have been bombed, and we do not extract oil. There were ideas to develop the Black Sea shelf, but it's not happening. Therefore, in our view, electric transport is more promising than continuing to use internal combustion engines.

Moreover, there is a lot of work for testing and production. Electric vehicles will become more autonomous. And we want to prepare the groundwork so that they can be tested and produced here. We have already created an entire ecosystem where it's very easy for any company to come to us, create production, create testing. Everything needed from the perspective of unmanned systems can be tested here.

- Who will enter Ukraine? Tesla, after Musk's recent statements, is even more toxic. Tesla's biggest competitor is the Chinese BYD, also a dubious story. And the Ukrainian automotive industry is not very alive.

- We want our manufacturers to appear in Ukraine. Many patents have been received. Mykhailo Fedorov found several teams working on electric vehicles. The idea is that such teams can be encouraged to enter the market, unlike the classic automotive industry. The cargo direction can be developed.

- Regarding prostheses – from what I understand, are there more Ukrainian developments in this field? What is your vision in this direction?

- There are not many companies that produce bionic prostheses. We know of two or three. But we were motivated by the urgent need. The logic is not always that there is a certain number of businesses and something needs to be created for them. Another logic is that there is a demand, and businesses need to hear it and take a step, take some risk, and satisfy the demand.

When we launched the Army of Drones, there were 3-4 manufacturing companies in Ukraine that had been in existence since 2014. However, they started to multiply like mushrooms. The same story is unfolding here. We see examples where products from Ukrainian companies are 10, 15, 20 times cheaper than their global counterparts. We aim to create conditions now so that instead of 2-3 companies, we have hundreds, similar to what happened with drones.

In Ukraine, we have many war-injured individuals who need assistance. Prosthetics globally have primarily focused on manufacturing leg prostheses, as in peacetime, people don't often lose their hands. This concerns tens of thousands of people in need of prosthetics. Everything has to work in sync with prosthetists, as the approach to each patient is individual. Today, there is still a bottleneck with prosthetists in Ukraine, not to mention a shortage of prosthetics.

Our policy is to tell everyone that we need this: "Here are very simple conditions, we will support you, and let's work together." The demand will be tremendous.

Dіia.City

- At the event dedicated to the second anniversary of Dіia.City, plans were announced to increase the number of resident specialists. What does this mean?

- It's about certain companies that hired 90% of people as sole proprietors (an individual entrepreneur is abbreviated FOP in Ukrainian law – ed.). One of the goals of Dіia.City is to bring this process out of the shadows. FOP was designed as a simplification system for self-employed individuals, not as a substitution for employment relationships.

In Dіia.City, we proposed that everyone transition to normal, fully acceptable conditions for the state, with the same tax level as FOPs. If we have 250,000-300,000 people working as FOPs, our goal is for them to work on gig contracts or employment relationships. And we are gradually moving in that direction. Another one and a half to two years will be needed for 80% of FOPs to transition to another form of employment.

- What changes are generally planned in Dіia.City this year?

- We plan to reintroduce an audit opinion and a compliance report for residents. This is necessary to avoid distorting the essence of Dіia.City by dishonest companies, given the declarative entry. The government has already supported the relevant resolution. Residents only need to submit a report for the previous year, 2023.

If a company does not meet the criteria in 2023 and in January 2024, it will not lose its resident status. However, if the criteria are not met, the tax authorities will charge the taxes lost by the state for periods of non-compliance. If the company has an anti-criterion as a result of reporting, it will lose its resident status.

Booking

- There is a pressing issue with booking. Sole proprietors (FOPs) aren't booked, and gig contractors don't either. IT specialists complain about the lack of a clear booking system.

- The main problem is that many IT specialists are not officially registered. They are reluctant to go to the Territorial Centres of Recruitment and Social Support, and no one knows what to do about it. Today, there may be a not-so-simple but understandable booking system. For critical companies, 50% of military conscripts are booked. It was a challenging compromise – the military wanted less, we wanted more, but we settled for half. We can't allow booking 100% today – who will then be left to fight? The military has a request for this.

All of this applies to Dіia.City residents. If a company is not a resident, it will be difficult to obtain critical status and book employees. Having Dіia.City resident status simplifies the process of becoming a critical company.

- Why can't FOPs and gig contractors be booked?

- It is legally established that sole proprietors cannot be booked, and this is not exclusive to IT. Regarding gig contracts, it was a matter of debate. We wanted to insist, but the Ministry of Defense had its position. They don't see specialties in gig contractors, unlike full-time employees, making it harder for them to track who to book.

If a person works on a gig contract, and it ends, they can submit an application and transition to a full-time position.

- Is the idea of booking with the payment of personal income tax still on the table?

- It is not yet implemented, but the idea is in the air. I cannot say when this plan will be approved, but it is under consideration by the Cabinet of Ministers.

Clearly, in light of the reduction in Western assistance, some predictability needs to be provided for those working specifically in Ukraine and specifically for Ukrainian enterprises. Hence, the idea was proposed that if you pay a certain amount of taxes there, we won't interfere with you; you will somehow contribute, even partially, but pay some taxes for the army. Today, this idea is being finalized in the Cabinet of Ministers.

Changes are being prepared regarding reporting, making it monthly, and our system will verify that some document confirming booking under these conditions appears. For Dіia.City, a higher salary threshold will be applied.

Make no mistake: Putin has shown no interest in ending his war – U.S. Ambassador to Ukraine