"There is an" additional tax "on the income of IT specialists of about 26%, "- appeal of the Association" It Ukraine " regarding changes in the foreign exchange market from the NBU

The Association" It Ukraine " reacted to the fact that the National Bank of Ukraine from May 21, 2022 lifted restrictions on setting the rate at which authorized institutions can sell foreign currency in cash to customers (previously, the corresponding rate should not deviate from the official one by more than 10%). According to the association, such a decision of the NBU may contribute to the outflow of currency from the country, and IT entrepreneurs will change their tax residence and move to foreign IT companies.

The full text of the association's appeal is given below:

On May 20, the National Bank of Ukraine issued Resolution No. 102, which lifted restrictions on setting exchange rates and allowed banks to write off funds from Hryvnia cards abroad at market rates. At the same time, according to the NBU Resolution No. 18 of February 24, 2022, non — cash currency, and, in particular, export earnings of enterprises and individual entrepreneurs, can be sold only at a fixed exchange rate of the NBU, which today differs significantly from the market.

Given that a significant part of the IT industry consists of individual entrepreneurs (sole proprietors) who provide services directly to foreign customers and receive revenue in foreign currency or cooperate with Ukrainian companies that, in the future, export their services, the remuneration of sole proprietors is very often attached to a certain equivalent in foreign currency.

As a result of this decision of the NBU, companies, when receiving foreign currency, must sell it at an artificially reduced rate, which does not allow paying remuneration to sole proprietors in the equivalent to the market rate. In addition, when receiving foreign currency, IT specialists themselves can sell it only at the exchange rate set by the National Bank of Ukraine, while buying foreign currency or paying with Hryvnia cards abroad is already at the market rate.

Thus, there is an "additional tax" on the income of IT specialists of about 26%. Such changes carry direct risks for all export industries, including the national IT industry, which is focused on the supply of services to foreign business entities. In fact, there is a direct expropriation of part of the profit of IT specialists (in the form of exchange rate differences). The consequences of such a decision are quite likely:

outflow of foreign currency income of individual entrepreneurs exporting services (in particular, services in the field of it) from Ukraine and accumulation of such income outside the country;change of tax residency by IT entrepreneurs in other countries, which threatens a sharp drop in foreign exchange earnings to Ukraine from it exports starting next month;transfer of IT specialists who are abroad or can leave there, from Ukrainian to foreign companies.

It is worth noting that the stable operation of the IT industry in the first quarter brought $2 billion in revenues to the country's economy, allowed the IT sector to allocate more than UAH 1 billion for humanitarian purposes, the IT business is almost the only one who pays taxes in advance and on a permanent basis buys technical equipment, equipment and other things necessary for our defenders of Ukraine. According to our updated data, already during the war, 77% of IT companies attracted new customers, 56% of them expect growth of 5-30% this year. 41% of companies predict that the current volumes will remain at the level of 50-100%.

Aware of the risks and challenges facing the national IT industry in connection with the aforementioned NBU regulation, the Association "IT Ukraine" appeals to the Board of the National Bank of Ukraine with a proposal:

Establish a currency exchange rate regime that takes into account the interests of export industries, and will allow you to return to a floating exchange rate in a short time.Allow the sale of part of the foreign currency earnings to exporters at the commercial rate with a gradual increase in this share;keep the possibility of settlements with credit/deposit cards and cash withdrawals abroad at the official exchange rate of the NBU (+10%) within the equivalent of 50 thousand UAH/month, and allow banks to apply the commercial rate only in excess of this volume, but without restrictions on amounts.

We are confident that the proposed measures will allow us to adopt a compromise solution that will help maintain the stable operation of all export sectors of the economy, in particular the IT industry, and thus ensure regular foreign exchange earnings from the export of Computer Services, which has the potential to grow even in war conditions.

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