At what personal income tax rate is the salary of an employee who works part-time for a resident of Diia City on the basis of an employment contract taxed?

At what personal income tax rate is the salary of an employee working for a Diia City resident on a part-time basis under an employment contract (in his/her free time from the main job with another employer) taxed?

The organizational, legal and financial framework for the functioning of the Diia City legal regime, which is introduced to stimulate the development of the digital economy in Ukraine by creating favorable conditions for conducting innovative business, building digital infrastructure, attracting investment, and talented professionals, is defined by the Law of Ukraine dated 15.07.2021 No. 1667-IX "On Stimulating the Development of the Digital Economy in Ukraine" (hereinafter - Law No. 1667).

According to Art. 4 of Law No. 1667, a Diia City resident has the right to engage employees on the basis of employment agreements (contracts), gig-specialists on the basis of gig-contracts in accordance with Law No. 1667, as well as contractors and performers, including individual entrepreneurs, on the basis of other civil law or commercial law contracts in accordance with the procedure established by law.

Pursuant to sub-clause 14.1.283 of the TCU, the Diia City resident's specialists are gig workers - specialists who perform work (provide services) on the order and in favor (in the interests) of the Diia City resident on the basis of a gig contract concluded in accordance with the procedure provided for by Law No. 1667, and/or persons who are in an employment relationship with the Diia City resident.

Employment relations with employees and gig-specialists of a Diia City resident are regulated by Section V of Law No. 1667, Article 16 of which provides that when hiring an employee, a Diia City resident may enter into a contract with him/her as a special form of employment agreement aimed at providing conditions for initiative and independence of the employee, taking into account his/her individual abilities and professional skills, and increasing mutual responsibility of the parties.

Article 5 of Law No. 1667 defines the requirements for a resident of Diia City, paras. 2, 3 of part one of which stipulate that:

♦ the amount of the average monthly remuneration of engaged employees and gig-specialists, starting from the calendar month following the calendar month in which the status of a Diia City resident was acquired, each calendar month is not less than the equivalent of EUR 1,200 at the official exchange rate of the hryvnia against the euro set by the National Bank of Ukraine as of the first day of the relevant calendar month;

♦ the average number of employees and gig-specialists of the legal entity (if engaged) at the end of each calendar month, starting from the calendar month following the month in which the legal entity acquired the status of a Diia City resident, is at least nine people.

That is, subpara. 2, 3 of Part 1 of Art. 5 of Law No. 1667 does not provide for the division of employees of a Diia City resident into full-time and part-time employees.

The peculiarities of taxation of income of specialists of Diia City residents are established by clause 170.¹⁴¹ of the TCU, in accordance with sub-clause 170.¹⁴¹.1. which provides that the tax agent of a taxpayer - a specialist resident of Diia City when accruing (paying) income in his favor in the form of wages, other incentive and compensation payments or other payments and remuneration accrued (paid, provided) to the taxpayer in connection with labor relations or in connection with the execution of a gig contract concluded in accordance with the procedure provided for by Law No. 1667, are residents of Diia City.

In accordance with sub-clause 170.¹⁴¹.2 of the Tax Code, the income of a taxpayer - a specialist resident of Diya City, paid in his favor by a resident of Diya City in the form of

a) salary;

b) remuneration under a gig-contract concluded in accordance with the procedure provided for by Law No. 1667, including remuneration for the creation and transfer of rights to works created on request

c) author's remuneration for the creation of a work for hire and transfer of rights to works for hire.

In addition, in accordance with subpara. 170.¹⁴¹.3 of the TCU, the provisions of subpara. 170.¹⁴¹.2 of the TCU apply to the total (annual) taxable income in the form of wages or remuneration accrued (paid, provided) to the taxpayer in connection with employment or in connection with the execution of a gig contract, the amount of which does not exceed the equivalent of EUR 240000 per calendar year at the official exchange rate of the hryvnia against the euro set by the National Bank as of January 1 of the reporting tax year.

For the purposes of calculating such amount, it does not include the income of a specialist of a resident of the Diia City, taxed by a tax agent - a resident of the Diia City in accordance with the procedure provided for in subparagraphs 170.¹⁴¹.4 and 170.¹⁴¹.5 of the Tax Code, at the rate of 18% established by paragraph 167.1 of the Tax Code.

If the amount of income received exceeds the specified amount, the rate set forth in clause 167.1 of the TCU shall be applied to the amount of such excess, and the taxpayer shall reflect the amount of such excess in the total monthly (annual) taxable income for the relevant reporting year and submit an annual property and income tax return in accordance with the TCU and pay personal income tax on the amount of such excess.

If the tax agent - a resident of Diia City in the relevant calendar month did not meet the requirements set forth in subpara. 2, 3 of part 1 of Article 5 of Law No. 1667, such a tax agent is obliged to independently calculate the amount of income accrued (paid) in favor of individual taxpayers and the amount of tax withheld from them, as well as the amount of accrued single contribution for obligatory state social insurance, at the rate established by para. 167.1 of the Tax Code of Ukraine on the income of the Diia City resident specialists provided for in subparagraphs "a" - "b" of subparagraphs 170.¹⁴¹.2 of the Tax Code of Ukraine, which were paid during such calendar month, and pay it before submitting the tax calculation.

At the same time, the amount of such tax paid by the tax agent shall not be included in the total monthly (annual) taxable income of the specialists of the resident of Diia City (sub-clause 170.¹⁴¹.5 of the Tax Code).

In view of the above, the salary of an employee who works part-time for a resident of Diia City on the basis of an employment contract is subject to personal income tax at the rate of 5%, provided that all the requirements set forth in clause 170.¹⁴¹ of the Tax Code are met.