📢 Recently, we heard an opinion that Dia City residents – startups – keep records of income according to the single tax rules (i.e., according to the cash method, and not according to the accounting rules – on an accrual basis).

The provision from which such opinions arise is as follows (clause 3 of Article 5 of Law No. 1667):
‘3. A legal entity that does not meet all the requirements stipulated in part one of this article has the right to be a resident of the Dia City, but not longer than until 31 December of the calendar year following the calendar year in which it acquired the status of a resident of the Dia City, provided that the following requirements are met:
[…]
3) the amount of income of a legal entity determined in accordance with sub-clause 2 of clause 292.1 of Article 292 of the Tax Code of Ukraine does not exceed the maximum amount of income established by clause 291.4 of Article 291 of the Tax Code of Ukraine for business entities of the third group of single tax payers in each of the following years:
in the calendar year preceding the calendar year in which the legal entity applied for the status of a resident of Dia City;
in the calendar year in which the legal entity applied for the status of a resident of Dia City;
in the calendar year in which the legal entity acquired the status of a resident of Dia City;
in the calendar year following the year in which the legal entity acquired the status of a resident of Dia City;’

Doubts are added by the reference to subparagraph 2 of paragraph 292.1 of the TCU, according to which:
‘292.1. The income of a single tax payer is:
[…]
2) for a legal entity – any income, including income of representative offices, branches, departments of such legal entity, received during the tax (reporting) period in monetary form (cash and/or non-cash); tangible or intangible form as defined in paragraph 292.3 of this Article’.

However, residents of Dia City cannot be single tax payers, but are only income tax payers: under the general system or the ECT. However, they are income tax payers.
Accordingly, income tax is determined according to the accounting rules (clause 134.1.1 of the Tax Code). That is, in most cases, it is accrued (and not on the basis of funds received).

Therefore, according to our assessment, clause 3 of Article 5 of Law No. 1667 regulates only the amount of startup income, which cannot exceed the amount for the purposes of the single tax in any form (cash and/or non-cash, tangible or intangible).

However, in order to confirm your own position and, therefore, the correctness of the income calculation for startups of Dia City residents, we recommend that you obtain your own TI from the tax authority (in this case, it should be a request for TI, not a request to the Ministry of Digital Transformation).

If you need to prepare a request for a TIN, please contact us:
м.: 097-191-20-20
e-mail: v.smerdov@1tax.com.ua

All tax services of First Pro Tax Law Firm are available at the link: https://www.1tax.com.ua/services/tax-services/

Recordings of our webinars can be found on our YouTube channel https://www.youtube.com/@FirstProTax