[Editor's Note: This article first appeared in the Kyiv Post's Legal Quarterly published on Sept. 26, 2014.]
Ukraine’s information technology companies already have considerable benefits, including cheaper taxes, but the industry is looking for improvement from new faces in government who understand the IT world.
One of the repeatedly stated goals of the new Ukrainian government — and of the new parliament, which will be elected on Oct. 26 — is to turn the country into an innovative state where the information technology business is acknowledged as an important part of the economy.
Several well-known people from this sector are making their way to the top — including ex-head of Microsoft Ukraine Dmytro Shymkiv, the deputy chief of staff to President Petro Poroshenko, and Internet businessman Oleksandr Olshanskiy, who is running for parliament as an independent candidate in a single-mandate district.
In addition to them, Oleksiy Skrypnyk, the CEO and founder of outsourcing software developer ELEKS and Vlad Voskresensky, CEO and co-founder of successful startup InvisibleCRM, are both on the lists of the Samopomich party, holding the third and 24th positions respectively.
For the Ukrainian IT sector, new faces in politics mean a chance for significant deregulation and simplification of the laws governing its existence.
Uncertainty in the IT market “was a barrier to legislative initiatives,” commented Valentina Siletska, a lawyer at Syutkin and Partners.
Today’s market players have identified a few particular spots where changes in laws may have a positive impact on different players, from outsourcing software developers, whose total revenue reached $2 billion in 2013, to aspiring tech entrepreneurs.
For IT businesses
Relatively large Ukrainian IT companies already enjoy a few benefits making their work easier — and a lot cheaper in terms of taxes. However, there is still room for improvement.
“Today IT companies have a lowered profit tax rate of 5 percent (used to be 15 to 17 percent), while their employees pay personal income tax of 5 percent instead of 15 percent,” Siletska said.
Most of the new pieces of legislation that IT companies might expect in the future are listed under the Easy Business initiative presented in the middle of August by Shymkiv and former Economy Minister Pavlo Sheremeta.
In particular, Shymkiv and his colleagues propose to simplify or even cancel altogether the licensing procedure for electronic money systems, adopt a law governing e-commerce that would further aid its development and “safeguard critical telecommunications infrastructure” – namely protecting businesses from having their servers seized by security agencies, something that has repeatedly happened in recent years.
Also, Shymkiv marked the necessity of guaranteeing equal opportunities to receive 3G communications licenses for all contenders, as well as simplifying the employment registration procedure for those foreigners who work in the IT sector.
For entrepreneurs
One of the most important legislative problems that entrepreneurs face is that Ukrainian citizens are not legally allowed to open bank accounts and found companies abroad. These restrictions complicate matters for teams that build products for global markets, explained BVU Group founder Denis Dovgopoliy.
In about 20 years since the respective decree was passed, Ukrainian entrepreneurs have had a choice of either registering a company abroad in breach of the law, or agreeing with a foreigner who would register an entity and then give it to the real founder — or sell for a symbolic $1. Both ways, however, bear risks that affect Ukrainian startups’ valuation. The Ukrainian government can, for instance, theoretically cancel the registration of the company in court (although it has never happened), while the initial founder could also file a lawsuit to dispute a transfer.
“These risks lower pre-money valuation of Ukrainian startups for investors abroad by approximately 10 percent,” Dovgopoliy said.
This law, however, is incredibly difficult to cancel altogether, as it governs many other sectors and company types, not only startups. That’s why Dovgopoliy says that a realistic solution would be to raise the threshold, allowing Ukrainians to found companies abroad with a statutory fund limited by €500,000. This problem is also mentioned in the Easy Business list and could be solved in the observable future.
Ukrainian entrepreneur Vlad Voskresensky cites other problems. Among them are labor regulations, including those governing out-staffing, non-solicitation, non-competition and stock options as part of a compensation scheme, etc. Also Voskresenskiy lists clarification of questions regarding public-private partnerships and intellectual property as his priority in Verkhovna Rada.
For government
There are also IT-related initiatives on the governmental level. The Easy Business list includes points such as introduction of electronic document fl ow that would be legally equal to traditional papers, as well as allowing access to the database of tender documentation to everyone who wants to process and mine it.
Oleksiy Skrypnyk also mentioned that one of his tasks in parliament will be to work on an all-levels e-government system.
“Our current e-government systems are chaotic; we’re trying to build a house without a foundation. We, directors of IT companies, have a vision on this. We need about a year to build a new solution,” Skrypnyk said.
In general, one of Skrypnyk’s goals is to provide conditions for IT specialists to work not only as outsourced software developers, but also create products for the country. In his opinion, similar to that of businessman and political candidate Olshanskiy, greater success will only be possible when some of the key problems are solved involving the army, economy, and corruption.
Andrii Degeler is the Kyiv Post’s information technology reporting fellow. Degeler has been covering the IT business in Ukraine and internationally since 2009. His fellowship is sponsored by AVentures Capital, Ciklum, FISON and SoftServe. He can be reached on Twitter (@shlema) or [email protected].
