Diia City Setup
Diia City is a special legal regime for the IT industry, providing special tax conditions for resident companies. It is outlined in two laws. The first one defines the concept and rules: who and under what conditions can be a resident of Diia City (Law of Ukraine “On stimulating the development of the digital economy in Ukraine” No. 1667-IX dated July 15, 2021). The second one describes the taxation model for Diia City residents (Law of Ukraine “On Amendments to the Tax Code of Ukraine and other laws of Ukraine on stimulating the development of the digital economy in Ukraine” No. 1946-IX dated December 14, 2021)
In the system, there are special settings for keeping records of Diia City residents. The settings are implemented in a separate company “SMART Kronus Ukraine (DiiaCity)”.
Step 1. Work time keeping
For gig specialists, the legislation stipulates special conditions for providing an annual vacation: a gig specialist has the right to an annual paid vacation in the performance of work (provision of services) lasting 17 working days, unless the gig contract specifies a longer duration of such a vacation.
For this purpose, the system provides for a separate absence reason “V_DIIA” for the annual vacation of a gig specialist, which is accounted for by work days. If necessary, you can indicate the period after which the gig specialist has the right to an annual vacation in the “Min Work Period” field (by law, this period is 6 months, unless otherwise specified in the gig contract).
Step 2. Payroll elements
Path: Payroll Elements
For the special legal regime of Diia City, separate payroll elements have been created for some accruals and tax benefits:
| Payroll Element | Description |
|---|---|
| 1019 | Payment calculation element for individual entrepreneurs for computer programming services. |
| 1102 | Accrual element for gig contract remuneration. |
| 1103 | Accrual element for royalties. |
| 1104 | Element of payment accrual for individual entrepreneurs working under the terms of a civil contract with a Diia City resident. |
| 3040 | Personal income tax element at a preferential rate of 5%. The basic amount of the personal income tax element on preferential terms does not include sick leave; it is calculated at the regular rate. |
| 3043 | Personal income tax element for additional benefits at a preferential rate of 5%. |
| 3045 | Personal income tax element for the amount of healthcare insurance at a preferential rate of 5%. |
| 3044 | Element of accrual of the Single Tax at a rate of 5% for individual entrepreneurs working under the civil contract terms with a resident of Diia City. |
| 3050 | USC element at a preferential rate (22% of the minimum wage). The rate is the same for all employees, regardless of whether the individual has a disability. The basic amount of the ESC element on preferential terms does not include sick leave, it is calculated at the regular rate. |
| 3052 | Element of accrual of USC at a preferential rate (22% of the minimum wage) for individual entrepreneurs working under the civil contract terms with a resident of Diia City. |
Step 3. Payroll Calc Groups
To make payments to employees, gig specialists and individual entrepreneurs under the terms of civil contracts of the special legal regime Diia City, separate payroll calculation groups have been created with calculation types and payroll posting groups. The following groups can be used for calculations:
| Payroll calculation group | Description |
|---|---|
| 4.DIIA_OSN | Labor contract with a Diia City resident |
| GIG | Gig contract with a Diia City resident |
| TsPD З FOP | A civil contract with individual entrepreneurs working under the terms of a civil contract with a Diia City resident |
The given payroll calculation groups consist of special calculation types filled with payroll elements in accordance with the current legislation.
The payroll posting groups specified for payroll elements in calculation types are conditional; they must be adapted to the client’s accounting in projects.
Step 4. Labor contracts
To be able to distinguish labor contracts by employees, gig specialists and individual entrepreneurs in the legal regime of Diia City, separate codes for the type of labor contract have been created in the system:
• DIIA_CITY - Labor contract with a Diia City resident. Set for contract type = “Labor contract” • GIG_DIIA - Gig contract with a Diia City resident. Set for contract type = “Civil contract” • FOP_DIIA - Civil contract between a Diia City resident and a specialist registered as an individual entrepreneur. Set for contract type = “Civil contract”
For the labor contract type codes DІIA_CITY and GIG_DІIA, the Diia City setting is enabled on the Labor contracts page (path: Administration / Labor contracts).
When creating a dismissal line for gig specialists under a gig contract with a Diia City resident, you must use special reasons for dismissal defined by law, namely:
• DIIACITY_1 - Agreement of the parties • DIIACITY_2 - Expiration of the gig contract • DIIACITY_3 - Unilateral refusal of the Diia City resident from the gig contract • DIIACITY_4 - Unilateral refusal of a gig specialist from the gig contract • DIIACITY_5 - Loss of a Diia City resident status • DIIACITY_6 - Grounds provided for in the gig contract
Step 5. Е-labor activity
According to the legislation, special attributes and events for reporting on e-labor activities are defined for the period of work under a gig contract.
When creating lines in a Labor Contract with the “Civil Contract” type and a type code with the Diia City attribute, the following values will be entered in the fields on the Labor Contracts page:
| Contract type | Work mode | Event type | Operation type | Event code | Document type |
|---|---|---|---|---|---|
| Civil contract | Main work | 22 | Hire | 4 | 1 |
| Civil contract | Main work | 22 | Dismissal | 5 | 1 |
When lines are approved, records in the Е-labor activity will be created (read more in "Е-labor activity").
Step 6. Sick leave calculation
For Diia City residents, a separate procedure has been established for calculating the average salary to determine the amount of temporary disability benefits (including caring for a sick child or sick family member), maternity benefits per month paid to employees and gig specialists of Diia City residents. The amount of such benefits should not exceed the amount of salary (income) of such persons from which insurance premiums were actually paid (single contribution).
By default, in the system, the payroll element with unified social contribution for Diia City is calculated based on the minimum wage.
In order for sick leave of Diia City workers and gig specialists to be calculated in accordance with the law, the “FSI limit element filter” field has been created on the “AE Calculation Setup” page. The settings can be filled out only for lines with the enabled "Use FSI Limits” setting.
In the field, you must indicate payroll elements with the “USC” type, which should be analyzed when determining the FSI limit. With the specified values in this field, when calculating the FSI limit, the values of FSI Limit (maximum base for accrual) and the value specified in the 104 “Corr. Amount” field are compared for each of the USC elements defined in “AE Calculation Setup”. To calculate the FSI limit for the average earnings, a smaller amount is used. Currently, when calculating the USC for Diia City residents, in the 104 “Corr. Amount” field, the value is limited to the amount of the minimum wage. Therefore, this setting allows you to calculate the average salary for sick leave based on the legally established base for calculating USC for Diia City residents – the minimum wage.
In addition, for workers and gig specialists of the “Diia City” legal regime, the percentage of sick leave payment depending on the length of insurance period does not apply. Therefore, on the Person card of such workers and gig specialists, it is necessary to enable the “Sick Leave Payment Benefit” setting.
Step 7. Calculation of annual paid vacation of a gig specialist
In the standard solution, the 1020 (Regular Vacation) payroll element is assigned to the V_DIIA time activity code, to be able to maintain a balance of days of such absence. At the same time, accruals for such a vacation are included in the calculation of the gig specialist’s remuneration. That is, the remuneration is calculated in proportion to the working hours worked and hours according to the V_DIIA activity code. This approach, from the legislative perspective, makes it possible to tax payment for the time spent on an annual paid vacation under preferential conditions, because such absence is included in the remuneration for a gig contract. At the same time, this approach can be used only if the inclusion of payment for the gig specialist’s annual vacation in the remuneration is provided for by the terms of the gig contract.
In the case where the gig contract provides for other terms of payment for the time spent on the annual paid vacation, it is necessary to create a separate payroll element for the V_DIIA time activity code and perform the calculation in it. The taxation aspects of such an accrual must be clarified individually and, depending on this, decisions must be made at what rates and under which payroll elements to calculate taxes on such an accrual.
Step 8. Printed forms of reports
In addition to the standard forms available in the general functionality, reports on transactions with individual entrepreneurs have been implemented, namely:
- Agreement on the provision of services;
- Invoice for payment for services provided;
- Certificate of acceptance and transfer of services provided.
Agreement on the provision of services – the report runs from line of a Labor Contract of the “Hire” type.
Invoice – the report runs from the Posted Payroll Document. In the report settings, you can specify filters by the number of the line that needs to be printed or by the payroll element code. Mass printing of data is also available, namely, an additional invoice layout has been created, which can be offered to users if necessary.
Certificate of acceptance and transfer of services provided – the report runs from the lines of the Paysheet and posted Paysheet. Mass printing of data is available, namely an additional certificate layout has been created, which, if necessary, can be offered to users.
In order for the required reports to be displayed when selecting layouts for printing, they must be selected on the Select Report page:
- the layout of the agreement for the provision of services must be selected in the “Hire” type of use (report number 70950640);
- the invoice layout must be selected in the “Posted Payroll Document” type of use (report number 70950727);
- the layout of the certificate of services provided must be selected in the “Paysheet Line” type of use (report number 70950728) and “Posted Paysheet Line” type of use (report number 70950729).
Also, to completely display information about individual entrepreneurs in reports, for a Person in their documents it is necessary to fill in the line with the Person’s document type “15” – the number of entry in the Unified State Register of Legal Entities and Individuals.
Step 9. Import of settings for Diia City
To quickly import settings for the Diia City legal regime, a "DIIA_CITY" configuration package has been created.