Klaus Kessler

Rechtsanwalt (Deutschland)
Phone: +49 89 928 780 702

Yuri Nikolaychuk

Rechtsanwalt (Ukraine), Dipl.-Jur., LL. M., Steuerberater
Associate Partner
Phone: +380 (44) 586 23 03

Can a Diia City resident pay for the work under gig contract in foreign currency?

Early 2022, a special Diia City legal regime introduced by the Law of Ukraine "On Stimulating the Development of the Digital Economy in Ukraine" No 1667-IX dated July 15, 2021 (Diia City Law), became operative. According to Mykhailo Fedorov, Vice Prime Minister of Ukraine and Minister of Digital Transformation of Ukraine, 262 companies have already become Diia City residents, and the tax revenues from Diia City residents of in February - April 2022 amounted to UAH 1.3 billion.

The Diia City regime provides tax advantages and greater freedom in regulating the relations between an IT specialist and his employer or client, a Diia City resident. The possibility to fix the remuneration of contractor in a gig contract in foreign currency is one of the freedoms, which is directly provided for by the Diia City Law (Paragraph 3, Article 19). The possibility of setting the remuneration in foreign currency raises a question of whether it is also possible to pay the remuneration under gig contract in foreign currency.

The answer to this question depends on who is the contractor under the gig contract - a resident of Ukraine or a non-resident for the purposes of the foreign currency regulations of Ukraine.

Although the Diia City Law allows setting the contractor's remuneration in a foreign currency, this law does not regulate the question of the currency in which the remuneration can be paid. This question is regulated by another law, namely the Law of Ukraine "On Currency and Currency Transactions" No 2473-VIII dated June 21, 2018 (Currency Law) and by several acts of the National Bank of Ukraine.

The general rule is that all settlements in Ukraine shall be carried out only in Ukrainian Hryvnia. The settlements in foreign currency are allowed between residents and non-residents in export and import transactions.

For the purposes of currency regulations, residents are defined as legal entities located in the territory of Ukraine, natural persons (citizens of Ukraine, foreign citizens, stateless persons) who have a permanent place of residence in the territory of Ukraine, including those who temporarily stay outside Ukraine, and natural persons who are registered as individual entrepreneurs in accordance with the legislation of Ukraine (Paragraph (9), Article 1 of the Currency Law).

Non-residents are natural persons (foreign citizens, citizens of Ukraine, stateless persons) who permanently reside outside Ukraine, including those who temporarily stay in Ukraine (Paragraph (8), Article 1 of the Currency Law).

Considering the above definitions of residents and non-residents, the settlements under gig contract in foreign currency are possible only if the contractor is a foreigner, stateless person or a citizen of Ukraine who has a permanent residence outside Ukraine. It is important to note that the information about the contractor's place of residence can be verified and confirmed by a passport or another document containing information about the person's place of residence.

If the gig contract is executed with an individual who has a permanent residence in Ukraine and/or is registered as an individual entrepreneur in Ukraine, the settlements under such contract shall be carried out in Ukrainian Hryvnia, even if the remuneration in the gig contract is fixed in foreign currency. This conclusion also applies in case when the contractor is staying outside Ukraine and even has a bank account outside Ukraine, but maintains a permanent place of residence in Ukraine.

It should also be noted that a contractor under gig contract, who is registered as an individual entrepreneur in Ukraine, continues to remain resident in Ukraine for tax purposes, also during his or her stay outside Ukraine. This means that such person is obliged to pay taxes in Ukraine. The government of Ukraine is currently taking actions to ensure that citizens of Ukraine who were forced to leave Ukraine due to the military aggression of the Russian Federation are protected from double taxation and maintain their tax residence of Ukraine.