TAXATION OF IT COMPANIES: CURRENT CHALLENGES AND PROSPECTS

Abstract

The article examines the current system of taxation in Ukraine’s IT sector, highlighting its strategic importance for national economic growth, export capacity, and post-war recovery. It analyzes the interaction between general tax legislation and specialized regimes, particularly the Diia City framework, which aims to stimulate technological development through preferential rules and alternative corporate taxation models. Special attention is given to the dual structure of IT market participants – legal entities and individual entrepreneurs – whose differing taxation mechanisms create administrative complexity, risks of revenue leakage, and challenges in social contributions and VAT compliance. The study evaluates the effectiveness of existing policies in attracting investment, retaining human capital, and ensuring long-term fiscal sustainability. It also explores challenges related to cross-border income, intellectual property taxation, transfer pricing, and alignment with evolving international standards for digital economy taxation. The article emphasizes the need for clearer eligibility criteria for tax incentives, improved digitalized tax administration, enhanced cooperation between platforms and tax authorities, and comprehensive monitoring of the fiscal impact of preferential regimes. In conclusion, the research proposes policy recommendations aimed at achieving an optimal balance between fiscal necessity and economic competitiveness in the IT sector. Key proposals include strengthening human-capital development initiatives through education-linked tax benefits, introducing transitional tax incentives to encourage informal business formalization and reduce shadow economy participation, adopting adaptive evaluation models for periodically reviewing tax benefits based on measurable outcomes, and establishing transparent reporting requirements for beneficiaries of preferential regimes. These comprehensive measures are presented as essential components for ensuring transparency, fairness, and institutional resilience in Ukraine's IT tax environment, while maintaining its attractiveness in the global digital market.