Why the New Procedure for Reservation of Conscripts is not What IT Companies Were Expecting

Andriy Lytvyn, Attorney at Law, Insolvency Receiver, Head of Kharkiv Office

Source: NV Business

On 27 January, a new Procedure for reservation of conscripts was approved, as well as the Procedure and criteria for determining business activities critically important for the functioning of the economy. What’s wrong with the new legislation?

On 27 January, a new Procedure for reservation of conscripts was approved, as well as the Procedure and criteria for determining enterprises, institutions and organizations critically important for the functioning of the economy and ensuring the livelihood of the population during special period of time.

Allowing IT companies to reserve their employees, who are eligible for military duty, through obtaining the status of an economy-critical enterprise, was one of the key changes expected in the IT community.

At first glance, IT companies got what they wanted, but if you analyze the text of the Procedure and Criteria, it may be concluded that not everything turned out the way they wanted.

It should be noted that a company that is critically important for the economy can reserve 50% of its potential conscripts, and a conscription exemption is granted to such persons for six months. In case of a justified need, such a number of reserved persons may exceed 50%, while there are no criteria and procedure for determining such a justified need in the Procedure. The heads of such companies and their deputies are subject to reservation regardless of their military rank, age and military occupation.

According to the Criteria, a company can be classified as critically important for the economy if it meets at least three of the seven criteria:

• the company is a resident of Diia City;
• the company has no single social payment liabilities;
• the average salary of the reserved employees for the last quarter is not less than the average salary in the region for the IV quarter of 2021;
• the amount of taxes paid exceeds the equivalent of EUR 1.5 million;
• the amount of foreign currency revenues exceeds EUR 32 million;
• the company is of strategic importance for the economy and security in accordance with the list of state-owned objects approved by the government;
• is important for the branch of the national economy or the needs of the territorial community.

In case of compliance with the criteria, the IT company files an application with the Ministry of Digital Transformation by adding copies of supporting documents, based on the results of consideration of which a decision is made on compliance or non-compliance of the company with the specified criteria.

Therefore, if an IT company has been recognized as important for the functioning of the economy, which of the company’s specialists can be reserved?

The Procedure determines the method of reservation of potential conscripts employed by such company. That is, the lists of conscripts that are offered for reservation include particularly employees of IT companies, and not the individual entrepreneurs or gig-specialists, who are not employees within the meaning of the legislation and the Law of Ukraine On Stimulating the Development of the Digital Economy in Ukraine.

Of course, certain government officials made oral statements that such individual entrepreneurs or gig-specialists can independently apply to the Ministry of Digital Transformation with a request for receiving the appropriate status. However, there is no application procedure for such specialists, and such an action is senseless under the current version of the regulatory document, since individual entrepreneurs or gig-specialists are not residents of Diia City according to the law, and most of them are payers of single social payment of group III with an annual income limit of UAH 7 million 819 thousand (EUR 230 thousand). Therefore, due to the provisions of the legislation, these specialists do not meet even three criteria for being considered critically important for the economy, and, unless a legal miracle happens, their applications must be refused if they apply independently.

If the IT company is satisfied with the above and has the appropriate status, it submits a list of conscripts for reservation, a certificate on the number of conscripts and justification of the Ministry of Digital Transformation. The Ministry of Digital Transformation must verify the submitted package of documents and forward it to the General Staff for approval. If the lists are approved, the General Staff forwards them to the Ministry of Economy of Ukraine, which makes a decision on the reservation. An extract from the order of the Ministry of Economy of Ukraine on the reservation of a conscript issued to such a conscript by the company shall be the confirmation of granted deferment.

The deferment of an employee of a company critically important for the economy is canceled in case of: expiration of the deferment period; deprivation of the company of the status of critical importance; liquidation of the company; dismissal of a conscript. In the last three cases, the deferment is canceled by the decision of the Ministry of Economy of Ukraine further to the company request. The company must independently withdraw an extract from such a conscript and send it to the relevant territorial recruiting center.

As we can see, most of IT companies have not received preferences as a result of the adoption of the new procedure for conscripts reservation. Even those who are residents of Diia City. The procedure itself, which at first glance is not complicated, involves a certain chain of approvals and the transfer of documents from one body to another, which can lead to a delay in the procedure for various reasons.

On the positive side, it should be noted that the first step in this direction has been taken. After all, the raising of currency from abroad and the ability of citizens to spend it within the country are more important than ever to support the economy and defense capability of Ukraine.