Diia City. A special tax and legal structure for Ukrainian IT companies

We specialize in helping IT companies take advantage of the exciting opportunities in Ukraine’s Diia City. We know the complexities of Diia City registration and the requirements that must be met to take advantage of the benefits of this legal and tax structure. Our team of experienced lawyers is dedicated to providing comprehensive and personalized services to help your company navigate the Diia City registration process quickly and efficiently.

Whether you are a startup looking to establish a presence in Ukraine or a based company seeking to expand your operations, our law firm is here to help. Contact us today to learn more about our Diia City registration services and how we can help your IT business succeed in Ukraine’s dynamic and rapidly growing tech ecosystem.

What is Diia City in Ukraine?

Diia City is a special tax and legal status for Ukrainian IT companies. It was approved to establish proper and easy tax and legal status for companies working in the following spheres: IT, R&D, and other services, and that hire programmers, engineers, software developers, and IT specialists in Ukraine. The company registered as a Diia City resident can save more than 30% of payroll taxes. This unique legal and tax policy allows for establishing the proper functioning of the mentioned companies in Ukraine. The status of a Ukrainian company registered as a Diia City resident is regulated by the Law of Ukraine “On stimulating the development of the digital economy in Ukraine” (hereinafter –  Diia City Law). Companies that are registered in Ukraine (see more about company formation in Ukraine) and which provide IT, programming, game development, modification and testing of computer programs, research and development (R&D) or research and technological development (RTD), cybersecurity, cybersports, and others (according to the list below). 

What are the advantages of Diia City residency status?

The first and significant advantage is that it helps to reduce significantly the amount of payroll taxes, which are pretty high in Ukraine (considering that it is a developing country). Ordinary company has to pay around 41,5 % of different salary taxes in Ukraine. It includes 1,5% war tax, 18% individual income tax, and 22% social security (also called pension tax). But if a Ukrainian IT company is registered as a member of Diia City, payroll taxes are calculated based on minimum wage (the minimum amount that shall be paid to the employee per one calendar month of work), which the government of Ukraine determines. So, with a salary of 48,000 hryvnias (approx EUR 1200 as of March 2023), the amount of taxes will be the following:

Diia City Resident Non-resident of Diia City
social security (pension) tax** UAH 1 474.00* 22% – UAH 10 560.00 
individual income tax***    5% (instead of 18%) – UAH 2400.00 18% – UAH 8 640.00
1,5% war tax*** UAH 720.00 UAH 720.00
employee’s net salary UAH 43 406.00 UAH 38 640.00

*as of March 2023; calculated based on the minimum wage, which is determined by the government, regardless of the salary amount;

** a tax that the employer must pay at his own expense;

***taxes that the employer shall withhold from the salary of the employee;

As you can see, this special tax regime gives IT companies a huge advantage and helps them to avoid very high Ukrainian salary taxes. At the same time, there is a requirement that the salary (per one month) of such an employee shall be not less than the equivalent of EUR 1 200.00 and not more than EUR 20 000.00. Before the Diia.City law was approved, and most IT companies in Ukraine (which are not residents of Diia City) were using the following tax and legal structure.

The second advantage is that an IT company can protect intellectual property rights. It can be mentioned in the employment agreement between an IT company and a specialist that all the work results (as well as all the solutions, know-how, developed programs, etc.). Consider that a Ukrainian IT company employee is called a GIG specialist, and the employment contract is called a GIG contract. Intellectual property for the object created by the gig specialist in connection with the execution of the gig contract belongs to the resident of Diia City (to an IT company), which is considered a customer under such gig contract unless otherwise provided by the gig contract. So an IT company has a legal solution to protect the intellectual property created during the performance of work by an employee.

The third advantage is much more flexible employment legislation. There are particular definitions in the Employment Code of Ukraine for GIG-specialist and GIG-contract. It is mentioned that relations between an IT company and GIG-specialist are regulated by the Law and are much more flexible than the general Ukrainian labor law. So there are particular rights and duties of the parties of GIG contract which are regulated by Diia City law, namely:

  1. The procedure for GIG-contract termination is defined by such contract and may differ from general employment rules. So it is the Ukrainian IT company to decide the basis and contract termination procedure. 
  2. Any party can cancel GIG-contract at any time but following such contract.
  3. Other terms of GIG contract may be contrary to the labor code.
  4. GIG contract is concluded based on Diia City law.

At the same time, the gig contract itself can be very flexible. It can contain responsibilities of the parties, Non-disclosure requirements, non-disclosure requirements, penalties, etc. 

Consider that a Ukrainian IT company doesn’t need to conduct a GIG contract with all the employees. Administration, management, staff members, and other workers can have an ordinary employment contract.

The fourth advantage is assurances concerning the time the legislation will take effect. This particular tax and legal regime for IT companies in Ukraine will remain for 25 years, beginning from the month when the first resident was accepted to Diia City (February 2022). So companies will be confident that the rules will not change anytime soon.

What are the main requirements to become a resident of Diia City in Ukraine?

As mentioned above, only Ukrainian companies can become residents of Diia city. So a foreign entity or a company can’t be registered as a Diia City resident in Ukraine. 

The other requirement is that the applicant shall have (or will have within the coming year) 10+ employees. It means that newly created companies can also obtain the status of Diia City residents. The company shall guarantee that in 12 months, it will correspond to this requirement if there are no employees or if the number is less than 10. 

The average salary shall be not less than the equivalent of 1,200 euros at the official exchange rate of the UAH to EUR, which is specified by the National Bank of Ukraine as of the first day of the corresponding calendar month.

Business scope. The company shall work in the following spheres (at least one, and the revenue from such activity shall be not less than 90%):

1. computer programming, consulting on informatization, and computer equipment management activities, namely:

  • development, modification, testing, and technical support of software, including computer games; other work at all stages of the software development life cycle, including business subject analysis, software specification development, user interface development and design, software solution architecture development, programming, quality control, technical documentation development, documentation use development, and software adaptation ;
  • development of structure and content and/or development of a system of commands required for the creation and execution of software – system software (including updated and updated), applications (including revised and updated), including computer games, databases, and websites;
  • software configuration, i.e., modification and configuration of existing software add-ons, in the way that it functioned within the information (automated) system of clients and end-user devices, in particular, the composition of software developed by third parties;
  • planning and design of integrated computer systems that combine hardware, software, and communication technologies, including consulting and training of users of such systems, other consulting on the implementation and use of software, including third parties;
  • management and operation of customer’s computer systems and/or data processing facilities in such a way that they operate within the customer’s information (automated) system;
  • other development, modification, testing, and technical support of computer games, including design and content for computer games, translation and adaptation of computer games, the composition of movies and videos as elements of computer games, specialized design activities elements of computer games, activities in the field of photography for computer games, individual artistic activities for the creation of elements of computer games, services for the decoration of aspects of computer games;

2. development of computer games, as well as other software, including:

  • standard software production (system or software), in particular: operating systems, business programs, educational, entertainment, and other software applications;
  • computer games development for any of their platforms, including translation or adaptation for own account;
  • publishing elements, updates, additions, and extensions of software functionality, including computer games;
  • granting and transferring intellectual property rights to the software, including computer games and its components;

3. providing software products, including computer games, online and providing web services with the delivery of software applications, including the distribution of copies (copies, copies) of software in electronic form, including computer games, its elements, updates, additions, and extensions of functionality;

4. educational activities in the field of information technology, including the conduction of higher, professional advanced, and vocational education in such specialties as computer science, information systems and technology, computer engineering, cybersecurity, and science, as well as providing other types of education, and: computer literacy (digital literacy) training, which includes digital literacy training services, namely the development, modification, testing and technical support of software, which include computer games, business analysis training, for development purposes, modification, testing and technical support of software), construction of graphical interfaces, organization of control processes, system administration, project management, documentation development;

5. data processing and related activities, except the provision of infrastructure for data processing and hosting (hosting) and hosting services (hosting), and the activities of web portals, including:

automation of processing of the data received from clients, automation of the developed specialized reports based on the data received from clients, including the account of such data (the process of semi-automatic analysis of large databases on a search of useful points);

managing websites that provide Internet search and/or use search engines to create and maintain large databases of Internet addresses and content in a searchable format;

management of other websites that function as portals on the Internet, such as media sites that periodically update information content, streaming, and other platforms;

6. research and experimental development in the field of natural and technical sciences on information and information communication technologies;

7. conducting marketing campaigns and providing advertising services using software developed with the participation of a resident of Diia City on the Internet and/or on users’ devices;

8. activities of organizers of esports competitions, esports teams, specialized computer centers and/or clubs designed for esports competitions, as well as studios of e-sports competitions broadcasts;

9. the activities of the service provider related to the circulation of virtual assets;

10. providing cybersecurity of information and communication systems, software products and information processed in; development and implementation of organizational measures, software and hardware-software products designed to prevent cyber incidents, detect and protect against cyber attacks, eliminate their consequences, restore the sustainability of communication and technological systems (networks); processing and analysis of data on the circumstances of the cyber incident and its consequences, establishing the preconditions that led to it, providing appropriate recommendations; planning and design of integrated computer systems that combine hardware, software and communication technologies designed for secure processing of information (data); providing advice on cybersecurity (cybersecurity) of communication systems and software (products) that ensure the functioning of the client’s IT systems; provision of services for operation and maintenance of communication equipment, software designed to  improve cybersecurity of communication and technological systems (networks); conducting research and experimental development in the field of cybersecurity;

11. research and development; testing of technologies, devices, and systems of robotics using computerized control systems.

Diia.City Ukraine

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