ADVANTAGES TO INVEST IN DIIA CITY RESIDENT

In addition to the benefits for IT business, transparent conditions for involving specialists and labor guarantees for them, which we published earlier here, DIIA CITY regime also provides a number of positive innovations for investors.

First, the law provides additional tax incentives for investors:

0% to dividends

The 0% rate on personal income in the form of dividends is applied under the following conditions:

- the personal income tax rate applies to individuals (both residents and non-residents);

- Diia City resident company carries out the distribution of dividends;

- Diia City resident must be a payer of the exit tax;

- frequency of dividend payment: not more than once in 2 years.

Tax discount = amount of investment

Special aspects of application:

- an investor - individual can receive a tax discount equal to the amount of investment made in a Ukrainian startup;

- a startup must be a resident of Diia City or become one in the future;

- applies to personal income tax on income from the total amount of dividend income (i.e., all dividends received by an individual for the year).

Second, due to the implementation of English law clauses, additional guarantees of investment security are provided:

Convertible loan is an instrument whereby an investor who has granted the loan to a company may demand either repayment of the loan when due, as specified by the agreement, or, as an alternative obligation, convert the debt into equity. This legal mechanism allows the startup to attract financing, and the investor to get an equity in a successful business or have its loan repaid.

Option is a guaranteed right of investor to increase the share in the share capital of the company in case of its successful growth. In addition, the law stipulates a transaction for the acquisition of a share in the share capital with a deferral or cancellation condition in a broad meaning, so it is not prohibited to provide for other "deferral" or "cancellation" conditions.

Liquidation Preferences is a mechanism whereby lenders and individual shareholders of the company receive preferences (for example, regarding the distribution of assets) in the event of its termination or other circumstances.

Warranties & Indemnities is an instrument that provides for a possibility of indemnity for a party affected by false assurances, and also specifies obligations to pay indemnity in the event of circumstances stipulated by the agreement not related to the breach of obligations.

Liquidated Damages provides for the assessment of possible damages and compensation for possible losses, which does not require proof in court.

English law clauses are available for Diia City residents only. However, it is important that if the company's status as Diia City resident is terminated, these provisions incorporated as clauses in the agreements remain effective.

Our team will continue working on the practical application of such tax incentives and benefits.