DIIA CITY, A UNIQUE IT ECOSYSTEM

Since February 2022 a special tax regime for IT-business, Diia City has been launched. The special regime introduces a favorable tax burden, and envisages a number of other benefits for doing business and attracting investment. The first residents of this unique "state within a state" or, as it is also called, "ecosystem", were registered on February 15, 2022, and as of now, about 400 companies have joined Diia City, which evidences the great approval of the regime by the representatives of IT market, despite the war (!).

Target audience of Diia City.

Diia City is designed for software developers, R&D companies, IT schools, startups, marketing companies. The special regime will be interesting for both local and foreign companies that engage Ukrainian IT specialists. Special attention should be paid to the gambling business. A resident of Diia City cannot be a gambling operator, but for a developer/supplier/distributor of gambling, the application of the Diia City regime can be very beneficial. Diia City is an opportunity to build a transparent model of labor relations and significantly reduce tax costs.

Who may become a Diia City resident?

Only a legal entity registered in Ukraine and meeting the following requirements can become a resident of Diia City:

1) the number of employees is not less than 9 people;

2) the average salary of an employee is not less than EUR 1,200;

3) 90% of the total income of the resident shall be income from IT business.

There is also a number of anti-criteria: no connections with the Russian Federation, the company is free from any sanctions, no bankruptcy proceedings have been commenced, etc.

For a startup, there are no requirements for the number of employees and average salary, but the company shall be registered no earlier than 24 months before applying for registration, and its annual income shall not exceed UAH 7 million.

What are the benefits of Diia City?

1) Low employment tax rates:

-5% of the employee's income (personal income tax), for a startup – 18%;

-1.5% of the military tax from the employee's income;

-22% universal social charge of the minimum salary (UAH 1,474.0 = EUR 41).

Due to significant tax savings, companies are able to invest more in team expansion and business development.

2) The possibility to select the type of corporate tax: income tax (18%) or withholding tax (9%).

3) Flexibility of employee engagement options: a Diia City resident may enter into either employment contracts or GIG contracts, which allow, for example, to engage experts abroad without the need to obtain a work permit. It is also possible to engage individual entrepreneurs (until 2024 - without restrictions, in 2024 - the budget for individual entrepreneurs should not exceed 50% of total costs, in 2025 - no more than 20%). Among the benefits there is also an option to enter into NDA, NCA with employees.

4) Possibility to apply elements of English law: convertible loan, option agreement, Liquidation Preferences, Liquidated Damages, warranties & indemnities.

5) Stability of the Diia City legal regime (tax rates): valid for at least 25 years.

6) Prestige of Diia City resident company, which confirms its innovative and high-tech status.