Diia Citi: what is it, for whom and how to join the special legal regime

More than a year has passed since the special legal and tax regime for the IT industry called “Diia City” came into operation, and we are still being asked whether it is worth joining it. Some companies, especially with foreign investments, hesitate, as they do not understand the specifics of this regime, and/or are not very keen on changes, because something new and unknown usually scares.

If you are still hesitating, then this article is just for you.

We remind that in 2021 the Law of Ukraine “On Stimulating the Development of the Digital Economy in Ukraine” and in 2022 – the Law of Ukraine “On Amendments to the Tax Code of Ukraine on Stimulating the Development of the Digital Economy in Ukraine” came into force. These laws are the basic regulations for the introduction of the legal regime of Diia City.

What is Diia City?

Diia City is a special legal and tax environment for IT companies in Ukraine. Its features:

• possibility of concluding gig-contracts (see the link for their advantages and disadvantages);
• NDA and NCA agreements;
• tax on withdrawn capital (TWC) at the rate of 9% as an alternative to the general system of income tax taxation;
• tax on wages of employees and remuneration for gig-contracts at the rate of 5% + 1.5% of the military levy;
• Unified social contribution (EUS) in the amount of the minimum insurance contribution;
• 0% on the income of Diia City resident company participants when dividends are paid to them (if dividends are paid no more than once every 2 years);
• convenient investment management tools;
• the issue of creation of an official work and ownership of intellectual property rights has been settled;
• special guarantees of protection against unfounded inspections;
• guarantees that these features will not change for at least 25 years.

At first glance, it may seem that this legal regime will help IT companies as much as possible without any drawbacks. No, it’s not like that, there are still some nuances and peculiarities, for example, if you investigate the TWC in more detail or face the issue of filing sick leave. However, this is clearly a more favourable environment for IT companies than it was before, and obviously much more favourable comparably to many other countries, it is an effective mechanism for business without the risks that IT companies working with individual entrepreneurs have, and without the significant tax burden that non-residents of Diia City have.

For whom?

General requirements for a resident of Diia City:

• a legal entity registered on the territory of Ukraine (except non-profit legal entities; legal entities that are owned by the state and/or territorial community by more than 25%; legal entities that have a tax debt or are under sanctions, that are declared bankrupt or are in the process of termination of legal entities engaged in the organization and/or conduct of gambling, etc.);
• 90% of income from qualified activities, i.e. from IT business;
• average monthly remuneration of employees and gig-specialists of at least 1,200 euros per month;
• the average registered number of employees and gig-specialists is at least 9 people per month.

Key qualifying activities:

• computer programming, informatization consulting, computer equipment management activities;
• publication of computer games, as well as other software;
• provision of software products, including computer games, in “online” mode and provision of web services for the delivery of software applications;
• educational activities in the field of information technologies;
• data processing and related activities, except for the provision of infrastructure for data processing hosting services, and the activities of web portals
• research and experimental developments in the field of natural and technical sciences regarding information and information-communication technologies;
• conducting marketing campaigns and providing advertising services using software developed with the participation of Diia City residents on the Internet and/or on users’ devices;
• activities of eSports competition organizers, eSports teams, specialized computer centers and/or clubs designed for eSports competitions, as well as eSports broadcast studios;
• activities of the provider of services related to the circulation of virtual assets;
• ensuring cyber security of information and communication systems, software products and information processed in them;
• design, research, testing activities of technologies, devices and systems of robotics using computerized control systems.

How to get Diia City resident status?

1. Make sure that your company meets the requirements of a Diia City resident.
2. Prepare an application for acquiring the status of a resident of Diia City.
3. Submit an application in electronic form with an electronic signature through the Diia City web portal (city.diia.gov.ua) or by sending an application to the e-mail of the Ministry of Digital Affairs.
4. Within 10 working days, receive a decision from the Ministry of Digital Affairs on acquiring the status of a resident of Diia City.

Despite the significant advantages of the Diia City regime, before joining, it is necessary to work out the practical aspects of the company’s entry into Diya City: legal aspects of establishing relations with employees, tax risks, practical aspects of accounting, etc. Our team has an extensive experience in these matters and will be happy to help you make your entry into Diya City as efficient as possible and prevent tax and other risks.