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“Diia City”: A special legal and tax regime for IT companies in Ukraine is coming into play

August 2021 – On 14 August 2021, the Law “On Stimulation of the Development of the Digital Economy in Ukraine” No. 4303 (“Diia City Law“) came in force.

Diia City legal framework

The Diia City Law introduces a general framework for launching a special IT industry regime in Ukraine called Diia City, which is aimed at creating favorable conditions for companies operating in the tech sector. The regime will be valid for an unlimited period but not less than 25 years.

 The status of a Diia City resident will be available only to Ukrainian companies that meet the criteria provided by the Diia City Law, in particular:

  • the minimum average monthly remuneration of employees / gig workers is EUR 1,200;
  • the performance of IT-related activities, which include software development activities, games publishing, EdTech, data processing, cybersport and others as provided by law;
  • the availability of at least 9 employees or gig workers at the end of each calendar month;
  • net income from qualified (tech) activities makes at least 90% of total income; and
  • the company does not fall within a restricted category as provided by law. 

 Diia City Law, inter alia, introduces:

  • gig contracts—a new concept in Ukrainian law, which is a mix of an employment contract and a services contract. Gig contracts can be concluded in electronic form;
  • social guarantees for gig workers;
  • new rules for the distribution of IP rights to objects created by gig workers and employees;
  • requirements to non-disclosure and non-compete agreements;
  • the conversion of outstanding debt into equity of Diia City residents;
  • the concept of warranties and compensation for misrepresentation;
  • additional regulation for put/call option agreements;
  • the possibility for Diia City residents to appoint a legal entity as an executive body; and
  • the ability to subject Shareholders Agreement to foreign law. 

We note that as the Diia City Law introduces amendments to Ukraine’s Civil Code, Commercial Code, Labour Code, and Law on Limited Liability and Additional Liability Companies, it will have an effect not only on Diia City residents but also on the wider regulatory landscape.

Diia City Tax Regime

The tax regime applicable to Diia City residents and their workforce will be regulated by a standalone law. The draft law “On Amendments to the Tax Code of Ukraine regarding the Stimulation of the Development of Digital Economy in Ukraine” No. 5376 (“Diia City Tax Draft Law”) was adopted in the first reading on 2 June 2021. Final consideration of Diia City Tax Draft Law by the Parliament is expected to take place in November 2021, to be followed by approval of the President to become fully effective.

The Diia City Tax Draft Law introduces the following tax benefits. Diia City residents (i.e., legal entities) may choose one of two tax regimes that may be applicable to them. In particular, they may opt to be subject to the currently existing corporate income tax (“CIT”) at a standard rate of 18% based on profits (subject to tax adjustments if applicable), or switch to the new regime providing for CIT at a rate of 9% on volumes of certain transactions with non-payers of CIT (which is a sort of exit capital tax).

In the event of a switch to the special taxation regime, the tax base of the Diia City resident would include, inter alia, the following payments to non-payers of CIT:

  • service fees payable to private entrepreneurs over a certain limit*;
  • the import and export of goods and services under certain conditions provided by law;
  • payment of royalty/interest/dividends under certain conditions provided by law; and
  • payments to not-for-profit organizations and zero-interest loans under certain conditions provided by law. 

The Diia City Tax Draft Law allows Diia City residents to reduce its CIT liabilities for the amounts of withholding taxes arising on transactions subject to CIT. 

To encourage shift to Diia City special tax regime, the Diia City Tax Draft Law introduces limitations on deductibility of payments towards private entrepreneurs for those taxpayers which opted to pay CIT at an ordinary 18% rate.

Employees / gig workers engaged by Diia City residents will be subject to:

  • a progressive personal income tax on salary/remuneration, inter alia:
    • 5% tax rate for annual income up to EUR 240,000 to be withheld by Diia City resident;
    • 18% tax rate for annual income exceeding EUR 240,000 to be paid by employee / gig worker on his/her own;
  • a 1.5% military levy on salary/remuneration; and
  • a minimum unified social contribution on salary/remuneration (approx. EUR 40 per month). 

Overall, the Diia City regime will only become operational once both Diia City laws have come into force, which is anticipated by the end of 2021 according to Ukrainian officials.

For more information, please contact Anastasiya Bolkhovitinova, Counsel, Head of TMT, 


Iryna Nikolayevska, Partner, Co-Head of M&A and Corporate,  , and Illya Sverdlov, Partner, Head of Tax, 

* This operation may be exempt from taxation till 2024.