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Ukraine officially launches Diia.City framework on February 8th

Ukraine has officially launched its new framework for businesses operating in the IT sector, called Diia.City or Action.City in English. According to Ukrainian president Volodymyr Zelenskyy, the framework is part of a push to transform Ukraine into a country of IT companies and startups. He envisions that the framework will enable the share of GDP contributed by IT to increase from 4 % to 10 %.

 

Diia City is a special legal and tax regime which is especially geared towards IT businesses. It offers a set of incentives for IT companies to operate within it and invest into Ukraine. Joining the framework is voluntary, and it will operate in parallel with the current conditions for IT businesses.

 

The benefits of Diia.City include:

-       Labor Taxes:

o   5 % personal income tax

o   Social Security contribution capped at 22 % of the minimum wage

o   1,5 % military tax


-       Corporate Taxes

o   9 % Exit capital tax or

o   18 % Income tax

 

The Diia.City framework establishes a new kind of form of employment called a Gig Contract. Gig Contracts are an alternative to existing forms of employment that combine some of the advantages of typical employment arrangements. The advantages include being able to offer social guarantees to employees and having a simple administration process. It also allows the investor to show real turnover, which is difficult when using freelancers, and pay moderate taxes on employment in comparison to the usual labor agreements.

 

Using standard labor agreements and freelancers or contractors (individual entrepreneurs) will remain a possibility for Diia.City residents as well.

 

Companies can join the framework via a web portal, completing their application online. It does not require any special permits or licenses. Companies registered in Ukraine are able to apply. The Ukrainian state guarantees the current investment conditions in Diia.City for a 25-year period.

 

The following requirements are in place for companies wishing to become Diia.City residents:

-       For operating companies:

o   Average salary equivalent to EUR 1,200

o   90 % of income received from certain kinds of business activities

o   Number of employees/GIG-specialists for the reporting period at least 9


-       For startups:

o   The amount of annual income does not exceed 7,5 million UAH

o   90 % of income from certain kinds of business activities

o   Company is registered no earlier than 24 months before

 

IT companies that have the following business activities are able to apply:

-       Software development, including GameDev

-       Training in computer literacy, testing and technical support

-       Cybersecurity

-       R&D in IT and telecom

-       eSports

-       Publishing and distribution of software, in particular SaaS

-       Digital marketing and Ads using software developed by residents

-       Supply of services related to the circulation of virtual assets

-       Robotics

 

If you are planning to become a resident of Diia.City, we recommend to employ the assistance of a professional legal and accounting partner. Feel free to contact us for more information!

 

For additional resources see:

https://city.diia.gov.ua/en

https://www.president.gov.ua/en/news/zapusk-diya-city-dast-ukrayini-zmogu-stati-najbilshim-it-hab-72753


10.02.22


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