DIIA CITY: what changes are awaiting the domestic IT industry?
At the beginning of 2022 it is planned to launch the long-awaited Diia City, described by the developers as "a special legal regime for the IT industry, which will create the most powerful IT hub in Ukraine in Central and Eastern Europe."

Recently, another barrier that prevented the launch of the program was overcome - 20.12.2021 The President of Ukraine signed the Law "On Amendments to the Tax Code of Ukraine to Stimulate the Digital Economy in Ukraine" (Bill 76 5376), which defines the taxation of residents of Diia City.

The regulatory framework of Diia City consists of three blocks:

1. General provisions enshrined in the Law "On Stimulating the Development of the Digital Economy in Ukraine" (entered into force on 14.08.2021);

2. The Tax Block reflected in the above-mentioned law (comes into force on 01.01.2022);

3. The Security Bloc (on December 2, 2021, the bill № 4305, which provided for amendments to the criminal law, was withdrawn).

Therefore, two thirds of the way to the normative consolidation of the Diia City. Let's summarize what is known about the program today and whether it can become a tax haven and a safe environment for the IT community.

Who can become a resident of Diia City?

A resident of Diia City may be a legal entity registered in Ukraine, which has the status of an income taxpayer and meets the requirements set for residents.

Types of Activities in Diia City

- Software development and testing, including games
- Publishing and distribution of software, including SaaS
- Teaching computer literacy, programming, testing, software technical support
- Digital marketing and ads using software developed by residents
- R&D in IT and Telecom
- Cybersport
- Providing services related to the virtual assets flow
- Cybersecurity
- Robotics

Entrance criteria for actual agents

- Diia City type of activity
- Average salary equals EUR 1200
- 90% share of income from these IT activities
- Workers / GIG-specialists number for the accounting period is no less than 9 persons

Entrance criteria for Start-ups

- Diia City type of activity
- Annual income is not more than UAH 7 million
- 90% share of income from these IT activities
- Registered not earlier than 24 months before the date of application

The law also establishes additional requirements for residents of Diia City, including:

- the share of the state or territorial community in the authorized capital is less than 25%;
- the share of legal entities registered in states that do not cooperate within the framework of the international anti-money laundering program is less than 25%;
- does not carry out activities on the organization and/or conduct of gambling, except for activities on the provision of services in the field of gambling;
- no outstanding tax debt (for more than 30 days) in the amount of more than 10 minimum wages;
- compliance with the requirements of the legislation on inclusion in a certain register, registration, obtaining a license or other permit (if such requirements are established by law as a condition for the provision of relevant services).

Benefits of Diia City

1. "Withdrawn capital" and special conditions for payment of income tax by residents of Diia City

The main advantage of Diia City is the reduction of the tax burden. Thus, instead of income tax at the rate of 18%, residents of Diia City will pay tax on withdrawn capital at the rate of 9%.

The idea of replacing the usual income tax with a tax on withdrawn capital is not new. In its implementation, the Ukrainian legislator was inspired by the example of Estonia, where the tax on withdrawn capital has existed since 2001. The essence of the innovation is simple: the funds withdrawn from the turnover of the enterprise are subject to taxation. If the funds are not withdrawn from circulation but directed to the modernization of activities, the company receives a nice bonus in the form of tax exemptions. The state expects economic growth to accelerate and GDP to grow rapidly.

So, as we can see, in the example of the IT community, the state seeks to protest the introduction of a tax on withdrawn capital. Moreover, innovations are introduced very gradually, initially on alternative terms. It is expected that the future "appearance" of the general income tax will depend on the results of the introduction of the withheld capital tax in the IT-sphere.

2. Preferential taxation of income of employees and GIG specialists

The legislator has provided the greatest number of benefits for the payment of so-called labor taxes by residents of Diia City. This includes the exemption from dividend taxation, the reduced personal income tax rate, and the minimum amount of SDRs. And in general, the introduction of Diia City was carried out, in particular, to change the existing organization of IT companies that enter into civil law contracts with individual entrepreneurs. It is also worth mentioning the requirement to acquire the status of a resident of Diia City - the presence of at least 9 employees or specialists in concerts.

Thus, the rate of personal income tax paid on income in the form of wages, contract fees, royalties for the creation of official work, and the transfer of rights to official work, accrued by residents of Diia City, reduced by more than 3 times - from 18% up to 5% (paragraph 170.141.3 of the Tax Code of Ukraine). To apply the preferential tax rate, the annual income of an individual should not exceed 240 thousand euros.

A nice bonus is also the exemption from personal income tax on dividends accrued to the taxpayer by the issuer of corporate rights - a resident of Diia City. As a general rule, such income is taxed at a rate of 5%. Again, a necessary condition for the application of preferential provisions of the Tax Code of Ukraine is the payment of dividends on shares or other corporate rights not more than once every 2 years.

In addition, residents of Diia City are guaranteed to pay the minimum amount of SDRs (22% of the minimum wage), and not determine it based on the amount of accrued wages.

3. Attracting investment

It is no secret that one of the tasks aimed at creating Diia City is to attract investment. So, investors are guaranteed:

- tax rebate on the payment of personal income tax in the amount of investments in Ukrainian startups (paragraph 166.3.10 of the Tax Code of Ukraine);
- invariability for at least 25 years.

4. Revolution in the design of labor/civil relations

The Law of Ukraine "On Stimulating the Development of the Digital Economy in Ukraine" enshrines new concepts of "GIG contract" and "GIG specialist" for our legal system. Their appearance is dictated by the requirements of the time when the norms of the Labor Code of Ukraine no longer correspond to modern realities. Today, with access to the Internet, you can work from anywhere in the world, and the traditional presence in the office has long ceased to be synonymous with proper performance of duties. The Covid-19 pandemic has only accelerated the transformation of normal employment relationships.

A GIG contract is a kind of combination of the requirements of a civil law and employment contract, in which a GIG specialist receives the benefits of freelance combined with social guarantees.

Advantages of the GIG contract:

1. Lack of labor relations, the need to adhere to labor discipline and regulations.

2. Ability to provide for all mutual agreements in the GIG contract (tasks, conditions, deadline).

3. The amount of remuneration may be determined in both national and foreign currency.

4. Social guarantees:

- the number of hours per day and / or per week for the GIG specialist to perform work (provision of services) may not exceed 8 and 40 hours, respectively;
- the right to an annual paid break in the performance of work (provision of services) lasting at least 17 working days (similar to leave);
- the right to a break from work (provision of services) and assistance in connection with temporary incapacity for work (so-called sick leave);
- the right to a break in the performance of work (provision of services) in connection with pregnancy and childbirth with the payment of appropriate assistance (70 days before childbirth and 56 after);
- prohibition to establish the liability of the GIG specialist in the form of deductions or reduction of remuneration specified in the GIG contract, except for compensation and cases of imposing on the GIG specialist liability for damage to property of a resident of Action City through the fault of the GIG specialist 20 percent of the monthly fee of a GIG specialist);
- the right to reimburse the GIG specialist for travel and accommodation costs, as well as the additional remuneration provided for in the GIG contract.

5. Additional security guarantees

The developers of Diia City promise residents and their authorized representatives a special procedure for investigating criminal cases, a special status in criminal proceedings, and additional coordination of criminal proceedings against residents of Diia City. However, we will be able to assess the implementation of these promises only after the adoption of the relevant Law on Amendments to Criminal Law.


The introduction of Diia City has every chance to become a revolutionary event not only for the IT community, but also for the entire economy of Ukraine. After all, on the example of the most dynamic and mobile IT community, the state seeks to protest the introduction into the domestic legal system of the most promising innovations aimed at reforming it.

24 DECEMBER/ 2021

By: Nataliia Stasiv
+38 (097) 672-70-32
1, Shota Rustaveli Str., Lviv, Ukraine
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