Diia.City after 1.5 years of implementation
Prehistory: On December 14, 2021, a preferential tax regime applying to IT companies with Diia.City resident status, as well as to their employees and IT specialists, was approved by the Parliament of Ukraine in the form of Law No. 1946-IX “On Amendments to the Tax Code of Ukraine and Other Laws of Ukraine regarding the Stimulation of the Digital Economy Development in Ukraine.”
NUCC has asked The Ministry of Digital Transformation of Ukraine about the current status of Diia.City, changes due to the war, reservation from mobilisation and other questions.
Please read the interview below.
1. It has already been a year and a half since the special legal and tax regime for IT companies registered in Ukraine “Diia.City” took effect. How many companies have joined “Diia.City” since its implementation?
“Currently, more than 580 companies are residents of Diia.City. Among them are such world-famous companies as Samsung, Nokia, Visa, Lyft, international outsourcing companies — Sigma.Software, EPAM Systems, Luxoft, GlobalLogic, NiX Solution, Ciklum, and Ukrainian product companies — Ajax Systems, Reface, Jooble, Genesis, MacPaw, etc.
In total, Diia.City resident companies employ more than 43,000 specialists — more than 14% of the total number of IT specialists in Ukraine.”
2. What are the main criteria to become a resident?
“First of all, a company that would like to join Diia.City must be a legal entity registered under Ukrainian law.
Other criteria for the acquisition of residency:
- Implementation of the types of activities defined by the Diia.City legislation;
- 90% of income comes from these types of activities;
- The average monthly salary of employees or remuneration of gig specialists is a minimum of EUR 1.200 (does not include private entrepreneurs);
- Minimum 9 employees and/or gig specialists (does not include private entrepreneurs)
Criteria for start-ups:
- Implementation of the types of activities defined by the legislation on Diia.City;
- 90% of income comes from these types of activities;
- Registered no earlier than 24 months before the application submission date;
- Annual income of no more than UAH 7.5 million”
3. Can a Norwegian company become a resident of Diia City?
“Yes, it can if it registers a legal entity in Ukraine and meets the other requirements.”
4. What changes were implemented due to the martial law in Ukraine? Could you describe them briefly and tell us about their duration?
“Understanding that due to the war businesses found themselves in extremely difficult conditions and certain criteria for residency in Diia.City could not be fulfilled, we simplified the requirements for companies. This applies to both current residents and new ones:
- During martial law, companies are not deprived of their resident status if they do not meet the criteria regarding the number of employees and the average salary.
- Residents do not need to submit a compliance report and an independent audit report until January 1 of the year following the peace year.
The government expanded the list of qualified activities in Diia.City. Technology companies related to the production of technological products for use in the defence, industrial and household spheres, international payment systems and cloud solutions received support within the framework of a unique legal and tax regime. The development of these areas is strategically important for maintaining defence capability, financial stability, and information security.”
5. What are the benefits of being a resident of Diia.City?
“Diia.City residents (companies) receive low taxes, transparent and stable rules of business, harmonised with international legislation in the field of intellectual property investment protection tools. They also can build a transparent corporate structure and use flexible hiring tools. In particular, Diia.City introduced a new form of employment with GIG contracts, which combine the advantages of freelancing and basic social guarantees for specialists.
Diia.City has transparent and clear rules of business for investors. In particular, elements of English law were introduced — convertible loan, option liquidation preferences, liquidated damages, warranties & indemnities.
Certain tax incentives are also in place to encourage angel investments in Diia.City: the income of individuals in the form of dividends is exempt from taxation if they are distributed no more than every second year, and there is also a tax discount for individuals in the case of purchasing a share in a startup company which is a resident of Diia.City.”
6. In your opinion, can Diia.City become an example for the legal and tax regime for other sectors of the economy?
“Diia.City has successfully passed the test of war and proved that it is an efficient and effective tool for business support and development. It combines low taxes with the ability to build a fully transparent corporate structure, attract investment and scale. Such experience can serve as an example for other industries.”
7. Do Diia.City residents benefit from reserving their employees from mobilisation?
“Residency in Diia.City is one of the criteria by which companies can receive the status of “critical”, which gives them the opportunity to reserve their employees. Other criteria for obtaining the status of “critical company” are also:
- Implementation of one or more types of activities from the Diia.City list, as well as a minimum average salary of EUR 1.200, and at least 9 employees in the staff;
- More than EUR 1.5 million in taxes paid per year;
- More than EUR 32 million in revenue over the last year;
- Average salary – no less than the regional salary for the fourth quarter of 2021;
- Absence of Single Social Contribution debt.
In general, at least three of these criteria must be met.
The Ministry of Digital Transformation of Ukraine also helps both resident and non-resident companies to correctly issue documents for the reservation of employees, provides consultations, and communicates with other ministries and agencies. It is important for us that the industry’s work is stable, and companies develop and fulfil contacts. For this reason, the reservation of critical employees who can ensure the continuity of the work process is important.”