Diia.City benefits: Tax benefits and opportunities for IT business in Ukraine

In mid-2021, the government of Ukraine (Law on Stimulating the Development of the Digital Economy in Ukraine No. 1667-IX dated 15.07.2021) introduced a special legal regime Diia.City, which was intended to support the IT sector of Ukraine and promote innovative development.

This regime offered significant tax benefits, including payroll tax cuts, which were intended to prevent massive work through individual entrepreneurs and create more transparent conditions for IT companies. The law was adopted in July 2021, and in December 2021, a resolution was issued (Resolution dated December 29, 2021, No. 1445 “Some issues of implementation of the provisions of the Law of Ukraine “On Stimulating the Development of Digital Economy in Ukraine”), which regulated the process of registering companies in this mode.

However, due to the war and the moratorium, audits were suspended. The government allowed companies to avoid submitting mandatory reports until the end of martial law, which provided some relief. The Ministry of Digital Transformation (MinDigit) actively supported companies by providing advice and answering questions that arose during the audit process.

During the two and a half years of war, the Ministry of Digital Transformation noted the stabilization of the economy and decided that the companies were ready to submit their reports. Information about the possible lifting of the moratorium was disseminated among residents in mid-2023. In the summer of 2023, we started receiving inquiries from companies about the cost and timing of the audit.

On February 13, 2024, the moratorium was lifted (Resolution No. 163 “Some issues of resumption of reporting by Diia.City residents” dated February 13, 2024), and we promptly received a large number of requests for audits. Despite the full portfolio, we decided to take on more than 10 audits, as it was interesting and provided an opportunity to gain valuable experience. The results of the 2024 audit were successful, and we are now continuing to work with companies newly established in 2024, conducting initial audits.

General information

Diia.City is a special legal regime to support the IT industry in Ukraine created by the government. It provides companies with tools for developing innovative businesses and technology startups, combining comfortable tax conditions with effective tools for attracting foreign investment.

Tax incentives

• Personal income tax — 5%
• Unified social contribution — 22% of the minimum wage
• Military duty: 1.5%
• Corporate tax: 9% on “withdrawn capital” or 18% on profits
• 0% on personal income as dividends (paid no more than once every 2 years)
• Tax rebate (on personal income tax) for investments in Ukrainian startups

Conditions for obtaining the Resident status

• Field: Technological sphere (programming, informatization, cybersecurity, etc.)
• Salary of specialists: The average salary of IT specialists is not less than 1200 euros.
• Number of gig specialists: At least 9.
• Amount of qualified income: At least 90% for the first 3 months.

Anti-criteria:

• Registration under the laws of another country.
• The participant is the state of Ukraine or a territorial community (more than 25% of the authorized capital).
• Non-profit legal entity.
• Violation of disclosure of information about the ultimate beneficial owners.
• The owner of the shares is an aggressor state or its resident.

Contents of the compliance report

• Information about the resident of Diia.City (company name, EDRPOU code, date of status acquisition).
• Reporting period.
• Assurance of compliance with the Law of Ukraine.
• Information about the auditor.
• Information about the person applying on behalf of the applicant.
• Statement of compliance with the criteria (average monthly remuneration, number of employees and gig workers, share of qualified income).

This information confirms the company’s compliance with the conditions of residency in Diia.City and ensures the transparency of residents’ activities.

Subject of the audit

According to Article 13 of the Law, a Diia.City resident is obliged to submit a compliance report together with an independent audit report no later than the last day of the sixth month after acquiring the resident status. Every year, by June 1, the resident must submit an annual compliance report for the previous year together with an independent auditor’s report.

The audit covers:

• The amount of the average monthly remuneration of employees and gig workers.
• The average number of employees and gig workers.
• The amount of the share of qualified income.

An audit is conducted in accordance with ISAE 3000 (revised) “Assurance Engagements Other Than Audits or Reviews of Historical Financial Information” and is designed to provide reasonable assurance about whether the statements are in accordance with the criteria set forth in the law.

Results of the audit

After the moratorium was lifted on February 13, 2024, the number of requests to our company increased significantly.

The main problems we faced:

• Lack of regulated approaches to calculating indicators.
• Issues of conflict of interest and responsibility for the report preparation.
• Insufficient documentation for the audit, in particular regarding labor relations and gig contracts.
• Discrepancies in the methods of calculating the average monthly salary between the tax office and the Ministry of Digital Transformation.
• Problems with accounting for the average number of employees.

Based on the results of audits of 10+ companies, two reports were qualified due to discrepancies between the % of qualified income and the average number of employees. Other reports were confirmed without qualifications.

Report submission

The report and attached documents are submitted electronically through the state web portal Diia.City or by e-mail to the Ministry of Digital Transformation of Ukraine. The Ministry has to process reports within 5 days, so it is recommended to submit the report in advance to avoid delays.

Economic impact in 2023-2024

• Increased share of the IT industry in the country’s GDP.
• Increased attractiveness of Ukraine for investment in high-tech startups.
• Increase in the number of residents and expansion of their range of services.
• Development of infrastructure to support residents.
• More than 1200 companies in the register, some of which have lost their resident status.

Diia.City continues to evolve, contributing to the development of Ukraine’s innovative economy, providing favorable conditions for technology companies and attracting investment.

We are ready to cooperate and, please contact us for an audit. Our team will ensure quality performance, provide professional advice and help you achieve the best results. Contact us today to take full advantage of our experience and expertise. We are happy to help your business become successful within Diia.City.

Material prepared by the team of the industrial group “Technologies Media Telecommunications”

* This material is the result of the analysis and conclusions of BDO in Ukraine and does not constitute legal, financial or professional advice. All material is provided for informational purposes only and is subject to change without notice. It is recommended that you seek professional advice from the relevant BDO in Ukraine experts to address specific issues.

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