Diia City, a special legal framework for the Ukrainian IT industry, finally adopted

On December 14, 2021, deputies voted in favor of a bill setting out the details of the special tax regime, Diia City. There were 285 people’s deputies who voted in favor. AIN.UA has repeatedly written about this initiative and its conditions. And here is a summary:

Diia City is a special legal framework for the Ukrainian IT industry. A company that meets the list of requirements can voluntarily become a resident of Diia City. But certain restrictions on work with FOPs (individual entrepreneurs) will be applied to them (we will describe them below).

The specifics of the regime:

• Residents of the special regime will be able to choose which corporate tax to pay: 9% exit capital tax (ECT) or 18% income tax.
• Individuals’ income in the form of dividends accrued by a resident company will be exempt from taxation, provided that they are paid no more than once every two years. There will also be a tax rebate for individuals in the event of the acquisition of a stake in a startup that is a resident of Diia City.
• Income of employees and gig specialists of Diia City residents will be taxed: personal income tax – 5%, SSF – 22% of the minimum wage, military duty – 1.5% (of an employee’s salary or a gig employee remuneration). If a professional receives more than 240,000 euros per year, all income above this limit will be taxed at 18% PIT.
• Taxes for FOPs cooperating with IT companies will remain the same as they are now.

We will also remind you of the rules introduced by the Diia City bill for IT companies working with FOPs:

• Companies that pay a Corporate Income Tax of 18%, whose annual income does not exceed 40 million hryvnias, will be able to work with FOPs without restrictions during the entire period of the Diia City regime.
• For all other residents, payments to FOPs should not exceed 20% of total costs. For those companies that will pay the exit capital tax, amounts above the limit will be subject to this tax at the rate of 9%.
• For companies that pay a Corporate Income Tax, those costs for FOPs that exceed 20% will have to be included in the financial result.
• Restrictions on working with FOPs will be fully operational only from 2025. Until then, there will be a transition period of three years: until 2024 – no restrictions; in 2024, tax-free payments not exceeding 50% will be allowed.