Special Legal Regime for Diia City Resident IT Companies

On August 11, 2021, the President of Ukraine signed the law "On Stimulating the Development of the Digital Economy in Ukraine" No. 1667-IX, which was adopted by the Ukrainian parliament on July 15, 2021. The law will come into force the next day after its official publication.

On the same day, by order of the President of Ukraine No. 521/2021-rp, the members of the working group were approved, which was entrusted with the task of developing proposals to accelerate the economy innovative development.

Such regulations are aimed at the implementation of Diia City project, which provides incentives for the development of the IT industry and the creation of a powerful community of IT companies in Ukraine. It is expected that due to the attractive business conditions for its residents, Diia City project will be of Ukrainian and international IT companies', investment funds' and startups' interest.

Diia City residents are provided with the following special conditions:

• special procedure for hiring employees (GIG contracts that combine freelance model flexibility and social guarantees, which can reduce the tax burden on employers);
• possibility of using the instruments of raising funds that are used in British law (options, preemptive right when dividing the property of the founders, a loan agreement with an alternative obligation, etc.);
• assignment to a resident of property rights to computer programs and databases;
• preferential tax regime (tax “on labor” - 5%, tax on “withdrawn capital” - 9%);
• special procedure for contacts with regulatory authorities (protection of residents from unauthorized inspections by law enforcement agencies).

To obtain the status of Diia City resident, the company is to indicate itself in a special register at the Ministry of Digital Development (the register will be created after the law entry into force).

Background: The law No. 1667-IX, adopted by the Verkhovna Rada, is among the draft laws packages that create the necessary incentives for the development of the IT industry. In the near future, the Verkhovna Rada of Ukraine is expected to consider draft law No. 5376 on the creation of special tax regimes for the IT industry (on June 2, 2021, the document successfully passed the first reading).

For more information, please contact Lawyer Bronislav Kolos and Managing Partner Dmytro Vidsota.