More than 4,100 companies have joined Diia.City since it launched. The regime doubled its resident count in 2025 alone and collected over ₴16 billion in taxes in the first half of that year. These numbers make it easy to assume that every IT company should join.
That assumption is wrong. Diia.City carries real compliance overhead, hard eligibility thresholds, and contract-type trade-offs that only pay off under specific conditions. This article walks through the full picture so you can decide with numbers, not headlines.
Who this article is for
You run or co-own a Ukrainian IT services company with 20–200 people. Most of your revenue comes from software development, and most of your costs are payroll. You operate as a standard LLC (TOV) and want to know whether switching to Diia.City makes financial sense, or whether it only adds bureaucracy without meaningful savings.
What Diia.City actually is
Diia.City is a voluntary special legal and tax regime introduced by Law No. 1667-IX in 2021 and significantly amended by Law No. 4113-IX effective January 1, 2025. It is not a geographic zone or a separate legal entity. Your company stays an LLC — it gains an additional status with associated tax preferences and compliance obligations.
Key guarantees:
- The state promises to maintain the rules for at least 25 years from the first resident’s registration.
- Joining is voluntary. The law explicitly prohibits coercion.
- You can leave at any time by filing an application with the Ministry of Digital Transformation.
As of April 2026, the registry includes 4,121 residents employing over 148,000 IT specialists. About 77% are IT companies, 54% are based in Kyiv, and 87% of new entrants are startups under two years old.
Eligibility: what the regime requires
Before comparing taxes, check whether your company qualifies at all.
| Criterion | Full resident | Startup (first two years) |
|---|---|---|
| Legal form | LLC (Ukrainian legal entity) | LLC |
| Qualified IT income | At least 90% of total revenue | At least 90% |
| Minimum specialists | 9 (on employment or gig contracts — FOPs do not count) | Grace period: must reach 9 by end of the year following admission |
| Average monthly pay | At least €1,200 per specialist | At least €1,200 (for the 5% PIT rate) |
| Revenue cap | None | Under 1,167 minimum wages (~₴10.1M in 2026) |
| Anti-criteria | No tax debt exceeding 10 minimum wages for 30+ days; no aggressor-state shareholders; no sanctions or liquidation proceedings | Same |
| Activity types | Software development, cybersecurity, data processing, AI, and other types listed in Article 5 of Law 1667-IX | Same |
A 2025 cabinet resolution expanded eligible activities to include BIM-based engineering and audiovisual post-production, but the core remains software-centric.
The 90% rule is the most common trap. If your company does any meaningful amount of consulting, marketing, or non-IT work and that revenue exceeds 10% of total income, you will not qualify, or you will lose your status at the next compliance audit.
Tax comparison: the numbers
This is where most articles stop at listing rates. Rates alone are misleading. What matters is total employer cost per person and total corporate tax cost per year, accounting for the way your company actually operates.
Corporate-level tax
| Standard LLC (general system) | LLC on simplified system (Group 3) | Diia.City — CIT model | Diia.City — withdrawn capital model | |
|---|---|---|---|---|
| Tax base | Net profit | Gross revenue | Net profit | Specific withdrawal operations |
| Rate | 18% | 5% + 1% military levy (no VAT) or 3% + 1% (with VAT) | 18% | 9% |
| VAT | 20% (mandatory above ₴1M revenue) | Optional | Standard 20% rules | Standard 20% rules |
| Annual revenue cap | None | ~₴10.1M (2026) | None | None |
| Dividend tax (owner) | 9% PIT + 5% military levy | 9% PIT + 5% military levy | 9% PIT + 5% military levy | 0% PIT if withdrawn no more than once every two years |
The two-year clock for tax-free dividends starts on January 1 of the year after you join. Join in 2026, and your first tax-free withdrawal is available from January 1, 2029.
Payroll tax: where the real savings live
For an IT services company, payroll is typically 70–80% of total cost. This is where the Diia.City regime generates most of its value.
| Standard LLC | Diia.City resident | |
|---|---|---|
| Personal income tax (PIT) | 18% of gross | 5% of gross |
| Military levy | 5% of gross | 5% of gross |
| Unified social contribution (ESV) — employer cost | 22% of gross salary | 22% of minimum wage (₴1,902 per month in 2026) |
PIT and military levy are withheld from the employee’s gross salary — the employee bears them, the employer remits them. ESV is the employer’s additional cost on top of gross.
Worked example: one employee earning ₴100,000 gross per month.
| Standard LLC | Diia.City | |
|---|---|---|
| Gross salary | ₴100,000 | ₴100,000 |
| PIT (withheld) | ₴18,000 | ₴5,000 |
| Military levy (withheld) | ₴5,000 | ₴5,000 |
| Employee receives | ₴77,000 | ₴90,000 |
| ESV (employer pays) | ₴22,000 | ₴1,902 |
| Total employer cost | ₴122,000 | ₴101,902 |
The employer saves ₴20,098 per month, and the employee takes home ₴13,000 more.
Scaling the savings
| Team size | Avg. gross salary | Monthly ESV savings | Annual ESV savings |
|---|---|---|---|
| 30 people | ₴80,000 | ₴470,930 | ₴5.7M |
| 50 people | ₴100,000 | ₴1,004,883 | ₴12.1M |
| 100 people | ₴120,000 | ₴2,449,766 | ₴29.4M |
These numbers assume all specialists meet the average €1,200 monthly pay requirement and the company maintains at least nine employees. If either condition is not met in a given month, the preferential rates vanish for that month: PIT reverts to 18% and ESV is calculated on the full salary.
Withdrawn capital tax: when to choose which model
Diia.City residents pick one of two corporate tax models at the time of joining.
18% CIT model works like standard corporate income tax. You pay 18% on net profit regardless of what happens to the money afterward.
9% withdrawn capital tax (exit capital tax) works differently. The company pays nothing on retained earnings. Tax is triggered only when capital leaves the company through specific operations:
- Dividend payments
- Royalty and interest payments
- Free-of-charge transfers (except wartime charitable donations to the Armed Forces)
- Financial aid to unrelated parties
If you reinvest most of your profit — into hiring, R&D, equipment, or reserves — the withdrawn capital model can result in an effective corporate tax rate near zero. About half of all Diia.City residents chose this model as of the latest published data.
The dividend sweetener. Under the withdrawn capital model, if you withdraw dividends no more than once every two years, the owner pays 0% PIT on those dividends. Combined with the 9% withdrawn capital tax, your total dividend tax burden is 9% — compared to roughly 29.5% (18% CIT, then 9% PIT + 5% military levy on the remainder) for a standard LLC.
When the CIT model wins. If your company distributes profits frequently — quarterly or annually — and most of the profit leaves the company, the 18% CIT model may result in a similar or lower total burden because you avoid the per-transaction 9% trigger on every outflow.
Gig contracts: what they are and when to use them
Diia.City introduced a new contract type unique to Ukrainian law: the gig contract. It sits between a civil-law agreement and an employment contract, and it exists nowhere else in EU or international law.
What gig workers get
- 17 working days of paid annual leave
- Sick leave (temporary disability coverage)
- Maternity leave (70 days before and 56 days after childbirth)
- Foreign workers: a one-year residence permit without a work permit
What gig workers do not get
- Protection from termination (the company can end the contract with 30 days’ notice, no reason required)
- Coverage under the Labour Protection Law
- Limited liability (gig workers bear full liability for property damage, unlike employees who risk only one month’s salary)
Tax parity since 2025
Before Law 4113-IX, gig workers cost significantly more in ESV than employees. Since January 1, 2025, the preferential ESV rate (22% of minimum wage) applies equally to both employees and gig workers. The tax cost is now identical.
Gig vs. employment: the real trade-off
The remaining difference is operational flexibility versus worker protections. Gig contracts give the company freedom from the Labour Code — easier termination, flexible working hours, no rigid documentation requirements (since 2025, work completion can be confirmed through internal systems without separate signed acts).
But there is a critical wartime catch.
Employee reservation from mobilization
During martial law, this is often the number-one reason IT company leaders consider Diia.City.
Diia.City residency contributes to qualifying for “critically important enterprise” status. Companies with that status can reserve employees from mobilization — up to 50% of their military-liable staff, processed through the Diia portal within 72 hours.
The catch: only employees on formal employment contracts can be reserved. Gig workers and FOP contractors cannot be reserved.
This creates a direct tension. Gig contracts offer flexibility and freedom from the Labour Code. Employment contracts allow reservation of key people. Most companies we work with use a hybrid approach: employment contracts for critical team members who need reservation eligibility, gig contracts for roles where flexibility matters more.
Note that Diia.City residency alone is not enough for critical enterprise status. You need at least two additional qualifying criteria beyond residency.
FOP contractor limits
If your company currently relies heavily on FOP (sole proprietor) contractors, this is a constraint you must plan for.
The law progressively tightened the cap on FOP payments by Diia.City residents:
| Period | FOP payment cap (% of total expenses) | Excess taxed at |
|---|---|---|
| Before 2024 | No limit | — |
| 2024 | 50% | 9% withdrawn capital tax |
| 2025 onward | 20% | 9% withdrawn capital tax |
If more than 20% of your total expenses go to FOPs, the excess triggers a 9% tax. For a company that runs a large FOP bench — common in Ukrainian IT outsourcing — this either forces a transition to employment or gig contracts, or it erodes the tax savings that made Diia.City attractive in the first place.
Run the numbers before joining. Calculate your current FOP expense ratio. If it is above 30%, factor in the cost of converting those contractors or the 9% penalty on the excess.
Compliance overhead: audit, reporting, and documentation
Diia.City is not a “register and forget” regime. It imposes ongoing obligations that have real costs.
Annual compliance report
Every resident must submit a compliance report to the Ministry of Digital Transformation by June 1 of the year following the reporting year. The report confirms that you met all residency criteria — income composition, specialist count, average pay, and activity types.
The report must include an independent auditor’s opinion. Not every audit firm qualifies: only 219 of Ukraine’s 879 registered audit firms hold the necessary Tier 3–4 statutory audit license.
What the audit costs
| Company size | Typical audit cost | Timeline |
|---|---|---|
| Medium (30–80 people) | $3,000–$4,000 | 2–3 weeks |
| Large (500+ people) | Up to $100,000 | Several weeks to months |
Two audit approaches exist: ISAE 3000 (assurance engagement — faster and cheaper) and ISA 700 (full financial statement audit — more thorough but significantly more expensive). Most mid-sized companies use ISAE 3000.
New residents
Within six months of joining, you must submit an initial compliance report covering your first three full months of residency.
Consequences of non-compliance
- Late submission by more than 20 business days: grounds for losing resident status.
- Since 2025: if the audit shows you do not meet criteria, the Ministry can cancel your status directly.
- Loss of status means reverting to general taxation, potentially with retroactive adjustments.
As of early 2026, 464 companies have lost their resident status since the program’s inception — about 11% of all companies that ever joined.
The six most common compliance mistakes
- Misclassifying revenue. Marketing, consulting, or advertising revenue mixed with IT income pushes the company below the 90% threshold.
- Wrong remuneration calculation. The €1,200 average must use the NBU euro exchange rate on the first day of the calendar month, not the payment date. Confusing cash and accrual methods is another frequent error.
- Benefits not structured correctly. Health insurance, gym memberships, and language courses paid by the company are taxed at 18% PIT unless properly defined in employment or gig contracts.
- Vague primary documentation. Contracts without clear scope definitions, missing analytical separation between qualified and non-qualified revenue.
- Deficient gig contracts. Missing deliverable specifications, unclear payment logic — these invite reclassification to the 18% PIT rate plus 5% military levy.
- Revenue growth without HR planning. A startup approaching the ₴10.1M revenue threshold must have nine specialists hired before crossing it, not after.
English law tools and IP protection
Diia.City introduced five instruments from English common law into Ukrainian legislation:
- Convertible loans — the investor receives shares when the company reaches a market valuation.
- Option contracts — investors can increase their stake upon company success.
- Liquidation preferences — investors receive priority repayment.
- Warranties and indemnities — compensation agreements familiar to international deal-making.
- Non-compete and non-solicitation clauses — enforceable for Diia.City residents, whereas Ukrainian courts have historically treated them as void.
Intellectual property
Under Diia.City rules, IP rights default to the company from the moment of creation — not to the individual developer. This applies to employees, gig workers, and contracted FOPs alike. The default can be overridden by contract, but the baseline protects the company.
For companies negotiating with foreign investors or preparing for an exit, these provisions remove friction that previously required complex workarounds through offshore structures.
Dispute resolution
Parties to Diia.City agreements can choose international arbitration — in Ukraine or abroad. The availability of English law governance mechanisms makes the regime more legible to foreign VCs and legal teams accustomed to common law frameworks.
Defence.City: a brief note
Since January 2026, Ukraine also offers Defence.City — a separate regime for defense and dual-use technology companies. It provides real estate, land, and environmental tax exemptions, plus conditional CIT relief.
A company cannot hold both Diia.City and Defence.City status simultaneously. If your IT company does meaningful defense work (50–75%+ of revenue), Defence.City may be the better fit. The two regimes are mutually exclusive.
The registration process
Joining Diia.City is straightforward:
- Verify that your company meets all eligibility criteria.
- Prepare required documents (income data for the preceding year, electronic signature).
- Submit the application through the Diia portal to the Ministry of Digital Transformation.
- The Ministry reviews within 10 working days. In practice, automated register checks often make it faster.
- If no response arrives within 10 days, the “tacit consent” principle applies — your company is automatically approved.
- Choose your tax model (18% CIT or 9% withdrawn capital tax) at the time of application.
Decision framework: when to join and when to stay
Diia.City makes sense when:
- Your team is 20+ specialists with salaries above ₴50,000/month. The ESV savings alone outweigh compliance costs by a wide margin.
- You reinvest most of your profit. The withdrawn capital model means 0% tax on retained earnings.
- You need employee reservation from mobilization. Diia.City residency contributes to critical enterprise status.
- International clients or investors value transparency. Residency signals that you operate with full audit compliance — Samsung, EPAM, Grammarly, and Visa are in the same registry.
- You have clean documentation. If your books are already in order, the compliance burden is manageable.
Staying as a standard LLC makes sense when:
- Revenue is under ₴10M/year. The simplified tax system (5% + 1% of gross revenue) may result in a lower total burden with far less overhead.
- More than 20% of your expenses go to FOPs. The 9% penalty on excess FOP payments erodes Diia.City savings.
- More than 10% of revenue is non-IT. The 90% qualified income rule will cause compliance failures.
- You have fewer than 9 specialists with no near-term growth plan.
- You distribute profits frequently. The CIT model’s advantage over a standard LLC narrows significantly for companies that do not retain earnings.
- Administrative capacity is limited. Annual audits, compliance reports, and ongoing documentation requirements add meaningful overhead for small teams.
The rough breakeven
In our client work, we see Diia.City becoming clearly advantageous at around 15–20 employees with average salaries of ₴80,000 or more. At that scale, the annual ESV savings (₴3.5–4.5M) comfortably exceed the compliance costs ($3,000–$5,000 for the audit plus additional accounting overhead). Below that threshold, the simplified system usually wins on total cost of operation.
What we help with
At Harha, we run the full analysis before any client makes this decision. That includes modeling total tax cost under each regime for your actual team size, salary distribution, and FOP mix; evaluating compliance readiness; and projecting whether the savings trajectory holds as you grow.
If you are weighing this decision, the first step is a 30-minute call where we review your current structure and tell you whether the switch makes financial sense, or whether it does not.
Frequently asked questions
What are the eligibility requirements to join Diia.City?
A full resident must be a Ukrainian LLC with at least 90% qualified IT income, at least 9 specialists on employment or gig contracts (FOPs do not count), and an average monthly pay of at least €1,200 per specialist. The company must have no tax debt exceeding 10 minimum wages for 30+ days, no aggressor-state shareholders, and no sanctions or liquidation proceedings. Startups in their first two years have a grace period to reach 9 specialists and a revenue cap of about ₴10.1M (2026).
How much can a Diia.City resident save on payroll taxes?
For an employee earning ₴100,000 gross per month, a standard LLC has a total employer cost of ₴122,000, while a Diia.City resident pays ₴101,902 — a saving of ₴20,098 per month. The employee also takes home ₴13,000 more. Savings come from PIT of 5% instead of 18% and ESV of 22% on the minimum wage (₴1,902 in 2026) rather than 22% of full salary.
What is the difference between the 18% CIT model and the 9% withdrawn capital model?
Under the 18% CIT model you pay 18% on net profit regardless of what happens to the money afterward. Under the 9% withdrawn capital model the company pays nothing on retained earnings; tax is triggered only when capital leaves through dividends, royalties, interest, free-of-charge transfers, or financial aid to unrelated parties. Reinvesting most profit can push the effective corporate rate near zero. The CIT model can win when profits are distributed frequently and most of the profit leaves the company.
Can Diia.City gig workers be reserved from mobilization?
No. Only employees on formal employment contracts can be reserved from mobilization. Gig workers and FOP contractors cannot be reserved. Diia.City residency contributes to qualifying for critically important enterprise status, which allows reserving up to 50% of military-liable staff through the Diia portal within 72 hours, but residency alone is not enough — at least two additional qualifying criteria are required.
What are the compliance obligations for a Diia.City resident?
Each resident must submit an annual compliance report to the Ministry of Digital Transformation by June 1 of the year following the reporting year, including an independent auditor's opinion from a firm holding a Tier 3–4 statutory audit license. New residents must submit an initial report within six months of joining, covering their first three full months. Audit costs range from $3,000–$4,000 for medium companies to up to $100,000 for large ones. Late submission by more than 20 business days is grounds for losing resident status.