What does the transition to Diia City give a company?
For a long time, the Ukrainian IT business relied exclusively on the model of working with individual entrepreneurs. However, in today’s realities, such a structure does not always look transparent to Western partners, banks, and investors, and often carries regulatory risks. In addition, companies are constantly under the scrutiny of State Labor Service inspections regarding hidden employment relations. The Diia City legal regime offers an official alternative to “gray” schemes — a legal mechanism for structuring a team that combines the flexibility of individual entrepreneurs, low taxes, and complete legal security for IT businesses.
Tax optimization and gig contracts
Instead of a high total tax burden under classic employment pursuant to the Labor Code of Ukraine (where taxes and charges total 45% of the payroll fund), a resident company gains the opportunity to engage specialists under gig contracts. This is a special form of civil law agreement that allows the company to officially control the specialist’s working time, set KPIs, provide equipment, and grant paid days off without the risk of reclassification into employment relations.
The tax burden on a gig specialist’s remuneration is:
- 5% — Personal income tax (PIT);
- 5% — Military levy;
- 22% of the minimum wage — Unified social contribution (USC), which is calculated from the basic state minimum, not from the actual (often many-thousand) amount of a developer’s contract.
Tax on distributed profits (TDP)
Diia City gives businesses a unique opportunity to choose their corporate tax model. A company may remain on the standard system (18% corporate income tax) or switch to Tax on distributed profits (TDP) at a rate of 9%.
Advantages of the TDP model for IT company growth:
- 0% corporate tax — you do not pay corporate income tax at all while the funds remain inside the company and work for the business;
- Free reinvestment — financing marketing, expanding the team, or developing new products is fully exempt from tax losses;
- 9% charged only upon withdrawal — the tax is paid only when you decide to withdraw money from circulation, for example, when paying dividends to founders.
Flawless protection of IP rights and Venture Capital tools
For product companies, GameDev studios, and R&D centers, intellectual property (IP) is the main asset. When working with individual entrepreneurs in the usual way, rights to the written code have to be transferred monthly through complex acts. In Diia City, the rule of automatic transfer of proprietary rights applies: the company becomes the lawful owner of the code or design at the very second the specialist creates it. This is a green light for successfully passing Due Diligence (audit) before attracting foreign investment.
New legal tools to protect business interests:
- Official legalization of NCA and strengthening of NDA — although non-disclosure agreements (NDA) were concluded before, Diia City introduced specialized regulation for them, which significantly simplifies the recovery of financial compensation in court. At the same time, non-compete agreements (NCA), which were previously effectively blocked by labor legislation, are now fully legalized: a company may lawfully restrict a specialist from moving to a direct competitor, provided compensation is paid to the specialist;
- Integration of elements of English law — Convertible Loan, Option (options for team motivation), and Liquidation Preference tools have been legalized, making the company’s corporate structure clear and secure for Western venture investors.
Taras Miroshnychenko
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