Nataliia Negoliuk ,
Auditor at LLC AF “AUDIT-INVEST”
Table of Contents
The Diia City regime was created to allow new technology companies to grow faster and operate flexibly, without the burden of high tax rates and HR requirements that are usually manageable only by large IT corporations.
The legislation provides startups with a specific grace period—a kind of “incubator”—where they can operate under reduced requirements.
This article provides a concise overview of the key conditions, risks, and opportunities that newly established companies must consider.
Definition of Startups According to the Law
According to the Law of Ukraine “On Stimulating the Development of the Digital Economy in Ukraine” dated July 15, 2021, No. 1667-IX (hereinafter – Law No. 1667-IX), a startup is defined as a newly established IT company — a Diia City resident — that meets additional criteria and can benefit from special simplified conditions, provided it fulfills general requirements within a limited period.
The key characteristics of a Diia City resident startup, as prescribed in Part 3 of Article 5 of Law No. 1667-IX, are:
- Type of Activity: The company must engage in one or more activities defined by the law (software development, cybersecurity, R&D, etc.). This activity must be specified in the company’s Charter and the Unified State Register (USR).
- Qualified Income: For the first 3 months after acquiring resident status and every year thereafter, at least 90% of the company’s revenue must come from permitted IT activities.
- Company Age: State registration of the company must have occurred no earlier than 24 calendar months prior to the date of application for Diia City residency.
- Income Limit: The company’s annual income must not exceed a certain limit (1,167 minimum wages set as of January 1 of the reporting year) For 2025, this limit is UAH 9,336,000.
This limit applies to each of the following years:
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The calendar year preceding the year the company applied for Diia City residency.
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The calendar year in which the company applied for residency.
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The calendar year in which the company acquired residency.
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The calendar year following the year the company acquired residency.
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Important Note:This indicator determines whether a company can maintain its startup status during the transition period. If a company’s income exceeds the limit, it loses the right to be considered a “startup” in Diia City.
The transition to the general business taxation system is significantly more expensive. Therefore, regular income monitoring is, in fact, a control over the right to remain not only a “startup” but also a Diia City resident.
Practical Example: A company was officially registered in the Diia City register in March 2025. Over the following months, its income was as follows:
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April 2025: UAH 1,500,000.00
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May 2025: UAH 2,500,000.00
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June 2025: UAH 3,000,000.00
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July 2025: UAH 3,500,000.00
The total income for this period (April–July 2025) reached UAH 10,500,000.00.
Since the legislative income limit for maintaining startup status (which is UAH 9,336,000 for 2025) was exceeded specifically in July 2025, the company loses its “startup” status starting from that month. Consequently, it becomes obligated to fulfill all standard Diia City residency criteria as prescribed by Law No. 1667-IX.
Income Criteria and Restrictions
Recommendations for Income Control:
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Monthly Monitoring: Maintain a monthly income tracker with a forecast until the end of the year.
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Rapid Growth Strategy: Prepare in advance for the transition from “startup” mode to “standard” Diia City residency if your business is scaling quickly.
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Contract Planning: Plan large contracts carefully, taking into account the maximum income threshold.
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Compliance Checks: Conduct periodic audits of residency criteria together with a professional accountant or legal advisor.
- Legal Point: The application for residency must explicitly state that the Company is applying as a “startup resident” in accordance with Part 3 of Article 5 of Law No. 1667-IX.
- Anti-Criteria (Disqualifying Factors) A company cannot be a Diia City resident if any circumstances listed in Part 2 of Article 5 of Law No. 1667-IX apply, specifically:
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Aggressor State Ties: Connections with an aggressor state or sanctioned persons.
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Non-Profit/Foreign Entity: The company is non-profit or registered outside of Ukraine.
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Tax Debt: Significant tax debt exceeding 10 minimum wages for more than 30 days.
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Beneficial Ownership: Failure to disclose ultimate beneficial owners (UBOs).
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Liquidation: The company is in the process of liquidation or bankruptcy.
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State/Municipal Stake: Legal entities with a state or municipal share of 25% or more in the authorized capital.
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- Validity Period The “startup resident” status is valid until the end of the next calendar year after it was obtained.
Example: If a Company received the status in 2025, it remains valid until December 31, 2026.
Exemptions for Startups During the Grace Period
Law No. 1667-IX provides startups with significant relaxations regarding residency criteria during the grace period:
- Remuneration Level: The average monthly remuneration for employees and GIG-specialists may be less than the equivalent of €1,200.
Note: In this case, the standard PIT rate of 18% applies instead of the 5% incentive rate.
Staff Count: The average number of employees and GIG-specialists may be fewer than nine persons.
Note: A startup must achieve full compliance with all general residency criteria by the end of the next calendar year after acquiring its status. If the company fails to meet the requirements regarding the minimum number of specialists (9+) and the minimum remuneration level (€1,200 equivalent) after the grace period ends, it will automatically lose its Diia City resident status.
Tax Benefits for Startups
Startups enjoy the same preferential tax conditions as other Diia City residents. This significantly reduces the overall tax burden and allows for more reinvestment into product development:
| Tax Type | Standard Rate (General System) | Diia City Resident Rate |
|---|---|---|
| Corporate Tax | 18% | 9% (Distributed Profit Tax – DPT) OR 18% (Standard CIT) — By choice |
| Personal Income Tax (PIT) | 18% | 5% (on salaries and GIG-specialists’ remuneration) |
| Unified Social Contribution (USC) | 22% of the actual salary | 22% of the Minimum Wage (instead of 22% of the total amount) |
| Military Tax | 5% (as of Dec 1, 2024) | 5% (as of Dec 1, 2024) |
Tax Incentives for Startups: Updated 2025 Regulations
Based on the recent legislative updates (Law of Ukraine No. 4113-IX dated Dec 4, 2024), the taxation rules for Diia City startup residents have been refined to support growth.
The preferential 5% Personal Income Tax (PIT) rate is permitted under the condition that the Company’s average number of employees and GIG-specialists is fewer than 9 persons, provided they fulfill the requirement regarding the average monthly remuneration of €1,200.
Timeline of Eligibility: The right to apply this preferential rate arises starting from the next calendar month following the month in which the company officially acquired its resident status.
Unified Social Contribution (USC) for Startups
Effective January 1, 2025 (pursuant to paragraph 4, Article 8 of the Law of Ukraine “On the Collection and Accounting of the Unified Contribution to the Compulsory State Social Insurance”), a special rule applies to startups:
Until December 31 of the calendar year following the year in which the startup acquired its Diia City resident status, the company shall calculate the USC at the minimum insurance rate (22% of the minimum wage). This benefit applies even if the startup does not meet the requirement regarding the average number of employees and GIG-specialists.
When the allotted period has expired, and the Diia City resident still does not meet the requirement regarding the average number of employees and GIG-specialists, the company must independently recalculate and pay the Unified Social Contribution (USC) at a rate of 22% (8.41% for persons with disabilities).
The USC calculation base consists of the income of Diia City resident specialists paid during the months when the tax agent failed to meet the aforementioned requirement, but within the last three months of the calendar year following the year in which the company acquired its Diia City resident status. The amount of USC to be additionally paid by the startup must be reduced by the amount of the minimum insurance contribution previously paid for such reporting periods.
Military Tax is calculated and withheld from the salaries of employees and the remuneration of GIG-specialists in accordance with general procedures. Starting December 1, 2024, the military tax rate for employees and GIG-specialists of Diia City residents is 5%.
Corporate Income Tax or Distributed Profit Tax (DPT). A startup may choose to remain a taxpayer on general grounds (Corporate Income Tax at 18%) or switch to the Distributed Profit Tax (DPT) system at a rate of 9%.
VAT. Registration as a VAT taxpayer can be either voluntary or mandatory. A Diia City resident startup must pay VAT if its total income over the last 12 calendar months exceeds UAH 1,000,000 (excluding VAT). At the same time, Diia City residents are exempt from VAT regarding the supply of certain types of IT educational services, as listed in Clause 197.1.33 of the Tax Code of Ukraine.
Reporting Under the Diia City Law
Diia City resident startups are required to submit regular reporting to confirm their ongoing compliance with the legal requirements:
Initial Compliance Report:
The report must be submitted no later than the last day of the sixth calendar month following the month in which the Diia City resident status was acquired. This report confirms compliance with all requirements set out in Clauses 1, 4, and 5 of Part 1 and Clause 3 of Part 3 of Article 5 of Law No. 1667-IX, based on the results of three full calendar months following the month of residency acquisition.
For startups, Law No. 1667-IX does not require an independent auditor’s report to be attached to the initial compliance report (this is only necessary upon a specific request from the authorized body, the Ministry of Digital Transformation).
Annual Compliance Report:
An annual compliance report confirming adherence to the requirements set forth in Article 5 of Law No. 1667-IX must be submitted to the authorized body every year, no later than June 1st of the year following the reporting year. This report covers the period from January 1st to December 31st of the previous calendar year.
The first annual compliance report is submitted for the period starting from the first day of the calendar month following the month in which the Diia City resident status was acquired, until December 31st of that same calendar year.
The annual compliance report must be accompanied by an independent auditor’s report, issued by an audit entity following a verification of the assertions made by the Diia City resident in its annual compliance report.
The independent report must be provided by an audit entity that, in accordance with the Law of Ukraine “On the Audit of Financial Statements and Auditing Activities,” is authorized to perform mandatory audits of financial statements.
Conclusions
The Diia City regime is a powerful state support tool for the development of young technology companies in Ukraine. At the same time, as recent changes and the practical experience of residents show, the efficiency of operating within Diia City largely depends on the company’s discipline in meeting criteria, managing tax and legal risks, and promptly responding to legislative updates.
This is where audit plays a vital role. An independent review allows a startup to proactively identify potential non-compliance—regarding qualified income, residency criteria, taxation, or internal documentation—and rectify them in time. An auditor’s report not only accompanies annual reporting but also increases a company’s transparency and reliability in the eyes of partners and investors, supporting its sustainable growth.
Thus, with professional management, regular performance monitoring, and high-quality auditing, the Diia City regime can serve as a robust platform for the development and scaling of young Ukrainian technology companies.
References :
- Law of Ukraine No. 1667-IX dated July 15, 2021, “On Stimulating the Development of the Digital Economy in Ukraine”;
- Law of Ukraine No. 4113-IX dated December 4, 2024, “On Amendments to the Tax Code of Ukraine and Other Laws of Ukraine Regarding the Stimulation of the Development of the Digital Economy in Ukraine”;
- Law of Ukraine No. 2464-VI dated July 8, 2010, “On the Collection and Accounting of the Unified Contribution to the Compulsory State Social Insurance” (as amended);
- Tax Code of Ukraine No. 2755-VI dated December 2, 2010 (as amended).
