Taxation and other Legislation on Diia City: Changes from January 1, 2025

The Law of Ukraine «On Amendments to the Tax Code of Ukraine and Other Laws of Ukraine Regarding the Stimulation of Digital Economy Development in Ukraine» No. 4113-IX (hereinafter – the Law), also known as Draft Law No. 9319, has been published. Most provisions of the Law came into force on January 1, 2025.

This newsletter provides a brief overview of the key changes affecting Diia City residents and specialists.

Tax rates and unified social contribution (hereinafter – USC) for the income of specialists of new Diia City residents

For new Diia City residents, a 5% personal income tax (hereinafter – PIT) rate and minimum USC rate (22% of the minimum wage) apply to their specialists' income (salaries, remuneration under gig contracts, and author`s remuneration) from the month following the month in which the Diia City resident status is obtained.

In the month when Diia City resident status is obtained, specialists' income is taxed at 18% PIT rate and is subject to the general USC rules (basically 22% of the salary/remuneration, within the applicable limits).

The additional PIT payment is covered at own expense of Diia City resident

It is clarified that Diia City resident who do not meet the requirements for the average amount of remuneration (at least €1,200) and the number of specialists (at least 9) in a given month must pay PIT for their specialists for the relevant months at a rate of 18% at his own expense. As before, the amount of this additional payment is not included in the specialists' taxable income.

PIT and USC features for new «transitional» Diia City residents

For new companies exercising the right to be Diia City residents during a period when they do not meet the requirement of an average monthly number of specialists (at least 9), specialists' income (salaries, remuneration under gig contracts, and royalties) is taxed at a 5% PIT rate, and the minimum USC rate (22% of the minimum wage) is applied to such income.

It should be noted that this right is granted to companies that meet the requirements of Clause 3 Article 5 of the Law of Ukraine «On Stimulating the Development of the Digital Economy in Ukraine» and is limited to a period ending on December 31 of the calendar year following the year in which the company obtained Diia City resident status. The right to apply the 5% PIT rate and the minimum USC for such residents is also limited to this specified period.

If the company still does not meet the requirement for an average monthly number of specialists (at least 9) after the expiration of the specified period, it:

• loses the right to apply the 5% PIT rate to future specialists' income and instead applies the 18% rate;
• loses the right to apply the minimum USC to future specialists' income and instead applies the general rules (basically 22% of the salary/remuneration, within the applicable limits);
• must cover, at its own expense, the difference in PIT at the 18% rate and USC under the general rules (basically 22% of the salary/remuneration amount, within the applicable limits) for the period of non-compliance within the last three months of the calendar year following the year in which it obtained Diia City resident status. This additional payment is not included in the specialists' taxable income. The USC adjustment is made without penalty. This rule on additional payments applies to companies obtaining Diia City resident status starting from February 1, 2025.

VAT peculiarities under relationship with non-resident gig-contractors

If a Diia City resident engages a non-resident gig-contractor to provide services under a gig contract, and the place of supply of such services is considered to be the territory of Ukraine, the Diia City resident does not accrue or pay VAT on such services using the reverse charge mechanism in accordance with Article 208 of the Tax Code of Ukraine.

Exemption from corporate income tax for charitable activities

During martial law, a significant portion of operations by Diia City residents, including the transfer of funds, free provision of goods, works, or services voluntarily transferred to the Armed Forces of Ukraine, other military formations, healthcare institutions and units, civil protection forces, and certain other bodies, institutions, or organizations, are not subject to corporate income tax on operations (so called "withdrawn capital").

Simplification of document flow for gig contracts

Works (services) performed (provided) under gig contracts may be confirmed by reporting documents within the information and communication system (software) of the Diia City resident, which ensures the preservation and accounting of information about the completed works (provided services). In this case, there is no need to prepare additional acts or other documents, provided that:

• the completed works (provided services) are paid, as confirmed by the corresponding payment documents; and
• the gig contract does not include requirements for preparing such additional documents.

Other changes

• A legal entity cannot be a Diia City resident if it has citizens of the aggressor state among its shareholders (directly or indirectly). Previously, this restriction applied only to individuals who permanently (predominantly) resided in the aggressor state.
• It has been clarified that along with submitting an application for obtaining Diia City resident status, it is possible to submit an application for transitioning to taxation by corporate income tax on operations (so called "withdrawn capital").
• The first annual compliance report is submitted for the period from the first day of the calendar month following the month in which resident status was obtained to December 31 of the respective calendar year.

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This newsletter does not constitute legal advice and is published solely to inform you about the legislative changes. If you have any questions about the application of the new rules, please contact INTEGRITES Tax & Customs team:

Viktoriya Fomenko, Partner and Vitalii Labadin, Senior Associate