IT business and Diia City: what exactly this regime provides

The Law of Ukraine "On Stimulating the Development of the Digital Economy in Ukraine" (hereinafter "the Law") takes effect and provides for the creation of a special regime called Diia City. This regime is created with the purpose of stimulating the development of the IT sector in Ukraine, which is related to the development of software (including the development of operational system and software applications), GameDev, user`s interface design, SaaS, cybersport, cybersecurity, website administration (including media websites), marketing and advertising services provided through the software, IT education and research etc.

What does the Diia City regime provide:

• certain guarantees for its residents (in particular, validity of this legal regime  - not less than 25 years, the stability of terms of taxation, presumption of the legality of the resident’s activity  etc.)
• special tax regime (will be established after the adoption of the relevant Law for amendments to the Tax Code of Ukraine)
• protection from excessive interference from state bodies
• simplification of formalities with IT specialists (possibility of hiring employees within labour relations, natural persons (including foreigners) by gig-contracts and with individual entrepreneurs under agreements)
• attraction and encouragement of IT talents by the provision of additional compensation, social guarantees and employee options. 

The Law introduces new terms: 

• "gig-contract" (a mixed contract that combines the features of a labour contract and a civil contract and is concluded between a legal entity (resident of Diia City) and an individual (gig-specialist)
• "gig-specialist" (individual who has entered into a gig-contract with a resident of Diia City).

Also, provisions regarding Non-Competition Agreement (NCA) are established as a form of contract between Diia City residents and employees or natural persons or individual entrepreneurs; and amendments are made to the relevant copyright law and laws on rights of individuals who have entered into gig-contracts with residents of Diia City.

5 key conditions for acquiring the status of a Diia City resident: 

1. With respect to subjects: Ukrainian legal entities registered in Ukraine, without reference to the location or place of business.
2. With respect to activity: carrying out of types of activities in the IT field, defined by the Law. 
3. With respect to the involvement of specialists: on average no less than 9 specialists (employees or gig-specialists) per month, with their average monthly remuneration no less than EUR 1200.
4. With respect to income: 90% of total income should be an income from direct activities in the IT field.
5. With respect to the absence of restrictions: for beneficiaries, not being under sanctions, not being in a state of suspension, transformation or bankruptcy, no restrictions on activities and no tax debt (more than 10 minimum wages).

The Law obviously has its advantages and disadvantages and raises many questions, in particular, regarding the loss of Diia City resident status, the procedure for the consideration of complaints by the appeal commission, regulating the provisions of gig-contracts, providing basic guarantees of labor rights for gig-specialists and others. 

Upon your request, PwC Ukraine will be happy to provide advisory support on all issues related to the feasibility, benefits of acquiring Diia City resident status, and the legal risks associated with this status.