Publication date: 14.05.2024
Lawyer
Should your IT company become a resident of Diia.City?
From the very moment of its creation, the concept of Diia.City and the corresponding bill met with considerable opposition in the IT community. Despite this, Diia.City currently boasts more than 600 registered companies, including such well-known names as EPAM Ukraine, SoftServe, Luxoft Ukraine and others. So what drives companies to choose Diia.City residency and are there any potential pitfalls in doing so?
**Understanding Diia.City :**
Diia.City is a unique legal regime designed to bring individual entrepreneurs out of the shadows, particularly in the IT sector. This regime essentially offers a compromise on the part of the state, recognizing and adapting existing practices in the IT community while introducing its own set of rules.
**Diia.City residency criteria:
In order to obtain Diia.City resident status, IT companies must meet certain criteria defined by legislation. This is registration in Ukraine, engaging in the activities specified for Diia.City residents, maintaining the minimum number of employees and gig specialists, ensuring the minimum average monthly remuneration for employees and gig specialists, compliance with various anti-criteria.
Startups enjoy certain exemptions to staffing and salary criteria if they meet certain conditions, such as recent registration and limited annual revenue.
**Covered activities:**
Diia.City residency is granted to companies engaged in various IT-related activities, including computer programming, software development, educational services, data processing, cyber security, etc. The list of acceptable activities continues to expand, reflecting the evolution of the IT industry.
**Tax consequences:**
One of the main considerations for companies considering becoming a Diia.City resident is the tax implications. Diia.City residents can choose an 18% income tax or a 9% capital withdrawal tax, offering flexibility depending on their financial strategies.
Taxation of dividends, employee salaries and gig contracts is also separate within Diia.City, with different rates and exemptions applying depending on the nature of the transaction and the recipient's resident status.
**Navigation Compliance:**
Maintaining Diia.City residency requires constant compliance with residency criteria, including regular reporting and audit requirements. Failure to meet these criteria may result in loss of resident status and potential tax liability.
**Considerations during martial law:**
While Diia.City offers benefits during martial law, such as relaxed residency criteria and deferred reporting requirements, these benefits come with potential pitfalls. Failure to comply within this period can result in an increased tax burden on workers and professionals, underscoring the importance of careful planning and risk assessment. One of the advantages of being a Diia.City resident is the ability to book employees.
**Final Thoughts:**
The decision to become a resident of Diia.City should be made after careful consideration of the advantages and problems inherent in this legal regime. Although Diia.City offers unique opportunities for more efficient and transparent work of IT companies, navigating its complexities requires a comprehensive understanding of its rules and implications.
Ultimately, the decision to enter Diia.City must be aligned with the long-term goals and objectives of the IT company, ensuring that the options chosen are in the best interest of the company. Due to careful planning and considered decision-making, the Diia.City residence can offer significant advantages to IT companies operating in the dynamic business landscape of Ukraine.
