Diia.City: What It Is, Key Benefits for the IT Sector, and Residency

Diia City is probably one of the most widely discussed topics among IT entrepreneurs in Ukraine. This innovative tax and legal regime was created in response to the needs of the Ukrainian IT industry, offering an alternative to the traditional model of working through individual entrepreneurs (FOPs). As a result, companies gained the opportunity to operate within a formal legal framework.

On February 8, 2026, Diia.City celebrated its fourth anniversary. Despite its relatively short history, more than 800 IT companies had already joined the ecosystem. In 2022, the number of residents increased by 1.5 times, while more than 100 companies joined Diia.City in January 2026 alone. Judging by these trends, this growth is likely to continue.

At the same time, according to data from the Ministry of Digital Transformation’s 360 Tech Ecosystem Overview dashboard, there are more than 4000 registered IT companies in Ukraine. This means that more than half of the companies in the IT sector are still at a crossroads, considering whether to join Diia City. This is primarily because, despite the system’s openness and transparency, many IT companies still have questions about what to expect and how the transition will affect accounting, tax payments, and company-employee relations, among other aspects.

Based on our extensive experience helping IT clients transition to Diia City, we decided to share some key insights — what challenges you may encounter during the process and what benefits you can expect as a result.

Benefits of Diia City for IT Companies

Of course, one of the key advantages is that transitioning to Diia City allows IT companies to operate within a fully legal framework. This is significantly different from operating through individual entrepreneurs (FOPs), which involves certain risks. Companies that continue to operate under the FOP model may face increased scrutiny from government authorities.

Other benefits of Diia City residency include:

• Tax rates: Low tax rates for employees, including 5% personal income tax (PIT), 22% unified social contribution (SSC) calculated based on the minimum wage, and a 5% military levy.

• Corporate tax: 9% tax on distributed profit or 18% corporate income tax.

• Flexible hiring: New employment models, including traditional employment, cooperation with FOPs, and GIG contracts, are available to Diia City residents.

• Intellectual property protection: The client (employer) automatically acquires rights to intellectual property created within the scope of the engagement, while the parties may agree on different terms.

• Venture investment: Improved conditions for attracting investment due to the incorporation of elements of English law into Ukrainian legislation.
  

Thus, Diia City opens up new opportunities for the development and integration of Ukraine’s IT sector into the global market, offering a more stable and transparent environment for doing business.

Experience of Companies That Have Already Joined Diia City

In the early stages of the special regime, large IT companies generally joined Diia City with a small number of employees and through non-core legal entities in order to test the new conditions. However, taking into account the overall workforce size and the pace at which employees are being transferred to Diia City, Deputy Minister of Digital Transformation Oleksandr Bornyakov stated that large outsourcing companies could fully transition to Diia City within 2–3 years.

For example, SoftServe, which was actively involved in developing the special regime from the outset, initially began its participation with a small team. By 2023, the number of registered specialists in Diia City had already reached 3,500. The company successfully combines traditional employment with GIG contracts, which offer a number of advantages:

• No special legal requirements for entering into a contract with a GIG specialist, allowing cooperation to begin as quickly as possible.

• The company acts as the GIG specialist’s tax agent, saving the specialist time and administrative effort while giving the company full control over tax administration.

• GIG specialists are not governed by the Labor Code in general, although its provisions regarding vacation and business trips do apply.
  

Another IT giant, EPAM, notes that its expectations regarding Diia City residency have been fully met, even despite the challenging economic situation in Ukraine. The low tax burden, the ability to reserve employees who are critical to the business, operational transparency, and other benefits are among the factors encouraging the company to deepen its integration with Diia City.

Why Is It Important to Consider Transitioning to Diia City Now?

Changes in tax policy, increased scrutiny of transactions involving individual entrepreneurs (FOPs), as well as a growing focus on transfer pricing and the automatic exchange of information with tax authorities are creating a new environment for IT companies. Given the lifting of the moratorium on tax inspections in 2026, companies should consider transitioning to Diia City as a priority.

One of the main risks associated with operating through FOPs is that such relationships may be reclassified as employment relationships, potentially resulting in tax consequences. Some of the indicators to pay attention to include:

• Regular and identical payments.

• Provision of office space, equipment, and software.

• Corporate benefits, such as health insurance and gym memberships.
  

Increased scrutiny of your banking transactions and changes in tax policy require a careful review of your current business arrangements. This is why companies often turn to us to assess the transparency and compliance of their operations and evaluate their situation in light of upcoming regulatory changes.

Get Free Consultation

So, When Should You Consider Transitioning to Diia City?

If it is important for you to:

• Operate within a clear legal framework and avoid pressure from government authorities, as the traditional FOP-based model is expected to face increasing scrutiny.

• Maintain a transparent organizational structure — which is particularly important when attracting foreign investment — without splitting ownership and payments between LLCs and FOPs.

• Have strong intellectual property protection.

• Build formal employment relationships with your employees and transparently define the terms and conditions of their employment in the relevant documents, while maintaining low tax rates.

• Attract investment more easily thanks to greater transparency and a clear overview of the company’s operations.
  

Do these points resonate with you? Then it may be time to take the first steps toward transitioning to Diia City:

1. Review the legislation governing the Diia City legal regime.

2. Check whether your company meets the eligibility requirements at the time of submitting the application and after obtaining resident status.

3. Prepare the necessary agreements and contracts for operating as a Diia City resident.

Important: Based on our experience, companies often stop at these stages and postpone the decision until later. To assess all relevant aspects and determine the most appropriate course of action for your company, we recommend seeking professional advice. Get a free consultation from our experts, who will help you understand all the nuances of Diia City and determine whether it is the right step for your business.

How Does It Work in Practice? Our Cases

*Company names are subject to NDA

Case 1

Background: An IT company headquartered in Israel, operating in the e-commerce sector and employing 53 people. The company approached us for assistance with a full transition to the Diia City regime.

The transition to this regime delivered the following results:

1. Moderate tax burden for the company and the ability to operate within a clear legal framework:

• 9% tax on distributed profit

• 10%+22% of the minimum wage in payroll-related taxes

• 25% of employees employed under the Labor Code and 75% under GIG contracts

2. Formal employment relationships with employees — thanks to Diia City, all terms, tasks, and responsibilities of both parties are clearly documented and legally defined.

3. A legal entity registered as a Diia City resident, allowing the company to centralize all payments and financial operations through a single legal entity.

4. Resolution of issues with SWIFT payment blocks — sending numerous payments to FOPs can often cause problems with foreign banks, including transaction blocks and delays.

5. IP protection and NDA agreements to protect confidential information.

Case 2

Background: A software development company providing services to foreign businesses and employing 38 people. The company approached us to review its existing documentation and assist with a full transition to the Diia City regime.

The company's primary goal was to operate transparently and eliminate informal or non-compliant arrangements. The company was also planning to attract investors.

Results:

1. We reviewed the company's documentation for the previous three years and restored missing documents.

2. We carried out comprehensive preparation for the transition to Diia City:

• Determined that the company would make a full transition immediately.

• Analyzed and calculated that the 9% tax on distributed profit would be the most beneficial option for the company.

• Determined the optimal employment structure: 15% traditional employment under the Labor Code, 75% GIG contracts, and 10% cooperation through FOPs.

• Held a meeting with employees to inform them about the transition to Diia City and changes to their employment arrangements. We explained the benefits and changes employees could expect.

• Notified contractors about the transition to Diia City and signed amendments to the existing agreements.

• Developed and approved a complete set of documents, including corporate documents, amendments to employment agreements, GIG contracts, FOP agreements, NDAs, and NCAs.

• Submitted the application for Diia City resident status and for the transition to the tax on distributed profit.

3. After the transition, we continued working with the company by providing ongoing monthly accounting services.

Conclusion

Ultimately, the transition to Diia City is a process that every IT company in Ukraine will inevitably have to consider. Whether obtaining Diia City resident status is appropriate for your company at this stage can only be determined through a comprehensive analysis and expert assessment of your current business processes, legal framework, employment arrangements, and other relevant factors. From this stage through to obtaining the desired Diia City status, FLH is ready to be your reliable partner and support you through every aspect of the process.