In our payroll article we showed that the same $3,000 net salary costs a company $4,745 under standard employment — and about $3,375 under something called Diia City. A difference of $1,370 per person per month naturally raises the question: what is this regime, what's the catch, and can your company get in?
Short version: Diia City (Дія.Сіті) is a special legal and tax regime that Ukraine created in 2022 specifically for the tech industry. It's not a physical place, not a free economic zone with a fence around it — it's a legal status your Ukrainian company can obtain. And it has quietly become the default way serious tech businesses operate here: as of mid-2026, over 4,300 companies are residents, from local studios to the Ukrainian entities of global names.
Here's how it works, what it actually requires, and how to decide whether it fits you. Plain language, rules as they stand in mid-2026.
01
Why Diia City exists at all
For two decades, the Ukrainian IT industry ran on a workaround. Hiring developers as employees was expensive (as our payroll article showed — roughly 58% overhead on net pay), so nearly everyone engaged them as private entrepreneurs (ФОП) paying 5% tax. It worked, the industry boomed — but the model was legally fragile: thousands of "contractors" who were employees in everything but paperwork, with permanent reclassification risk hanging over the whole sector.
Diia City was the state's offer of a deal: come out of the grey zone, get taxes almost as low as the ФОП model, plus proper contracts, plus legal tools the old system never had — in exchange for transparency and a few commitments. Judging by 4,300+ residents, the industry took the deal.
02
The taxes: what residents actually pay
The heart of the regime is a special payroll tax package for people working at resident companies:
- Personal income tax: 5% instead of the standard 18% (applies to annual income up to €240,000 per specialist; anything above that slice is taxed at 18%);
- Military levy: 5% — same as everywhere;
- Social contribution (ЄСВ): 22% of the minimum wage, not of the actual salary — a fixed UAH 1,900 ($42) per month per person, regardless of whether the specialist earns $1,500 or $15,000.
Net result: an employee's take-home is 90% of gross instead of 77%, and the employer's social contribution is a rounding error instead of a fifth of payroll. For a team of twenty at typical IT salaries, the regime saves several hundred thousand dollars a year compared to standard employment.
There's also a corporate tax choice. A resident can stay on the regular 18% corporate income tax, or switch to the 9% tax on withdrawn capital — a model where profit is taxed only when it leaves the company (dividends and equivalent payouts), not when it's earned. For businesses that reinvest, the second option means effectively zero corporate tax until distribution. Most residents choose it.
And a bonus that matters to founders and investors: 0% tax on dividends paid to individuals if profits are distributed no more often than once every two years, plus favorable treatment for startup investment ("angel" provisions) and share deals.
03
Gig contracts: the legal invention worth knowing
Diia City didn't just cut taxes — it created a new type of engagement that exists nowhere else in Ukrainian law: the gig contract.
A gig contract sits deliberately between an employment contract and a services agreement. The gig specialist is not an employee under the Labor Code — so the rigid rules we described in our article on firing (exhaustive dismissal grounds, two-month redundancy notices, near-impossible performance terminations) don't apply. Instead, the relationship runs on the contract itself, which can be terminated with 30 days' notice by either side (or as otherwise agreed).
At the same time, gig specialists aren't left naked like contractors. The law guarantees them a social package: paid annual break of 17 working days, paid sick leave through the state system, maternity protections, and the state social contributions that build their pension record. They can also be reserved from mobilization through the company, exactly like employees — because for reservation purposes, gig specialists count.
For a foreign company, this is often the single most attractive feature of the regime. You get Western-style contractual flexibility — including enforceable non-compete and non-solicitation clauses, which under regular Ukrainian employment law are essentially unenforceable — while your people keep real social protections. It resolves the employee-vs-contractor dilemma by simply being a legitimate third thing.
Residents aren't forced into one model, by the way. A Diia City company can freely mix regular employees, gig specialists, and (with limits) ФОП contractors — the preferential tax rates apply to employees and gig specialists alike.
04
What residency requires
Now the qualifying part. Diia City is open to Ukrainian legal entities (in practice, your Ukrainian LLC — including one fully owned by a foreign parent) that meet three ongoing conditions:
- Qualifying activities. Your revenue (at least 90% of it) must come from the approved activity list: software development, publishing and support; cybersecurity; R&D in IT and engineering; digital marketing tied to your own products; e-sports; EdTech; and — added with the defense industry in mind — development and manufacturing of drones and other unmanned systems, avionics, and related defense tech. A pure consulting shop or a trading company won't qualify; a software house, a SaaS business, or a UAV developer will.
- Average monthly compensation of at least €1,200 per specialist (in hryvnia equivalent). Since June 2026 this is checked over the last six full calendar months, not just one — a change that closed the old trick of inflating a single month before reporting. For most foreign-owned tech teams paying market salaries, this threshold is comfortably met anyway.
- At least nine specialists on average — employees and gig contractors combined.
Can't hit nine people or €1,200 yet? There's a startup track: companies with annual revenue under roughly UAH 9.3 million can become residents without meeting the headcount and salary requirements — but only until the end of the calendar year following the year of registration, after which the full criteria apply. It's a genuine on-ramp for small teams, with a countdown attached.
There are also anti-criteria — things that disqualify regardless of the rest: registration in Ukraine's territory occupied structures, Russian ownership or sanctioned persons in the chain, significant state ownership, insolvency, and similar. For foreign groups the practical takeaway is that your ownership chain gets looked at, so have it clean and documented.
[ WHAT RESIDENCY REQUIRES ]
Startup track: companies under ~UAH 9.3M annual revenue can join without the salary and headcount tests — but only until the end of the calendar year following registration.
05
The obligations: what you sign up for
This is the part glossy summaries skip, so let's be direct about what residency costs in effort:
Application and entry. The application itself is filed online and is genuinely fast — the status is typically granted within about 10 working days, and you can apply on the day your LLC is registered. The real work is upstream: structuring the entity, activity codes, and compensation model so that you'll actually satisfy the criteria you're declaring.
Ongoing compliance. Residents file an initial compliance report within six months of joining (covering the first three months), then an annual compliance report accompanied by an independent auditor's conclusion. This requirement was reinstated in February 2024 after a wartime pause — companies that joined during the pause and assumed reporting was "not a thing" have been unpleasantly surprised. Miss the reports, drift below the salary or headcount thresholds, or let qualifying activities dilute — and residency can be revoked, with the tax benefits unwinding.
Consequences of losing status. Falling out of Diia City doesn't just mean higher taxes going forward; depending on the circumstances it can mean recalculation for past periods. The regime rewards companies that treat compliance as a routine, not a one-time filing — a philosophy that should sound familiar if you've read our article on critical enterprise status.
Speaking of which: the two regimes interact. Diia City residents used to get critical enterprise status (and thus employee reservation) almost automatically. Since June 2026 that shortcut is gone — residents now must independently prove the salary criterion (average compensation of at least €1,200 over six months, verified with payroll data) like everyone else proves theirs. Residency still helps, but it no longer carries reservation by itself.
Diia City saves roughly $1,370 per specialist every month versus standard employment — but only if you treat compliance as routine. Annual reports with an auditor's conclusion, a €1,200 six-month average salary, and nine specialists are ongoing conditions; drift below them and the benefits can unwind for past periods too.
06
Is it right for your company?
A quick honesty check, based on the patterns we see:
Diia City is almost certainly right for you if you're a software, product, R&D, or defense-tech company planning a Ukrainian team of 9+ people at market salaries. The tax savings are large, gig contracts solve real legal problems, and the compliance load is modest for a properly run company. At that profile, not joining is the decision that needs justifying.
Look carefully before jumping if you're under nine people with no clear growth path past the startup window; if a material share of your revenue comes from non-qualifying activities; or if your engagement model is a handful of genuinely independent contractors who'd gain little from conversion.
It's not for you if you're outside tech and defense-tech entirely — and note that for defense manufacturers specifically, Ukraine launched a separate dedicated regime, Defence City, with its own (in some ways deeper) benefits for arms and ammunition producers. If you're on the hardware side of defense, the right answer may be that regime, or a combination — a topic for its own article.
One more consideration foreign boards ask about: stability. Diia City's terms are guaranteed by law for 25 years, and the state has so far treated the regime as a flagship it protects rather than a loophole it tightens — the 2026 changes made entry stricter, not the benefits smaller. No guarantee survives contact with reality unchanged, but as Ukrainian tax frameworks go, this is the one with the strongest political commitment behind it.
07
The bottom line
Diia City is the rare government program that does what the brochure says: near-contractor tax rates inside a fully white, legally solid structure, plus contractual tools (gig contracts, non-competes, flexible termination) that regular Ukrainian employment law simply doesn't offer. The price is real but reasonable — qualifying activities, €1,200 average compensation, nine specialists, and disciplined annual reporting.
For most foreign tech companies building a team in Ukraine, the practical question isn't whether Diia City makes sense. It's whether to structure for it from day one — which is easy — or retrofit it later, which is harder and means months of overpaid taxes in between.
08
How we can help
Ukrany sets up and runs Ukrainian operations for foreign tech and defense-tech companies, and Diia City is part of our standard toolkit: we assess eligibility against your real activity and team plans, register the entity and the residency, draft gig contracts that hold up, build the payroll around the preferential rates, and keep the compliance calendar — reports, audit, thresholds — so the status you gained doesn't quietly expire.
If you're weighing Diia City for a new or existing Ukrainian team, send us your headcount and salary picture. We'll model the actual savings, flag the actual risks, and tell you plainly whether the regime fits — including the cases where it doesn't.
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