Diia City Regime: a structured legal environment for technology and digital economy businesses

Introduction

In international business structuring, the credibility and predictability of a jurisdiction’s legal environment increasingly outweigh traditional considerations such as tax levels. Technology companies, digital startups, and investors seek regulatory systems that foster innovation while minimising legal uncertainty. Recently, Ukraine addressed this need by introducing Diia City, a dedicated legal framework for technology businesses.

Diia City, established by Law of Ukraine No. 1667-IX “On Stimulating the Development of the Digital Economy in Ukraine,” is a special legal regime for technology and digital sector companies. Its objective is to create a coherent regulatory environment combining corporate flexibility, modern employment structures, and competitive taxation. The regime aims to position Ukraine as a regional technology hub, attracting startups, global IT companies, and long-term venture investment.

Regulatory architecture of the Diia City Regime

Unlike some jurisdictions that attempt to regulate technology businesses through fragmented regulatory initiatives, the Diia City model introduces a coherent framework within the existing corporate system. Companies operating within the regime remain ordinary Ukrainian legal entities, most commonly limited liability companies, but gain access to a specialised regulatory environment tailored to the needs of the digital economy. The regime, therefore, does not replace existing corporate law but rather overlays it with a set of targeted legal instruments designed to support innovation and technology development.

Obtaining Diia City resident status is an administrative process done via the official government portal. A company submits the relevant application and supporting documents. The competent authority reviews the submission and records the company in the official Diia City register. If no refusal is issued within the statutory period, the company is deemed to have obtained the status under the silent-consent principle. This process reflects a broader policy: reducing bureaucratic barriers and enabling rapid market entry for technology businesses.

Qualification requirements

However, residency within the regime is not automatic. Companies must meet a number of qualification criteria to ensure the regime remains focused on genuine technology businesses. A central requirement concerns the nature of the company’s activities. Ukrainian legislation provides a defined list of sectors that constitute the digital economy. These include software development and testing, cloud computing services, artificial intelligence solutions, cybersecurity technologies, research and development in information technology, robotics, hosting and data processing infrastructure, digital content production, and services related to blockchain technologies and virtual assets. A company seeking to operate within the Diia City framework must derive the overwhelming majority of its revenue from such activities, ensuring that the digital economy remains the core of its business model.

This activity-based requirement reflects the regime’s targeted intent. Diia City is not a general corporate tax tool but an economic policy that supports innovation and high-tech industries. Accordingly, companies outside the technology sector are not eligible.

Special framework for startups

One of the distinctive features of the Diia City regime is its differentiated approach to early-stage companies. Legislators recognised that startups often require time to achieve stable financial performance and therefore introduced a special entry pathway for newly established technology businesses. Under this framework, companies may obtain Diia City residency as startups, provided they meet certain age, revenue, and technological focus requirements. This temporary status allows innovative companies to benefit from the regime’s legal environment during the early stages of development, even before reaching full operational maturity. Over time, however, such companies must transition to the standard qualification criteria applicable to mature residents.

From a commercial

From another perspective, the regime’s taxation framework is one of its most attractive elements. Resident companies may choose between two alternative corporate taxation models. The first follows the traditional approach of applying an 18% corporate income tax. The second allows companies to apply a 9% tax on distributed profits, meaning that profits reinvested in the business are not taxed immediately. This distributed profit model is particularly relevant for technology companies that prioritise reinvesting in research and development and product expansion rather than immediate dividend distribution.

In addition to corporate taxation advantages, the regime introduces a specialised framework for engaging technology specialists. Companies may hire employees under standard labour contracts, but they may also use so-called gig contracts — a hybrid legal structure combining elements of employment and independent contractor relationships. This mechanism was designed to reflect the realities of modern technology work, where project-based collaboration and flexible working arrangements are common. Income derived from such

Employment relationships benefit from reduced personal taxation, further improving the cost efficiency of operating technology teams in the Ukrainian jurisdiction.

The legal framework of Diia City is designed to accommodate a wide range of technology business models. For example, a software development company building cloud-based infrastructure solutions may establish a Ukrainian subsidiary operating within the regime. By structuring its activities around software engineering and SaaS services, the company can meet qualification requirements while benefiting from favourable tax treatment and flexible employment structures.

Similarly, artificial intelligence startups can use the regime to establish research and development centres in Ukraine, structuring intellectual property ownership, employee incentives, and investment agreements in a predictable legal environment.

Blockchain or digital asset infrastructure companies can operate within Diia City, provided they meet regulatory requirements, enabling development and support operations in Ukraine while remaining connected to international markets.

Beyond individual corporate structures, the regime also carries broader strategic implications for the technology sector. For international investors, the existence of a dedicated legal framework signals the Ukrainian state’s commitment to supporting digital innovation and technology entrepreneurship. For local startups, the regime creates an institutional environment in which corporate governance, venture financing, and operational scaling can take place within a clearly defined legal framework.

An additional factor relevant to technology companies operating in Ukraine is workforce stability. Under certain conditions, companies recognised as strategically important for the national economy may obtain the status of a critically important enterprise. Such a status may exempt certain employees from mobilisation during periods of national emergency, provided the company meets specific economic and operational criteria set by government regulations.

Practical Implementation

From a practical perspective, entering the Diia City regime requires careful legal preparation. Companies must ensure their activities fall within defined technological sectors and that their revenue structure meets statutory thresholds. They must also confirm their corporate documentation reflects a technology business structure. Legal advisors typically assist with corporate formation, regulatory business analysis, application preparation, and implementing tax and employment structures.

Viewed together, Diia City stands as a landmark initiative in Eastern Europe, specifically designed to createa a reliable legal ecosystem for the digital economy. Its integration of modern corporate regulation, competitive taxation, and adaptable employment structures underscores its mission: to offer technology companies a well-structured, predictable environment designed solely to support innovation and robust business development.

Diia City serves as a key model for startups seeking regulatory support, international technology companies scaling their digital operations, and investors targeting high-growth markets. The regime’s main message is clear: Ukraine is committed to providing an advanced legal foundation that enables technology-driven growth within a fast-evolving global digital economy.

At Manimama Law Firm, we assist technology companies, startups, and investors in analysing whether their business model qualifies for residency within the Diia City legal regime and how this status can be integrated into an efficient corporate and tax structure. Our team conducts legal assessments of the proposed activities against the statutory criteria of the digital economy framework, structures corporate and tax models compatible with the regime, and supports the full residency application process from regulatory analysis to submission and interaction with the competent authorities.

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