Can a company with a foreign owner become a Diia City resident?

What Diia City is

Дія Сіті (Diia City) is a special legal regime for companies in the digital economy, above all in IT. It is established by the Law of Ukraine 'On Stimulating the Development of the Digital Economy in Ukraine' No. 1667-IX. A Diia City resident can opt for a special tax regime and can engage specialists under gig contracts. For the wider picture of running a business in Ukraine as a foreigner, see the guide to business for foreigners.

This article looks at the regime from the point of view of a foreign owner. It covers who can apply, which conditions and restrictions matter most, and how residency affects foreign specialists and a foreign director.

Who can be a resident

Article 5 of the law provides that a resident must be a legal entity registered in Ukraine. Where the company actually operates does not matter. A foreign company cannot become a resident directly, because the law expressly excludes legal entities registered under the laws of a foreign state.

Foreign groups therefore enter Diia City through a Ukrainian company. A foreign individual or a foreign company founds a ТОВ (limited liability company, LLC), and that LLC then applies for residency. How the company itself is set up is explained in the article on opening an LLC.

Conditions of residency

The law requires a resident to meet several conditions at the same time:

We are currently checking the specific thresholds against the current version of the law and will add them to this article once verified. All of the conditions apply together, so a company that meets three of them but misses the fourth does not qualify.

• carry out one or more types of activity defined by the law and state them in its charter or in the register;
• pay employees and gig specialists an average remuneration no lower than the level set by the law;
• have an average headcount of employees and gig specialists no lower than the minimum set by the law;
• earn the predominant share of its income from qualifying activities.

Who cannot be a resident

The law lists the companies for which resident status is closed. For companies with foreign owners, these restrictions matter most:

Because the restrictions reach indirect owners too, check the whole ownership structure before you apply, not only the immediate participants. Follow the chain all the way up to the individuals at the top. Disclosure of beneficial owners is covered in the article on UBO disclosure for foreigners.

• a direct or indirect owner of a stake is linked to the aggressor state, meaning it is that state, a legal entity of that state, its citizen or a person who permanently resides there;
• a significant share of the capital belongs to companies from states that FATF has listed as not cooperating in the fight against money laundering;
• the company has breached the requirements to disclose its ultimate beneficial owners (UBO) or its ownership structure;
• sanctions have been applied to the company.

Application and review

An application for residency goes to the authorised body, the Ministry of Digital Transformation, through a dedicated portal. Article 7 of the law sets the review period. The law allows the application to be returned without consideration if:

Each of these grounds can be checked before filing. Confirm the representative's authority and the company's entry in the register in advance, so that the application is not sent back on a formality.

• it does not meet the requirements;
• the representative's authority has not been confirmed;
• the Unified State Register (ЄДР) holds no information about the company.

Foreign specialists

Companies with foreign specialists raise the most questions. A gig contract is a civil-law contract, not an employment contract, yet that does not make the work permit question disappear for foreigners. A foreigner who works as a gig specialist for a Diia City resident needs a дозвіл на застосування праці (work permit). The resident company acts as the employer in the procedure, and the permit should be arranged before work under the gig contract begins. The details are in the article on a work permit for a gig specialist.

Foreigners who hold permanent residence in Ukraine (ПМЖ, from the посвідка на постійне проживання, the permanent residence permit) are in a different position. They work without a permit, just like Ukrainian citizens.

Tax regime for residents

A Diia City resident can choose the special tax regime provided for residents or stay on the general system. That choice determines how the company's profit and its payments to specialists are taxed. Discuss the details of the regime with an accountant before you apply, because switching between regimes comes with its own conditions. General tax rules for foreign entrepreneurs are covered in the article on taxes for foreign entrepreneurs.

Losing the status

Diia City status is not granted for life. It can be terminated if the company stops meeting the conditions of the law, for example on remuneration, headcount or the share of qualifying income. A change in the ownership structure that triggers one of the restrictions listed above can have the same result. Changes of participants and beneficial owners in a resident company are therefore best agreed with a lawyer in advance.

For foreign owners this point is especially important. Selling a stake in the parent company abroad can change the beneficial owners of the Ukrainian company and affect whether it still meets the conditions.

Director and foreign founders

Taking part in Diia City does not change the rules for a foreign director. If the director is a foreigner without permanent residence, they need a work permit, as in any LLC. More on this in the article on a work permit for a founder or director.

Put together, the rules for each party in a typical foreign structure look like this.

Lawyer's experience

Foreign IT companies most often come to me asking whether the parent company itself can be registered in Diia City. The answer is no, so we build the structure around a Ukrainian LLC from the start. At the same stage we check every owner in the chain, because a single participant from a restricted jurisdiction can close the road to residency.

My second piece of advice concerns foreign specialists. Companies often expect a gig contract to take the work permit question off the table. It does not. A foreign gig specialist needs a permit, so build its paperwork into your plan before the contract is signed.

If you are planning to enter Diia City with a foreign owner, at a migration law consultation we will check the structure and the paperwork for your specialists.

Frequently asked questions