ANALYTICAL REPORT
Ukraine’s Special Legal and Tax Regimes:
Features, Conditions, Taxes, Customs, Restrictions
As of 01 April 2026
| DIIA CITY For IT business Law No. 1667-IX of 15.07.2021 Law No. 1946-IX of 14.12.2021 | DEFENCE CITY For defence industry (DIC) Law No. 4577-IX of 21.08.2025 Law No. 4578-IX of 21.08.2025 |
PART I. DIIA CITY REGIME
1.1. General Overview and Legal Framework
Diia City is a special legal and tax regime for technology businesses in Ukraine, introduced to develop the digital economy, reduce the shadow payroll market in IT, and raise the competitiveness of Ukrainian IT companies.
Key Legislation:
| Legal Act | Content / Reference |
| Law No. 1667-IX of 15.07.2021 | On Stimulating the Development of Ukraine’s Digital Economy — core law; Art. 5 (qualifying activities), Art. 13 (eligibility conditions) |
| Law No. 1946-IX of 14.12.2021 | Amendments to the Tax Code regarding digital economy — effective 01.01.2022; introduced special tax regime |
| Law No. 4577-IX of 21.08.2025 | Amendments to the Tax Code on DIC support — effective 05.10.2025; amended Sub-clause 170.141.2 TCU (dual status rule) |
| TCU, Sub-clause 14.1.282¹, Art. 14 | Definition of ‘Diia City resident — taxpayer under special conditions’ |
| TCU, Clause 141.10 | Special taxation conditions for Diia City residents |
| TCU, Sub-clause 170.141.2 | PIT rates for Diia City specialists |
| CMU Resolution No. 163 of 13.02.2024 | On Restoring Reporting for Diia City Residents |
| CMU Resolution No. 1492 of 30.12.2022 | Reporting procedure and forms for Diia City residents |
1.2. Eligibility Requirements
Joining Diia City is voluntary. Applications are submitted to the Ministry of Digital Transformation via city.diia.gov.ua. (Law No. 1667-IX, Art. 13)
Mandatory Requirements (Art. 5, Art. 13 of Law No. 1667-IX):
- Legal entity registered under Ukrainian law only — individual entrepreneurs (FOP) cannot be residents
- Qualifying activity — at least 90% of revenue from activities listed in Part 4, Art. 5 of Law No. 1667-IX, including:
- Computer programming, IT consulting, cybersecurity, data processing
- R&D in IT and ICT fields, software publishing, game development
- Robotics, unmanned technologies, microelectronics, bionic prosthetics, defence technologies
- Virtual asset transactions, marketing analytics, digital marketing (using resident-built software)
- Headcount — minimum 9 employees and/or gig specialists (excluding FOP) per calendar month
- Average monthly remuneration — not less than EUR 1,200 equivalent at NBU rate on 1 January of the current year
- No grounds for refusal: no tax debt, no ties to aggressor state (Russia/Belarus), no sanctions, not a non-profit
- Location — not on temporarily occupied territory
| Note: Startups: simplified entry — the headcount and salary criteria are not required during the first two quarters after gaining resident status. Minimum revenue for first 3 months — EUR 20,000. (Art. 13(3) of Law No. 1667-IX) |
Duration: at least 25 years from the date of registration of the first resident. (Art. 4(1) of Law No. 1667-IX)
1.3. Taxation System
A. Individual taxation — Diia City specialists:
Preferential rates apply from the month following the month of gaining resident status (Sub-clause 170.141.2 TCU, effective 01.01.2025):
| Tax | General System | Diia City (conditions met) | Diia City (conditions NOT met) |
| PIT (salary, gig contract, copyright fee) | 18% | 5% | 18% |
| Military levy | 5% | 5% | 5% |
| USC (employer) | 22% of actual amount | 22% of minimum wage (minimum contribution) | 22% of actual amount |
Sources: Sub-clause 170.141.2 TCU (5% PIT rate); Art. 8 of the Law on Unified Social Contribution.
Key PIT 5% details and restrictions:
- Annual income cap: 5% rate applies only up to EUR 240,000 equivalent per year (Sub-clause 170.141.2 TCU). Above this amount there is 18%, but this already concerns the contractor himself; for a resident of Dia City the rate of 5% remains unchanged.
- Paid leave for gig specialists is NOT remuneration — taxed at 18% PIT
- Gifts up to UAH 2,000/month — exempt from PIT. Above — 18% as additional benefit
- Dual status Diia City + Defence City: the 5% PIT benefit for Diia City is LOST (Law No. 4577-IX, Sub-clause 170.141.2 TCU, effective 05.10.2025)
- Since 2025: health insurance and private pension contributions by the company — exempt from Withdrawn Capital Tax up to 30% of salary/fee
B. Corporate taxation — Diia City legal entities (Clause 141.10 TCU):
| Regime | Description and Rate |
| General conditions (Art. 134 TCU) | Standard corporate income tax — 18%. Applies if the company did not choose the special regime or does not qualify |
| Special conditions — Withdrawn Capital Tax (WCT) (Clause 141.10.1 TCU) | Rate 9% — replaces corporate income tax. Only ‘withdrawals’ are taxed: dividends, gratuitous transfers, related-party transactions, excess spending |
| Sole traders (FOP) limitation | Max 20% of costs paid to single tax payers — excess is subject to WCT at 9% (Sub-clause 135.2.1.15 TCU) |
| Note: Transition to WCT regime — by application at the time of joining or from the 1st of the month following the quarter of registration. (Clause 141.10.1 TCU) |
1.4. Gig Contracts — Unique Employment Tool
A gig contract is a special agreement between a Diia City resident and an individual (gig specialist), available exclusively to Diia City residents (Art. 17 of Law No. 1667-IX). It combines elements of employment and civil law contracts.
Key features:
- Gig specialist is not a classic employee but has basic social guarantees
- Format chosen by the company: by function/position or by service delivery result
- NDA, NCA (non-compete), IP rights clauses are permitted
- IP rights created under gig contract belong to the resident (employer) by default
- Paid leave (vacation equivalent) — but taxed at 18% PIT, not 5%
- Liquidated Damages clause — allows pre-agreed loss assessment without court proceedings
1.5. Advantages of Diia City
Tax advantages:
- Reduced PIT rate: 5% vs 18% — significant savings for company and specialist
- USC only from minimum wage — major saving when actual payroll exceeds the minimum
- WCT 9% instead of standard 18% corporate tax — payments arise only upon actual capital withdrawal
- Since 2025: insurance and private pension contributions exempt from WCT (within 30% of salary/fee)
Legal advantages:
- 25-year guarantee of stable conditions (Art. 4(1) of Law No. 1667-IX)
- Gig contracts — flexible hiring model
- Venture investment and ‘angel investment’ instruments
- IP protection tools similar to common law jurisdictions
- Employee deferment option — Diia City status is a criterion for ‘critical enterprise’ designation (CMU Resolution No. 76)
- Electronic reporting — all interaction with the Ministry of Digital Transformation is online
1.6. Disadvantages and Risks
- Strict annual compliance monitoring: compliance report + mandatory audit every year
- Non-compliance for even 1 month — additional PIT charge (18% minus 5%) for that month
- Risk of retroactive loss of status — with all tax consequences (additional assessments, penalties)
- 20% cap on purchases from single tax payers — complicates working with simplified-system contractors
- Dual status Diia City + Defence City: loss of 5% PIT right (effective 05.10.2025, Law No. 4577-IX)
- Only legal entities (LLC) — individual entrepreneurs cannot be residents
- Minimum threshold: 9 specialists, salary from EUR 1,200 — unsuitable for micro-businesses
- Annual income cap per specialist for 5% PIT — EUR 240,000 (above this — 18%)
- Reporting and audit — significant administrative costs
1.7. Customs, VAT and Foreign Trade for Diia City Residents
Diia City provides NO special customs benefits or VAT exemptions on goods imports. Residents conduct foreign trade operations under the general rules of the Customs Code of Ukraine (Law No. 4495-VI of 13.03.2012).
A. General customs payments regime:
| Payment / Operation | Regime for Diia City Residents |
| Import duty | General basis — rates of the Ukrainian Customs Tariff (Law No. 4351-VI of 19.09.2012). Rates depend on UKT FEA commodity code. No exemptions. |
| VAT on goods imports | General basis — 20% of customs value + import duty (Sub-clause 206.2 TCU). Paid to budget at customs before/during customs declaration. No exemptions. |
| Excise tax | General basis — if goods are excisable (Art. 215 TCU). No exemptions. |
| Export of IT services (FEA) | Services are NOT goods — no customs declaration; no duty or VAT. Currency control: general NBU rules. FEA settlement deadline — 365 days (NBU Resolution No. 5 of 02.01.2019). |
| Software import (licences) | Software delivered online or on media — VAT 20% on import. If supplier is non-resident without Ukrainian registration — Art. 208 TCU applies: VAT paid by recipient. Duty depends on UKT FEA code. |
| Currency oversight | General NBU rules. No exemptions. |
B. General customs benefits available to IT companies (not Diia City-specific):
| Benefit | Conditions and Legal Basis |
| Zero-duty import of certain computer equipment | Individual UKT FEA positions (laptops, processors, chips) may have 0% duty rate. Rates set by Customs Tariff and FTA agreements (DCFTA with EU, EFTA etc.). NOT a Diia City benefit. |
| 0% VAT on goods exports | Standard 0% VAT on goods export (Sub-clause 195.1.1 TCU) — applies to all VAT payers including Diia City residents. |
| Software VAT exemption (until 2023) | The exemption under Transitional Provisions Para. 261(2) of the TCU for domestic software supply by Diia City residents — CANCELLED from 01.01.2023. NOT in force as of 26.03.2026. |
| Inward processing regime | General customs procedure (Art. 149-170 of the Customs Code): import of raw materials/components without duty and VAT, provided finished goods are re-exported. Available to all enterprises — not a Diia City benefit. |
| Temporary import | General customs procedure (Art. 103-124 of the Customs Code): import of equipment for up to 3 years without duty and VAT (or partial exemption). Available to all — not a Diia City benefit. |
| Important: Conclusion: Diia City provides no customs or VAT benefits on goods imports. All IT companies pay import duty and VAT on general terms regardless of resident status. The only practical advantage is simplified administration via the Ministry of Digital Transformation’s electronic register. (Law No. 1667-IX, Art. 3-5; Customs Code No. 4495-VI) |
1.8. Reporting and Audit — Diia City
A. Reporting deadlines (Art. 13 of Law No. 1667-IX; CMU Resolution No. 1492 of 30.12.2022):
| Report Type | Deadline / Authority |
| Initial compliance report | Within 6 calendar months following the month of gaining resident status. Example: gained status in October 2025 → report by 30 April 2026. The report covers the 3 full months following the month of gaining status. |
| Annual compliance report | Annually, no later than 1 June for the preceding year (1 January – 31 December). Example: for 2025 → by 1 June 2026. Submitted to the Ministry of Digital Transformation. |
| First annual report (partial year) | If status was gained during the year — the first annual report covers from the 1st of the month after the month of gaining status to 31 December of that year. |
| Independent auditor’s report | Submitted simultaneously with the compliance report (initial or annual). Exception: startups under the simplified procedure (Art. 5(3) of Law No. 1667-IX) — auditor’s report NOT required for the initial report. |
| Submission method | Exclusively in electronic form via city.diia.gov.ua, signed with a qualified electronic signature (QES). |
B. Content of the compliance report (CMU Resolution No. 1492 of 30.12.2022):
- Confirmation of compliance with Art. 5 criteria of Law No. 1667-IX
- Average headcount of specialists (≥9 persons) for each month
- Average monthly remuneration of specialists (≥ EUR 1,200 equivalent)
- Share of qualifying revenue (≥90% of total revenue)
- Ownership structure, UBO data (confirmation of no ties to Russia/Belarus)
- Other: type of activity, organisational structure, information on gig specialists
C. Independent auditor’s report — key details:
The independent report for Diia City is NOT a full financial audit. It is an assurance engagement under ISAE 3000 (Assurance Engagements Other than Audits or Reviews of Historical Financial Information). Lower cost and time than a full audit.
| Parameter | Requirement for Diia City Auditor |
| Legal basis | Law No. 2258-VIII of 21.12.2017 On Auditing of Financial Statements and Auditing Activities; Art. 13(5) of Law No. 1667-IX |
| Who may conduct | An audit firm that has the right to conduct mandatory audits of financial statements (general authorisation — NOT limited to public interest entity auditors) |
| Auditor register | The auditor must be listed in the section ‘Audit Firms Authorised to Conduct Mandatory Audits’ of the Auditors and Audit Firms Register (APU). Approx. 200 firms as of 2026. Search at: www.apu.com.ua |
| Engagement standard | ISAE 3000 — reasonable assurance engagement on the truthfulness of the resident’s assertions |
| What the auditor checks | Truthfulness of the resident’s assertions in the compliance report; consistency with accounting records supported by primary documents |
| What the auditor does NOT check | The auditor is NOT required to verify circumstances under Art. 5(2) of Law No. 1667-IX (prohibitive grounds) — that is the Ministry of Digital Transformation’s authority |
| Auditor independence | Selected by the resident. Standard independence requirements under the IESBA Code of Ethics apply |
| Warning: Sanctions: Penalty for late filing: Failure to submit the report or auditor’s report on time → automatic grounds for removal from the Diia City register (Art. 9(4) of Law No. 1667-IX). Consequence — PIT charged at 18% instead of 5% from the first month of violation. |
1.9. Restrictions and Prohibitions in Diia City
- Prohibition on persons linked to Russia or Belarus holding ownership — strict UBO verification
- Prohibition on being subject to sanctions or having UBOs under sanctions
- Location must not be on temporarily occupied territory or active combat zone
- 20% cap on spending on purchases from single tax payers (Sub-clause 135.2.1.15 TCU)
- Gig contracts may not be concluded with persons simultaneously employed under labour contracts at the same company for the same services
- Qualifying revenue — at least 90% of total. Violation — additional tax assessment
- Individual entrepreneurs (FOP) cannot be residents
PART II. DEFENCE CITY REGIME
2.1. General Overview and Legal Framework
Defence City is a special legal regime designed to support enterprises of Ukraine’s defence-industrial complex (DIC) during the full-scale war. Conceptually similar to Diia City, but targeted at defence manufacturers.
Key Legislation:
| Legal Act | Content / Reference |
| Law No. 4577-IX of 21.08.2025 | Amendments to the Tax Code on DIC support — effective 05.10.2025; introduced Defence City tax benefits; amended Law No. 2469-VIII and the Tax Code (new concepts: ‘Defence City resident’, ‘Defence City register’) |
| Law No. 4578-IX of 21.08.2025 | Amendments to the Customs Code on DIC support — effective 24.10.2025; simplified customs procedures; applies during martial law and 1 year after its termination |
| Law No. 2469-VIII of 21.06.2018 | On National Security of Ukraine — Law No. 4577-IX introduced the Defence City register and regime into this law |
| Law No. 4576-IX of 21.08.2025 | Amendments to the Civil Code and other acts protecting information about DIC enterprises in public registers — effective November 2025. Ensures confidentiality of residents during martial law |
| Laws No. 14169 and No. 14170 of 04.12.2025 | Expanded VAT exemptions and duty exemptions for defence goods import: drones, demining vehicles, anti-intelligence equipment; regulated liability for goods destroyed during testing |
| CMU Resolution No. 1746 of 17.12.2025 | Procedure for Relocation and Protection-Enhancement of Defence City Residents’ Production Facilities — effective 01.01.2026 |
| NBU Resolution of 30.12.2025 | Eased foreign currency restrictions for Defence City residents — effective 31.12.2025 |
Duration: until 1 January 2036 or until Ukraine’s accession to the EU (whichever comes first). (Law No. 2469-VIII as amended by Law No. 4577-IX)
2.2. Eligibility Requirements
Resident status is granted by the Ministry of Defence of Ukraine on a voluntary basis. A legal entity gains resident status upon application and registration in the Defence City register.
Mandatory Requirements (Law No. 4577-IX; Art. 37 of Law No. 2469-VIII):
- Legal entity only — corporate income taxpayer (FOP, non-profits are excluded)
- Qualifying revenue — at least 75% of total revenue from the sale of own-manufactured defence goods, their development, repair and modernisation. EXCEPTION for aviation/aircraft manufacturing enterprises: reduced threshold of 50% (Art. 37(3) of Law No. 2469-VIII as amended). Charitable donations in cash also count if used for defence goods production
- No tax debt and/or USC arrears exceeding 10 minimum wages
- Transparent ownership structure — full disclosure of ultimate beneficial owners (UBOs)
- No shareholders/participants/UBOs that are: the aggressor state (Russia), Russian/Belarusian legal entities, Russian/Belarusian nationals, or persons under their control
- No owners from ‘dirty’ jurisdictions (non-compliant with FATF requirements)
- No sanctions or links to sanctioned persons
- No links to terrorist activities
- Company not in bankruptcy or liquidation proceedings
- No violations of obligations under state defence procurement contracts in the past 12 months
- Location and activities — NOT on temporarily occupied territory
2.3. Taxation System — Defence City
A. Corporate income tax — conditional exemption (0%):
Defence City residents are exempt from corporate income tax. Key condition: all profit exempt from tax MUST be reinvested in the company’s development by 31 December of the year following the reporting year. (Law No. 4577-IX, corresponding amendments to the TCU)
Permitted reinvestment directions (targeted use of profit):
- Creation or renewal of material and technical base
- Modernisation of fixed assets
- Implementation of advanced technologies
- Acquisition of intellectual property rights for defence orders
- Research and development of new weapons and military equipment
- Acquisition of corporate rights of DIC entities (provided the issuer does not pay dividends)
| Critical: CRITICAL: Unused profit (not reinvested by deadline) is subject to tax. Upon loss of status or violation — taxation plus penalties, with no limitation period. (Law No. 4577-IX) |
B. Prohibitions on use of ‘exempt’ profit:
- Prohibition on paying dividends from profit exempt from taxation
- Exception: dividends to the state or state-owned enterprises (100% state ownership) — permitted, but advance payment calculated in the established manner
- Acquisition of corporate rights of DIC enterprises that pay dividends — deemed non-targeted use
- If the contract is canceled or the advance payment is refunded, such an operation is considered a violation of the intended use. Or, in the event of termination of the contract, the funds can be reused for the intended purpose within 30 calendar days after the return, confirming this with appropriate documents
C. Summary tax table for Defence City residents:
| Tax / Levy | Regime for Defence City Residents |
| Corporate income tax | 0% (conditional exemption) — subject to targeted reinvestment; violation — 18% + penalties with no limitation period |
| PIT for employees | 18% (standard rate; Diia City PIT benefits are LOST in case of dual status) |
| USC | 22% of actual amount (standard conditions) |
| Land tax | 0% — exemption for plots used in production activities and/or for housing employees (condition: not leased out, except to the resident’s own workers) |
| Real estate tax | 0% — exemption for industrial and warehouse buildings (code 125, NC 018:2023 Classifier); condition: not leased, used in business operations |
| Environmental tax | 0% — full exemption from the next tax period after gaining resident status |
| VAT | General rules (20%); no specific exemptions from the regime itself |
| Transfer pricing | Mandatory — profit exemption does not apply; violation of the ‘arm’s length’ principle — 18% CIT |
2.4. Customs, Duties and VAT — Defence City
Law No. 4578-IX of 21.08.2025 (effective 24 October 2025) and supplementary Laws No. 14169 and No. 14170 of 04.12.2025 form the customs benefit block for Defence City residents. Law No. 4578-IX norms apply during martial law and 1 year after its termination. (Art. 40, Section XXI of the Customs Code)
A. Import duty exemption — direct Defence City benefit:
This is a key clarification: unlike VAT, exemption from import duty IS a direct benefit for Defence City residents when importing production inputs. (Law No. 4578-IX, Section XXI of the Customs Code)
| What is exempt from import duty | Conditions / Legal Basis |
| Equipment, materials and components used exclusively for defence production | Subject to a separate list of UKT FEA codes approved by the CMU / State Export Control Service. Condition — exclusively defence use. (Law No. 4578-IX; Paras 9-27 of Section XXI of the Customs Code, as amended) |
| EXCLUSIONS: certain UKT FEA codes | Some positions are explicitly excluded from the preferential list (including codes 8504, 8548, 8530 etc.). Critical for imports of electronics, power modules, certain cable/lighting items — these may NOT be exempt from duty even for residents |
| Components for UAVs, demining vehicles, anti-intelligence systems | Separately confirmed by Law No. 14170 of 04.12.2025 (Customs Code amendments): duty exemption for manufacturers/developers during modernisation and repair. Removes risk of additional assessments upon loss/destruction of components during testing |
| Practically Important: IMPORTANT: the list of UKT FEA codes exempt from duty is approved by separate CMU and State Export Control Service regulations. Without the specific code appearing in the list — the duty exemption does NOT apply. Residents must verify each commodity’s classification before importing. |
B. VAT on imports for Defence City residents:
Law No. 4577-IX and Law No. 4578-IX do not contain a direct norm exempting Defence City residents from VAT on imports. VAT on imports is governed by separate TCU provisions, which are general or sector-specific:
| Operation / Goods | VAT regime and legal basis |
| Import of defence goods under state contracts / for the Armed Forces | Exempt from VAT — Sub-clause 197.23 TCU, Transitional Provisions Para. 2(20) TCU. Condition: confirmed defence purpose (state contract, guarantee letter, end-user certificate — EUC). Applies during martial law |
| Import of UAVs, thermal imagers, scopes, rangefinders, portable radios | Exempt from VAT until 01.01.2027 — Law No. 4698-IX (amendments to Transitional Provisions Para. 2 TCU). Applies to all import methods including postal and courier. Import duty — separate, not automatically waived |
| Inward processing or temporary import regime | Exempt from VAT and duty while goods remain in the regime. Available under general Customs Code rules (Art. 103-170); for Defence City residents — with simplified authorisation (Law No. 4578-IX) |
| Domestic supply of defence goods under state contracts | Exempt from compensatory VAT liabilities from 01.01.2026 — Law No. 4698-IX. Condition: state contract confirmed |
| General commercial import (defence purpose not confirmed) | VAT 20% on general basis — Sub-clause 206.2 TCU. No exemptions |
| Law No. 14169 of 04.12.2025 | Expanded VAT exemption list: components for drones, demining vehicles, anti-intelligence systems; regulated situation of goods destroyed/lost during testing |
C. Simplified customs procedures (procedural benefits):
| Customs Operation | Features for Defence City Residents (Law No. 4578-IX, Art. 40 of the Customs Code) |
| Import (end-use procedure) | Authorisation based on a customs declaration (CD) — WITHOUT a separate customs authority permit, without mandatory inspection at the enterprise. Compliance assessment measures conducted at the customs officer’s workstation |
| Temporary import | Simplified authorisation. No VAT or duty for the duration of the authorisation. Faster procedure than general Customs Code Art. 103-124 |
| Inward/Outward processing | Simplified authorisation based on CD. Transfer of rights and obligations — by entering codes into the CD |
| Information protection | Residents are exempt from disclosing the location and movement of goods and documents between units on customs territory (commercial and state secrecy protection) |
| Export control | Defence goods manufacturers/developers export WITHOUT obtaining separate export/import authorisations for military goods (Law No. 4578-IX) |
D. Foreign exchange — NBU easing (effective 31.12.2025):
NBU Resolution of 30.12.2025 eased foreign currency restrictions for Defence City residents: simplified conditions for purchasing foreign currency for imports and cross-border transfers. Changes made to the wartime currency restrictions order of 24.02.2022. The currency block of benefits promised by Law No. 4578-IX is now operational.
| Summary: Summary on customs: Defence City provides (1) real IMPORT DUTY EXEMPTION on production components per CMU list; (2) VAT exemptions on imports — via separate TCU provisions (Sub-clause 197.23, Transitional Provisions Para. 2), not from resident status itself; (3) simplified customs procedures (CD-based authorisation); (4) eased FX controls from 31.12.2025. Each commodity’s UKT FEA code must be verified against the CMU preferential list. |
2.5. Relocation and Production Facility Protection
One of the key but underappreciated benefits is state support for relocation of production facilities. The mechanism is established by CMU Resolution No. 1746 of 17.12.2025, effective 1 January 2026. (CMU Resolution No. 1746; Art. 42 of Law No. 2469-VIII as amended by Law No. 4577-IX)
What relocation support includes:
- A resident may apply to the Ministry of Defence for state support in relocating the legal entity (or its divisions) or implementing protection-enhancement measures (e.g. construction of protective structures, fortifications)
- Ministry of Defence acts as coordinator of the relocation process; interacts with Regional Military Administrations (RMA) and local self-governance bodies
- RMAs must designate responsible coordinators within one month
- Local self-governance bodies are recommended to earmark relocation support funds in local budgets (within Art. 42 of Law No. 2469-VIII)
Relocation financing — unique 2026 Budget norm:
The State Budget Law for 2026 establishes that 50% of PIT paid by Defence City residents is credited to the special fund of the respective community’s budget. These funds are earmarked for: infrastructure development, relocation support for residents’ production facilities, and facility protection-enhancement measures. (CMU press release of 17.12.2025)
Expanded property/land tax exemptions linked to relocation:
- Land: zero rate — including for plots temporarily unused in business operations DURING THE RELOCATION PERIOD, provided the land is not transferred to third parties (not leased)
- Real estate: zero rate — including for properties in the relocation destination municipality if not leased and used for housing the resident’s employees
- Industrial buildings (code 125, NC 018:2023 Classifier) — exempt from real estate tax during relocation even if temporarily idle
| Additional: Defence City Register and Confidentiality: Information about Defence City residents is NOT published in open registers during martial law and for 1 year after (Law No. 4576-IX of 21.08.2025, effective November 2025). This protects enterprises from targeted attacks. |
2.6. Advantages of Defence City
- Full CIT exemption (0%) upon reinvestment — unprecedented benefit for an industrial enterprise
- Land tax exemption on production plots — significant saving for large manufacturers
- Full environmental tax exemption
- Import duty exemption on production components (per CMU list)
- Simplified customs procedures — fewer delays when importing components and exporting products
- Simplified export control for military goods manufacturers
- Eased NBU foreign currency controls from 31.12.2025
- State relocation support (CMU Resolution No. 1746 of 17.12.2025) + 50% PIT → community fund
- Long-term guarantees — regime operates until 2036 or EU accession
- Confidentiality — enterprises not listed in public registers during martial law (Law No. 4576-IX)
2.7. Disadvantages and Risks
- Extremely strict compliance requirements — dozens of criteria, any inaccuracy may result in rejection
- Annual monitoring: compliance report by 1 June + mandatory auditor’s report (to Ministry of Defence)
- No PIT benefits for employees — standard 18% rate (unlike Diia City)
- Dual status Diia City + Defence City: loss of 5% PIT from Diia City (Law No. 4577-IX, Sub-clause 170.141.2 TCU)
- Risk of non-targeted use of profit — taxation + penalties with no limitation period
- Limited duration of customs duty exemption — only during martial law and 1 year after (Law No. 4578-IX)
- Limited duration of entire regime — until 2036 or EU accession (uncertainty for long-term planning)
- Duty exemption depends on CMU commodity list — each import position requires individual UKT code verification
- No flexible employment models (no gig contracts as in Diia City)
- CIT payers only — single tax payers and non-profits are excluded
2.8. Reporting, Audit and Compliance Monitoring — Defence City
A. Reporting deadlines (Law No. 4577-IX):
| Report Type | Deadline / Details |
| Annual compliance report | No later than 1 June of the year following the reporting year. Reporting period: 1 January – 31 December of the previous year. Submitted to the Ministry of Defence of Ukraine. |
| First report (after gaining status) | If status was gained during the year — the first report covers from the date of gaining status to 31 December of that year. Filing deadline — by 1 June of the following year. |
| Financial statements | Mandatory attachment to the compliance report — annual financial statements prepared in accordance with Ukrainian GAAP (P(S)BO) or IFRS. |
| Auditor’s report | Mandatory attachment — submitted together with the compliance report. Absence of auditor’s report = failure to submit the report. |
B. Content of Defence City compliance report (Law No. 4577-IX):
- Confirmation of compliance with all requirements under Law No. 4577-IX and Law No. 2469-VIII
- Calculation of qualifying revenue share in total revenue for the reporting year (must be ≥75%, or ≥50% for aviation)
- Information on contracts confirming the qualifying revenue volume
- Report on targeted use of profit exempt from taxation (reinvestments)
- Ownership structure and UBO information (confirmation of no ties to Russia/Belarus)
- Annual financial statements
- Auditor’s report from a qualifying audit firm
C. Auditor requirements — Defence City:
The auditor’s report must be prepared by an audit firm authorised to conduct mandatory audits of Public Interest Entity (PIE) financial statements — under Law No. 2258-VIII of 21.12.2017 On Auditing. A higher authorisation class than required for Diia City.
| Parameter | Requirement / Details |
| Legal basis | Law No. 2258-VIII of 21.12.2017 On Auditing of Financial Statements and Auditing Activities |
| Type of auditor | Audit firm authorised to conduct mandatory audits of Public Interest Entities (PIEs) — a higher class of authorisation than for Diia City |
| Auditor register | The auditor must be listed in the ‘Audit Firms Authorised to Conduct Mandatory Audits of PIEs’ section of the Auditors Register (APU). A narrower pool than the general registry — only large and mid-tier firms accredited for PIE audits. |
| Engagement standard | International Standards on Auditing (ISA) or ISAE. Specific standard determined by the CMU-approved procedure. |
| Scope of review | Truthfulness of the compliance report data; verification of qualifying revenue calculation; review of contracts forming qualifying revenue; accuracy of targeted profit use; compliance with Law on Auditing. |
| Ministry of Defence role | Analyses submitted compliance reports and auditor’s reports; makes decisions on confirming compliance or removing from the register; monitors targeted use of exempt profit; in case of violations — refers to the State Tax Service for additional tax assessments. |
| Critical: Penalty for failure to pass audit or submit report: Absence of auditor’s report = failure to submit the report = grounds for loss of Defence City resident status. Consequence — CIT assessed at 18% for the entire period of enjoying benefits + penalties with no limitation period. (Law No. 4577-IX) |
PART III. COMPARATIVE TABLE
| Criterion | DIIA CITY | DEFENCE CITY |
| Sector | IT and digital technologies | Defence-industrial complex (DIC) |
| Registration authority | Ministry of Digital Transformation | Ministry of Defence |
| Core legislation | Law No. 1667-IX (2021) | Law No. 4577-IX (2025) |
| Duration | At least 25 years (open-ended) | Until 01.01.2036 or EU accession |
| Min. qualifying revenue share | 90% of total revenue | 75% of defence revenue (50% for aviation) |
| Min. headcount | 9 persons | Not established |
| Min. salary | ≥ EUR 1,200/month | Not established |
| PIT for employees | 5% (if conditions met) or 18% | 18% (standard rate) |
| USC | 22% of minimum wage | 22% of actual salary |
| Corporate tax / WCT | 18% (standard) or 9% (WCT) | 0% (conditional exemption) |
| Land tax | Standard rules | 0% (production plots) |
| Real estate tax | Standard rules | 0% (industrial buildings) |
| Environmental tax | Standard rules | 0% (full exemption) |
| Customs duties | None (standard Customs Code) | Duty exemption (per CMU list) + simplified procedures (during martial law + 1 yr) |
| FX regulation | General NBU rules | NBU easing from 31.12.2025 |
| Relocation support | Not provided | State support via MoD + RMA; 50% PIT → community fund (CMU No. 1746) |
| Gig contracts | Yes (unique tool) | No (standard employment contracts) |
| Annual reporting | Compliance report + audit (to Min. Digital) | Compliance report + audit (PIE) (to MoD, by 1 June) |
| Dual status | Possible, but loss of 5% PIT | Possible, but with limitations |
| Sanctions for violation | Additional PIT at 18% for non-compliant months | CIT at 18% + penalties (no limitation period) |
PART IV. SOURCES AND LEGAL FRAMEWORK
4.1. Legislative Acts
| Document | URL / Reference |
| Law of Ukraine No. 1667-IX of 15.07.2021 On Stimulating Digital Economy Development | https://zakon.rada.gov.ua/laws/show/1667-20 |
| Law of Ukraine No. 1946-IX of 14.12.2021 (TCU amendments — Diia City) | https://zakon.rada.gov.ua/laws/show/1946-20 |
| Law of Ukraine No. 4577-IX of 21.08.2025 (Defence City, TCU amendments) | https://zakon.rada.gov.ua/laws/show/4577-20 |
| Law of Ukraine No. 4578-IX of 21.08.2025 (Defence City, Customs Code amendments) | https://zakon.rada.gov.ua/laws/show/4578-20 |
| Tax Code of Ukraine No. 2755-VI of 02.12.2010 — Sub-cl. 14.1.282¹, Art. 134, 135, 141, 170, 195, 197, 206 | https://zakon.rada.gov.ua/laws/show/2755-17 |
| Customs Code of Ukraine No. 4495-VI of 13.03.2012 | https://zakon.rada.gov.ua/laws/show/4495-17 |
| Law of Ukraine No. 2469-VIII of 21.06.2018 On National Security (as amended by Law No. 4577-IX) | https://zakon.rada.gov.ua/laws/show/2469-19 |
| Law of Ukraine No. 4576-IX of 21.08.2025 (DIC enterprises — registry confidentiality) | https://zakon.rada.gov.ua/laws/show/4576-20 |
| CMU Resolution No. 1746 of 17.12.2025 (Relocation procedure for Defence City residents) | https://www.kmu.gov.ua/npas/pro-zatverdzhennia-poriadku-zdiisnennia-relokatsii… |
| CMU Resolution No. 1492 of 30.12.2022 (Diia City reporting procedure and forms) | https://zakon.rada.gov.ua/laws/show/1492-2022 |
| CMU Resolution No. 163 of 13.02.2024 (Diia City reporting restoration) | https://zakon.rada.gov.ua/laws/show/163-2024 |
| NBU Resolution of 30.12.2025 (FX easing for Defence City residents) | https://bank.gov.ua/ |
4.2. Official Resources and Guidance
- Diia City official portal: https://city.diia.gov.ua/
- State Tax Service of Ukraine: https://tax.gov.ua/
- Verkhovna Rada of Ukraine (legislation): https://zakon.rada.gov.ua/
- STS guidance on Defence City (13.02.2026): https://tax.gov.ua/baneryi/onlayn-navchannya/podatok-na-pributok-pidpriemstv/981629.html
- EY Ukraine — Defence City analysis: https://www.ey.com/uk_ua/it-tax-law-digest/defense-city-ukraine…
- Integrites — Defence City analysis: https://www.integrites.com/uk/publications/defence-city-legal-regime-has-entered-into-force/
- Sayenko Kharenko — Defence City launch analysis (January 2026): https://sk.ua/uk/v-ukraini-startuvav-specialnij-rezhim-defence-city…
- Ukrainian Council of Armourers (UCDI): https://ucdi.org.ua/news-ua/defence-city-explainer/
CONCLUSIONS
Both regimes are powerful instruments of state support for Ukraine’s strategic industries, but they have fundamentally different target audiences, benefit scales, and accountability levels.
| Diia City — suitable for IT companies and adjacent technology businesses seeking to legalise payroll, use flexible employment models, and obtain preferential taxation. Main advantage — 5% PIT rate and USC only from the minimum wage. Key risk — strict annual compliance monitoring. |
| Defence City — suitable exclusively for defence goods manufacturers requiring large-scale production investment. Main advantages — 0% CIT upon reinvestment + land/real estate/environmental tax exemptions + import duty relief + simplified customs procedures + state relocation support. Key risk — taxation plus penalties with no limitation period upon non-targeted use of profit. |
Currency of information: 01 April 2026. Readers are advised to verify the current status of legislative acts at zakon.rada.gov.ua and tax.gov.ua, as legislation is subject to change.