Top 10 most common mistakes made by Diia City residents. How to avoid the pitfalls – recommendations from Kreston Ukraine.
Diia City creates a comfortable environment for IT businesses, including newly established companies (startups): a predictable tax burden, flexible cooperation models, the ability to reserve employees from mobilization, and the legal engagement of contractors. However, residency also requires strict compliance with its rules.
At Kreston Ukraine, we have repeatedly encountered companies that made mistakes due to underestimating compliance – and we have seen the consequences firsthand: additional tax assessments, inspections, and loss of resident status.
For example, in 2024, a startup with revenue under UAH 1 million lost its status because it did not have the required activity codes (KVED), even though it was actually engaged in software development. More recently, we saw a situation where a company exceeded the revenue limit for startups but failed to increase its staff to 9 people in time. As a result – the risk of exclusion from the list of residents.
To avoid such mistakes, it is essential to understand typical risks and monitor them in advance.
KEY CHALLENGES IN DIIA CITY
Eligibility Requirements and Loss of Status Risks for Startups
Startups within the first two years must meet the criteria defined in Article 5, Part 3 of Law No. 1667 “On Stimulating the Development of the Digital Economy in Ukraine”:
• 90% of revenue must be qualified IT income;
• activities must correspond to those specified in the Law;
• absence of so-called “anti-criteria” (tax debt, sanctions, ties with the Russian Federation, etc.), monitored monthly;
• revenue < 1167 minimum wages (2025: UAH 9,336,000).
Important: if a startup exceeds the revenue limit, it must immediately meet the “adult” criteria: at least 9 specialists and an average remuneration of €1200.
Kreston Ukraine practical example: A company received an upfront payment under a licensing agreement for several future periods. As a result – a sharp increase in revenue within one month. The company had to urgently onboard 7 new specialists under gig-contracts to avoid losing its status.
Reporting and Compliance
Startups must promptly submit:
• an initial compliance report for the first three full months (unlike standard Diia City residents, startups do not need to submit an audit report at this stage unless requested by the Ministry of Digital Transformation);
• an annual report by June 1 of the year following the reporting year (the annual report must always be submitted together with an audit opinion confirming the resident’s assertions).
Most common violations we see in practice: incorrect gig-contract drafting, weak primary documentation, mixed types of activities in contracts and acts.
Activity Mismatch
Only companies engaged in qualified IT activities can be Diia City residents. This can be challenging for startups whose business model includes not only software development but also other services that fall outside the qualified scope. A company must ensure that 90% of its revenue comes from qualified activities.
Legislative Instability
It is essential to track changes. Starting January 1, 2025 – new rules apply, including:
• a preferential 5% personal income tax rate for Diia City specialists;
• minimum social contribution calculation;
• exemption from taxation of charitable aid provided by residents to the Armed Forces of Ukraine;
• elimination of service acts for gig-contracts.
These are mostly positive changes, but further reforms are possible, and they may introduce new restrictions – for example, on activity types or employee reservation rules.
TOP – 10 MOST COMMON MISTAKES OF DIIA CITY RESIDENTS
1. Incorrect classification of qualified activities (for startups and non-startups alike)
For example, advertising services or online marketing using software that must be developed with the involvement of a Diia City resident. Similarly, software distribution contracts must contain terms explicitly stated in the Law, rather than generic wording like “supply” or “distribution.”
Companies also sometimes misclassify revenue by failing to distinguish between IT and non-IT components, making it difficult to confirm the qualified activity criterion.
2. Errors in calculating average remuneration and number of specialists
Statistical Instruction No. 286 may lead to incorrect results if all nuances are not considered. Disputes also arise regarding using the cash method instead of accrual accounting for remuneration.
We recommend counting all employees and gig-specialists regardless of the number of days worked, and using the accrual (gross) method to calculate average monthly remuneration, as confirmed by the Ministry of Digital Transformation and the Tax Service. The euro exchange rate must be taken as of the first day of the calendar month.
3. Incorrect taxation of additional benefits
Improper inclusion or exclusion of compensations (gym, language courses, voluntary health insurance, etc.) may result in taxation at 18%.
Define clearly in the gig-contract what is included in remuneration. For VHI insurance, ensure the insurance agreement meets the Tax Code requirements.
4. Weak primary documentation or insufficient contract detail
Although acts under gig-contracts are no longer mandatory from 2025, tax authorities may request them to confirm expenses if there are no clear explanations from the Ministry of Finance.
We recommend specifying clear procedures for confirming work performed and remuneration structure. Analytical accounting must distinguish between qualified and non-qualified revenue. Ensure that the company’s charter and activity codes correspond to actual operations.
5. Vague or legally weak gig-contracts
This risk is often underestimated but is extremely dangerous, especially for startups. If a gig-contract lacks clear remuneration logic, misunderstandings may arise with regulators or even between the company and the specialist.
Tax authorities may classify payments as “unjustified,” apply an 18% PIT + 5% military tax instead of preferential rates, or reject expenses for corporate tax purposes. A weak contract may also fail to protect the company in court.
We recommend clearly defining:
• remuneration structure (fixed, hourly, per sprint, milestone-based, etc.);
• scope of work (via deliverables or links to backlog);
• payment frequency;
• method of confirmation (tracker/CRM report or – until official clarification – an act of work performed).
6. Late submission of initial and annual reports
Initial report: three full months → deadline is the end of the 6th month after obtaining residency.
Annual report: by June 1.
7. Lack of monitoring anti-criteria
Primarily: tax debt, liquidation/bankruptcy, owners linked to the aggressor state.
8. Poor preparation for transition from startup status
A startup may remain a startup for a limited period – until December 31 of the year following the year it became a resident. After that – full requirements apply.
9. Exceeding revenue limits without preparation for “adult” residency
If the startup approaches 1167 minimum wages (UAH 9,336,000 for 2025), it must prepare for full requirements:
• minimum 9 people,
• average remuneration ≥ €1200.
10. Lack of a qualified auditor
Cheap audit services often result in problems: some firms have lost their licenses after interacting with Diia City auditors. Only firms authorized to conduct statutory audits may audit Diia City residents.
How to Avoid the Pitfalls: Kreston Ukraine Recommendations
• Create a system for regular compliance monitoring
• Automate accounting to separate qualified revenue
• Plan ahead for financial and HR requirements
• Work with auditors and lawyers experienced in Diia City
• Monitor anti-criteria monthly
• Track legislative changes
In summary:
Diia City offers opportunities, but also requires discipline.
Most risks arise from underestimating small details.
Startups most often fail because of:
• poor accounting,
• incorrect activity types,
• lack of planning for transition after benefits end.
Regular compliance monitoring and strong audit/legal support are key to safe residency.
With the right approach, Diia City provides businesses not just tax benefits, but the stability and predictability Ukraine’s IT market has long needed.
Want to be sure that your business won’t lose its Diia City resident status?
Kreston Ukraine experts will help you:
- conduct a compliance audit with Diia City requirements;
- identify risks of losing resident status before inspections;
- set up accounting, contracts, and revenue structure; prepare your company for reporting and regulatory oversight.
Leave a request for an individual consultation. We will help you build a solid compliance system and protect your Diia City resident status without unnecessary risks.
