Ukraine is a destination worth exploring due to its innovative legal initiatives, offering opportunities in both traditional industries and the fast-growing digital economy. Two key investment programs – the State Support for Large-Scale Investment Projects (the "Program") and the Diia.City virtual economic zone (“Diia.City”) – provide forward-thinking businesses with diverse possibilities.

I.    State Support for Large-Scale Projects

The Program provides financial incentives for large-scale projects, offering tax exemptions, monetary compensation, and special terms for land use. Companies investing at least €12 million can benefit from significant government support, potentially receiving up to 30% of their investment back.

Basic Requirements

•    A minimum investment of €12 million.
•    Project completion within five years.
•    Creation of 10 to 50+ new jobs, with wages exceeding the regional average by 15-50%, depending on the number of jobs created.
•    Applications are accepted for both new and ongoing projects, provided that no more than 30% of the investment has been made.
•    Eligible projects must include the construction, modernization, or technical/technological upgrades of investment facilities.

Who Can Benefit?

This program applies to a wide range of sectors, including:
•    Manufacturing (excluding tobacco products, ethyl alcohol, cognac and fruit spirits, and alcoholic beverages).
•    Mining for further processing and/or enrichment (excluding coal, crude oil, and natural gas).
•    Renewable energy, including biogas and biomethane (compressed or liquid).
•    Waste management, transportation, logistics, warehousing, postal and courier services.
•    Education, healthcare, science, arts, culture, sports, tourism, and recreation.
•    Electronic communications.

Key Benefits

•    No VAT or customs duties on new equipment and components, as determined by the government for each project.
•    Potential five-year exemption from corporate income tax, depending on the project.
•    The government may assist in building or reimbursing costs for roads, utilities, and other infrastructure, depending on the project.
•    Lease of state or communal land without tenders.
•    No need to pay for forestry production losses.
Projects are evaluated by the authorities within 60 days, ensuring a fast and efficient process.
II.    Diia.City: The Hub for the Digital Economy
For businesses in IT and digital sectors, Diia.City offers a unique opportunity. This virtual economic zone fosters innovation by providing lower taxes, flexible employment laws, and advanced intellectual property protections.

What Makes Diia.City Special?

a.    Tax Incentives

•    9% exit capital tax or 18% income tax.
•    0% tax on dividends if paid every two years.
•    Tax rebate (with personal income tax) on the amount of investments in Ukrainian startups: personal income tax is paid not on the entire amount of profit, but only on the excess amount of investments.
•    A flat 5% personal income tax and a 22% social security fee, paid by the employer.
•    5% Military Tax on personal income.

b.    Flexible Employment

Diia.City allows companies to hire employees as contractors, under the Labor Code, or under “GIG” contracts, a special category within Diia.City. GIG contracts offer flexibility, combining the benefits of standard employment, such as:
•    Showing real turnover and paying moderate taxes.
•    Providing basic social guarantees.
•    Simplified administration.
•    Including provisions like non-disclosure agreements, non-compete clauses, and payments in foreign currencies, which are not allowed under regular labor laws.

c.    Startup-Friendly Tools

Diia.City integrates elements of the common law legal system, offering venture investment tools familiar to foreign investors, such as:
•    Convertible Loan: In the early stages of a startup, it is often difficult to assess its future value. A convertible loan allows investors to provide funding with the option to convert that loan into equity once the startup's market value becomes clearer.
•    Liquidation Preferences: Investors who contribute significant funds can demand priority repayment of their investment in the event of liquidation or dividend distribution, ensuring they are paid first.
•    Option & ESOP: These tools provide investors with the right to increase their stake in the company as it grows. This gives investors the opportunity to secure better financing terms for company owners.
•    Warranties & Indemnities: These mechanisms protect investors from losses if they have been misled by false representations made by the company, allowing for compensation in such cases.
•    Liquidated Damages: Investors can include provisions for compensation in the event of potential losses under a contract. This compensation does not require complex legal proof and cannot be unreasonably reduced by the court.

d.    IP Protection

Intellectual property rights automatically belong to the employer, though they can be negotiated and specified in contracts for additional flexibility.

Who Can Join?

•    Operating companies with at least 9 employees or gig specialists, and a minimum salary of €1,200 per employee, can join. At least 90% of their income must come from IT-related activities.
•    Startups can join if their annual income is under 8.3 million UAH, 90% of their income is from qualifying activities, and the company is no older than 24 months.

III.    Why Combine These Opportunities?

Leveraging both programs offers businesses significant growth potential. Traditional industries benefit from infrastructure and tax incentives. IT businesses enjoy modern tools, lower taxes, and flexible employment. Stay tuned for more updates to expand your business in Ukraine.