Diia City vs EOR vs Labour Code: What to Choose in Ukraine

When planning to enter the Ukrainian labour market, a foreign business has to choose the best legal model for engaging its team: registering its own company in Ukraine, obtaining Diia City resident status for its own Ukrainian company, direct employment under the Labour Code, or using an Employer of Record (EOR) service.

📊 Hiring Models Compared

Sources: Tax Code of Ukraine; Law No. 1667-IX “On Stimulating the Development of the Digital Economy in Ukraine”; Law No. 5067-VI “On Employment of the Population”; Law No. 2811-IX “On Copyright and Related Rights”; Law No. 2464-VI “On Collection and Accounting of the Single Contribution for Mandatory State Social Insurance”; Civil Code of Ukraine (Part 3 of Article 95); Promotion’s launch time: Outstaffing service page

🏙️ 1. Diia City: Maximum Tax Benefits for IT and Tech Businesses

Diia City is a special legal and tax regime designed to stimulate the IT sector and R&D work. In addition to employment contracts, it allows companies to use gig contracts, which combine the flexibility of freelancing with social protections.

• Advantages: a low tax burden (personal income tax of 5% on income up to €240,000 per year and 18% above that amount; military levy of 5%; SSC of 22% of the minimum wage), the option to choose the exit capital tax (9%) instead of corporate income tax (18%), and instruments borrowed from English law: non-disclosure agreements (NDAs) and non-compete agreements, options, loans with an alternative obligation (convertible loans), representations and indemnities.
• Limitations: requires setting up a legal entity in Ukraine (a foreign company cannot become a resident itself), meeting strict criteria (average monthly remuneration of employees and gig specialists of at least the equivalent of €1,200, an average headcount of at least 9 people and a share of qualifying income of at least 90%) and undergoing an annual independent audit. A newly established company (registered no earlier than 24 months before applying, with income within the limit for Group 3 of the single tax) may hold resident status without meeting the €1,200 and 9-person requirements until December 31 of the year following the year in which it obtained the status.

📋 2. Standard Labour Code Hiring: Traditional Employment with a Heavy Regulatory Burden

Standard employment under the Labour Code of Ukraine by registering an LLC or an official representative office of the foreign company.

• Advantages: a familiar model for large industrial, retail and FMCG corporations with permanent offices, warehouses and capital infrastructure.
• Limitations: a higher tax burden than in Diia City (personal income tax 18%, military levy 5%, SSC 22%), strict bureaucratic requirements for HR record-keeping, military registration and occupational health and safety, and direct liability to the regulatory authorities (the State Labour Service, the State Tax Service and territorial recruitment and social support centres).

🚀 3. EOR: Fast Market Entry Without Registering a Company

Employer of Record (EOR) is a model in which a local provider, an outstaffing company, hires Ukrainian specialists under employment contracts in accordance with the Labour Code and assigns them to work for a foreign client (Articles 36 and 39 of the Law of Ukraine “On Employment of the Population”). In essence, it is personnel outstaffing for foreign companies. The employer’s obligations do not disappear: the provider, as the legal employer, takes on HR record-keeping, military registration and payroll, and pays taxes and the SSC. We explained in detail how EOR works in practice in our article “EOR in Ukraine: How Foreign Businesses Can Legally Hire Specialists”.

• Advantages: project launch in 5–20 calendar days with Promotion (excluding the time needed to find candidates); no need to set up an LLC or open bank accounts in Ukraine; HR administration, payroll calculation and payment, and payment of taxes and the SSC are transferred to the provider as the employer (the allocation of responsibility is set out in the contract); a single monthly invoice for the service.
• Limitations: a service model with a fee paid to the provider (EOR fee). Payroll taxes are paid on general terms, as under the Labour Code (personal income tax 18%, military levy 5%, SSC 22%): the preferential Diia City rates do not apply here because the provision of personnel is not a qualifying activity.

🧭 Diia City vs EOR: Which to Choose

Foreign IT companies that plan to build their own R&D centre over the long term and have a team of 10 or more people should consider setting up a Ukrainian company and obtaining Diia City resident status for it. If, however, a foreign business aims to test the Ukrainian market quickly or hire its first specialists without setting up a legal entity, the EOR model can be a flexible and cost-effective solution. It also eliminates the risk of creating a permanent establishment (PE), provided that the requirements of current legislation are met, in particular that the specialists do not negotiate or conclude contracts on behalf of the foreign company. The final choice depends on the number of specialists, the planning horizon and the company’s tax position.