The Diia.City residency status provides companies with several benefits, including a special tax regime, the ability to enter into gig contracts with employees and other regulatory simplifications. This status is becoming increasingly popular among Ukrainian companies, especially in the IT sector.
However, alongside these benefits, Diia.City residents are required to comply with specific financial reporting standards and undergo regular audits.
Auditing ensures that potential errors or discrepancies in reporting are identified, reducing financial risks and maintaining trust with partners and government authorities.
Importance of Audits for Diia.City Residents
A Diia.City resident is a Ukrainian IT company that has been granted special legal status. The Diia.City audit is an independent review that assesses whether a company’s reporting complies with specified requirements. This review is a mandatory element for maintaining Diia.City residency under Law No. 1667-IX.
Audits are conducted annually and include an analysis of the company’s Compliance Report. The result is an independent auditor’s report, which is submitted to government authorities along with the company’s reporting by June 1 each year. Regular audits help maintain transparency in the company’s operations, positively influencing its reputation and growth.
Key Functions of the Audit
The audit checks the company’s compliance with requirements related to:
- The average monthly salary of employees and gig specialists;
- The number of employees and gig specialists;
- The amount of the company’s qualified income;
- Conducting specified activities (such as computer programming, IT consulting, IT equipment management, software publishing, provision of online programs, IT education, cybersecurity, etc.).
During the first or second year of acquiring Diia.City residency status, exemptions apply to salary and staff number requirements. These exemptions depend on the time of application submission and include criteria such as annual revenue (up to UAH 7 million) and the company’s registration date (no earlier than 24 months before the application).
Key Aspects of Audit Reporting
The auditor’s report is prepared by an auditor authorized to conduct mandatory audits of financial statements in accordance with the Law of Ukraine “On Auditing Financial Statements and Auditing Activities.” The specialist must have the appropriate qualifications and experience and must be registered in the relevant sections of the official registry.
The audit process helps mitigate the following risks:
- Verification of Proper Use of Tax Benefits. The auditor checks whether the company complies with tax requirements and correctly utilizes available tax benefits.
- Analysis of the Accuracy of Financial Transactions. The audit assesses whether the company’s actual activities align with reported indicators and ensures their legality.
- Compliance of Reporting with Legal Standards. The auditor verifies that the reporting adheres to current legal standards mandatory for Diia.City residents.
How the Audit is Conducted for Diia.City Residents
Audits for Diia.City residents are conducted based on the submitted Compliance Report and, along with the auditor’s conclusion, are provided to the Ministry of Digital Transformation within the established deadlines.
Main Stages of the Audit:
- Preparation and Data Collection. All necessary financial data is gathered for analysis.
- Document Analysis. A detailed review of documentation and financial transactions is conducted to assess their accuracy and compliance with requirements.
- Use of Automated Tools. Software tools are employed to analyze data, identify discrepancies, and detect anomalies in reporting, streamlining the auditing process.
The first report must be submitted no later than the last day of the sixth month after obtaining residency status, covering the first three full months of operations. Subsequent reports are submitted annually by June 1, covering the reporting period from January 1 to December 31 of the previous year.
Impact of Audit Results on the Company
Upon completion of the audit, an auditor’s report is prepared, detailing the state of the company’s financial reporting and providing recommendations for improvements.
Key Sections of the Auditor’s Report for Diia.City Residents:
- Overview of Financial Reporting. Reflects the overall state of documentation and key financial indicators of the company.
- List of Identified Errors. Details discrepancies found that may affect the accuracy of financial reporting.
- Recommendations for Improvement. Provides suggestions for adjusting reporting and optimizing financial management.
Common Errors During Audits
Audits of Diia.City residents may involve certain challenges and issues. The main problems include:
- Incorrect Use of Tax Benefits. Due to the specific nature of the tax regime, companies sometimes make errors in their reporting.
- Inaccuracies in Documentation. Missing or incomplete documents can lead to inaccuracies in the auditors’ conclusions.
- Low Level of Automation. Some companies underutilize automated systems, slowing down the auditing process.
To avoid these issues it is recommended to:
- Implement clear internal control standards.
- Regularly consult auditors about regulatory changes.
- Ensure the completeness and accuracy of documentation before the audit.
Failure to submit the required reporting may result in the loss of residency status. However, companies that obtained residency before February 17, 2024, are not required to submit an initial report.
Specialists at UHY-Prostir provide comprehensive and highly qualified services for maintaining the accounting of companies residing in Diia City.
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