Draft:IT Sector in Ukraine's Economy

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Information Technology in Ukraine is one of the fastest-growing sectors of the Ukrainian economy. As of 2024, the IT industry accounted for approximately 4 % of Ukraine’s gross domestic product (GDP) and contributed around 38 % of total services exports. Despite the challenges of geopolitical instability and wartime conditions, Ukrainian IT companies generated roughly US $6.3 billion in export revenue in 2024, demonstrating resilience and continued growth.[1][2]

Historical development

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The origins of software development and outsourcing in Ukraine date to the early 1990s, following the dissolution of the Soviet Union. Small computer-service centres and nascent development shops began forming in Kyiv, Lviv, Kharkiv, and other major cities. However, significant expansion took place in the 2000s, as educational institutions produced more IT graduates and global demand for outsourcing increased. In 2004, the IT Ukraine Association was established, uniting over 50 companies by the late 2010s and creating roughly 30 000 jobs.[1][3]

By the early 2010s, major software engineering firms—such as EPAM Systems, GlobalLogic, SoftServe, and Luxoft—expanded their Ukrainian operations. From 2014 to 2021 (covering the aftermath of Crimea’s annexation and prelude to full-scale conflict), the industry grew by approximately 36 %, with exports rising from US $5.0 billion to US $6.8 billion.[1][4] During that decade, Ukraine emerged among the world’s top ten outsourcing markets, and local startups in gaming, fintech, and SaaS began to scale internationally.

Role in GDP and employment

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By 2024, Ukraine’s IT sector constituted roughly 4 % of national GDP.[2] It was the leading exporter of services, contributing nearly 38 % of total service exports (i.e., approximately US $6.3 billion in export revenue). Despite a slight contraction in export volumes in 2024 compared to 2023 (down by about 4 %), the sector remained a primary source of foreign currency earnings.[5]

Employment figures in 2024 indicated approximately 302 000 IT specialists, of whom about 238 000 remained working inside Ukraine. Each IT job was estimated to generate an additional 2.7 supporting jobs, in fields such as hospitality, real estate, education, and logistics.[1] Around 20 % of Ukrainian IT professionals (nearly 62 000–64 000) worked remotely from abroad in late 2024, reflecting relocation due to wartime conditions.[6]

Among IT professionals, many (over 275 000 as FOPs—self-employed private entrepreneurs) operate under a simplified tax regime, with substantial concentrations in Kyiv (30 %), Kharkiv (12 %), Lviv (11 %), and Dnipro (8 %).[6] IT salaries rose by approximately 15 % from 2023 to 2024, reflecting strong market demand and inflationary adjustments.[7]

Geographic distribution

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Major hubs

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As of 2018–2024 data, the geographic breakdown of IT companies in Ukraine was as follows:[1]

  • Kyiv Region: ~52 % of registered IT companies, centered in the capital city of Kyiv.
  • Kharkiv Region: ~7.5 %, with strong ties to local universities and engineering institutes.
  • Dnipropetrovsk Region (city of Dnipro): ~6.0 %, leveraging aerospace and defense industry expertise.
  • Lviv Region: ~5.0 %, developing a robust product and startup ecosystem in the west.
  • Odesa Region: ~4.5 %, with growth in creative industries and outsourcing.
  • Other regions: ~25 % of IT companies, including Rivne, Zaporizhzhia, Ivano-Frankivsk, and Chernivtsi.[6]

In 2024, Lviv alone reported over 2 100 active IT companies, with employment growth of +8 % year-over-year and more than 35 000 tech specialists—an increase of 17 %. The region’s universities graduate thousands of IT professionals annually, fueling local innovation.[6][8] Kharkiv experienced a drop in local employment share from 14 % to 4 % after February 2022 but remains an important center for software services, with many firms maintaining operations in safer areas.[6] Additionally, about 20 % of Ukrainian IT specialists are currently located abroad, creating informal clusters in the European Union and North America.[2]

Regional networks and clusters

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Numerous regional IT clusters (e.g., Lviv IT Cluster, Kharkiv IT Cluster, Chernivtsi IT Cluster) coordinate local education, R&D, and business development efforts. The Lviv IT Cluster’s “IT Research Ukraine 2024” report provided the first comprehensive, nationwide snapshot of the tech sector during wartime, enabling data-driven forecasting and strategic planning.[6] Many such clusters collaborated with the Ministry of Digital Transformation of Ukraine and international partners (e.g., PrivatBank, Visa, Nasdaq) to support workforce upskilling and attract foreign direct investment.[6][8]

Export of services and international cooperation

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The United States remains the largest single market for Ukrainian IT services (roughly 37 % of export volume), followed by the United Kingdom, Germany, Poland, Israel, Switzerland, and various EU countries.[1][3] In 2024, exports to the US totaled about US $2.4 billion, with the UK representing roughly US $0.6 billion; overall, the industry’s exports were estimated at US $6.3–6.4 billion.[1][4] To strengthen ties, Ukraine launched the UK–Ukraine TechBridge initiative, co-funded by the British and Ukrainian governments to foster joint ventures, promote market entry, and share best practices.[2]

Since 2018, nearly US $1.5 billion of venture capital and private equity has flowed into Ukrainian IT, focusing on DefenseTech, artificial intelligence, fintech, blockchain, and cybersecurity. By mid-2024, Ukraine had given rise to at least eight unicorn startups (valued over US $1 billion), including Grammarly, GitLab, People.ai, and others founded or co-founded by Ukrainians.[2] Major companies such as EPAM Systems, GlobalLogic, Luxoft, Intellias, and SoftServe operate R&D centers in Europe, North America, and Asia, reinforcing global partnerships.[3]

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Diia.City special regime

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In 2022, the Ukrainian Parliament enacted Laws No. 1667-IX (15 July 2021) and No. 1946-IX (14 December 2021), establishing the “Diia.City” legal and tax framework—a virtual free economic zone designed to attract and retain IT businesses.[9][10] Under Diia.City, resident companies choose between:

  • A 9 % “distributed profits” tax instead of the standard 18 % corporate income tax,
  • Dividends taxed at 0 % (if distributed no more than once every two years),
  • Personal income tax (PIT) for employees and gig specialists set at 5 % plus a minimum Unified Social Contribution (USC; 22 % of minimum wage).[11]

As of December 2024, over 1 650 companies had become Diia.City residents, collectively paying around UAH 18 billion in taxes in 2024 (up from UAH 8.5 billion in 2023).[12] Diia.City also provides protections: a guaranteed legal regime for at least 25 years, simplified labor contracts (including gig contracts and stock options), and safeguards against excessive regulatory interference.[13]

Simplified tax regime for FOPs

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Individual entrepreneurs in IT (so-called “FOPs”) can opt for a simplified tax system (Group III), paying a unified tax of 5 % of income (3 % if VAT-registered) plus a fixed monthly USC (UAH 1 760 in 2024).[7] This regime encourages freelancing, small-team development, and startup formation, supporting flexible business models.

Ongoing reforms

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The government continually updates legislation to align with EU standards and improve the business climate. Recent measures include eliminating double taxation agreements with Russia (May 2022) and Belarus (November 2022), enhancing IP protections, streamlining visas for tech workers, and adopting the OECD’s Common Reporting Standard for transparency.[9][12] Legislative discussions focus on reducing bureaucratic barriers, protecting intellectual property, and expanding R&D incentives to bridge the gap between research institutions and private enterprises.[14]

Impact of war and resilience

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Since Russia’s 2014 annexation of Crimea and especially after the full-scale invasion in February 2022, Ukraine’s IT sector has faced significant disruption yet remained remarkably resilient.[4] Within weeks of February 2022, over two-thirds of IT companies relocated at least part of their workforce, moving personnel from frontline regions (e.g., Kharkiv) to western cities (Lviv, Ivano-Frankivsk) or abroad.[6] Kharkiv’s share of IT employment fell from 14 % to 4 %, while Lviv and other western regions rose from 14 % to 18 % market share.[6]

Approximately 120 000 IT specialists temporarily moved outside Ukraine due to security concerns; by late 2024, around 62 000–64 000 continued working remotely for Ukrainian firms.[6] Despite these challenges, the total number of IT professionals in Ukraine (238 000) plus those abroad (≈64 000) remained around 302 000, nearly matching pre-invasion levels.[2] In 2024, IT exports (US $6.3–6.4 billion) slightly exceeded 2021 figures (US $6.1 billion), reflecting rapid adaptation to remote collaboration, cloud technologies, and Western client demand.[4]

During wartime, many companies pivoted to support defense-related projects (DefenseTech, cybersecurity, communications). Ukrainian IT also contributed approximately UAH 20 billion in taxes in 2024, helping stabilize state budgets under extraordinary circumstances.[12]

Prospects and challenges

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Growth targets and innovation

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Industry stakeholders aim for Ukraine to reach US $20 billion in annual IT export revenue within five years, placing it among the world’s top ten IT exporters. Emphasis has shifted toward high-value fields such as artificial intelligence, machine learning, cybersecurity, blockchain, fintech, and the Internet of Things.[1][2] The Ukrainian Startup Fund, Diia.City incentives, and international partnerships (Google, Microsoft, Amazon, Visa) are designed to drive R&D, startup formation, and foreign direct investment.[13][8]

In 2024, Ukraine had over 2 600 registered tech startups with a combined valuation of over US $25 billion. Collaboration with global players expanded, including joint accelerator initiatives, hackathons, and research grants focusing on AI, medtech, agritech, and defense innovation.[2] Several startups relocated headquarters but maintained core R&D teams in Ukraine, ensuring continued domestic economic benefit.

Key challenges

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  1. Geopolitical and security risks: Ongoing hostilities create uncertainty. Companies must maintain contingency plans for data security, infrastructure redundancy, and employee safety.
  2. Talent retention: Competition from global tech markets and wages abroad threatens a permanent brain drain. Retaining skilled professionals requires competitive compensation, career development, and long-term stability.
  3. Regulatory volatility: Frequent amendments to tax codes and labor laws necessitate agility. Businesses must adapt quickly to changes in tax rates, social contributions, and Diia.City requirements.[9]
  4. Infrastructure and R&D investment: Despite growth, Ukraine lags in broadband penetration, data-center capacity, and public funding for research and development. Closing this gap demands both public and private investment in universities and innovation hubs.[14]
  5. Economic fragmentation: Displacement of companies and personnel has shifted economic activity westward, leading to imbalances between regions. Postwar reconstruction will need to rebalance growth and support Eastern oblasts heavily impacted by conflict.[15]

Nevertheless, the IT sector’s adaptability and global integration position it as a linchpin of Ukraine’s economic recovery. Continued international support (e.g., EU’s digital pre-accession funds, NATO Science for Peace programs) and diaspora engagement underpin long-term growth strategies.[14][2]

See also

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References

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  1. ^ a b c d e f g h IT Ukraine Association. "Digital Tiger 2024: The Market Power of Ukrainian IT" (PDF). Retrieved 25 January 2025.
  2. ^ a b c d e f g h i TechUkraine (5 December 2024). "Ukrainian Tech Industry Shows Resilience in the Face of War". Retrieved 2 February 2025.
  3. ^ a b c IT Ukraine Association. "Digital Tiger: The Market Power of Ukrainian IT 2024 (English)". Retrieved 1 February 2025.
  4. ^ a b c d The Register (4 April 2025). "Ukraine's techies a "pillar of support" for national economy after wartime upheaval". Retrieved 10 April 2025.
  5. ^ National Bank of Ukraine (January 2025). "Ukraine's IT Exports Declined by Over 4% in 2024". Retrieved 5 February 2025.
  6. ^ a b c d e f g h i j Lviv IT Cluster (21 November 2024). "Dynamics of Ukraine's Tech Industry: Results from IT Research Ukraine 2024. Resilience as the New Reality". Retrieved 20 January 2025.
  7. ^ a b MoldStud (December 2024). "Economic Trends Impacting IT Salaries in Ukraine". Retrieved 15 January 2025.
  8. ^ a b c EU4Digital (13 May 2025). "Promoting IT during the war: Lviv IT cluster and how EU4Digital helps". Retrieved 16 May 2025.{{cite web}}: CS1 maint: numeric names: authors list (link)
  9. ^ a b c PwC Ukraine (January 2025). "Ukraine: Creation of "Diia.City" — Special Legal Regime for IT Companies". Retrieved 10 February 2025.
  10. ^ KPMG (15 January 2024). "Diia.City". Retrieved 10 February 2025.
  11. ^ Finevolution (January 2025). "Taxation of employees: Diia.City". Retrieved 5 February 2025.
  12. ^ a b c Interfax-Ukraine. "Number of Diia.City residents increases by 200 companies since mid-2024". Retrieved 18 May 2025.
  13. ^ a b Digital State UA. "Diia.City". Retrieved 10 February 2025.
  14. ^ a b c European Commission (November 2024). "Ukraine 2024 Report" (PDF). Retrieved 20 January 2025.
  15. ^ Reuters (9 May 2024). "War upends Ukraine's economy in a shift that may be permanent". Retrieved 1 February 2025. {{cite news}}: |last= has generic name (help)