Parliament eyes special legal regime to boost Ukrainian defence sector

Ukraine plans to introduce a special legal regime to support its defence industry — the so-called Defence City. A corresponding legislative package has been submitted to parliament. It includes exemptions from corporate income tax, simplified customs procedures, preferential VAT treatment, and other benefits for defence-related companies. The draft laws, developed in cooperation with the Ministry of Defence, were submitted by the head of the “Sluha Narodu” parliamentary faction, Davyd Arakhamia, and the head of the parliamentary committee on finance, tax, and customs policy, Danylo Hetmantsev.

Defence City provides for state support to defence industry enterprises through the introduction of preferential conditions. To implement the initiative, amendments have been proposed to the Tax Code, the Customs Code, the Budget Code, the Criminal Code, and the Criminal Procedure Code.

A register of Defence City resident enterprises will be created and maintained by the Ministry of Defence. Information and reporting related to these enterprises will be subject to restricted access and enhanced protection.

Residents of Defence City will benefit from a number of tax exemptions until 1 January 2036, including exemption from income tax on reinvested profits, land tax, real estate tax, and environmental tax. Existing tax incentives for the defence industry — such as a preferential VAT regime, accelerated depreciation, and tax benefits for employees of relocated enterprises — will remain in place.

“More than 40% of weapons on the front line are produced in Ukraine. We have unique developments and experience in modern warfare. Western partners are showing strong interest in cooperation with our companies. In the future, our defence industry will be one of the key drivers of economic growth,” Arakhamia wrote.

Residents will also benefit from simplified customs procedures and export controls for military technologies, additional legal safeguards in criminal proceedings, support for production relocation, and the possibility for the National Bank to introduce a special regime of currency supervision and operations.

It is also worth noting that parliament had previously simplified the customs regime for importing components for fibre-optic drones.