{"id":103574,"date":"2026-10-01T10:28:48","date_gmt":"2026-10-01T07:28:48","guid":{"rendered":"https:\/\/thedefender.media\/?p=103574"},"modified":"2026-10-01T15:37:49","modified_gmt":"2026-10-01T12:37:49","slug":"import-benefits-controversy","status":"publish","type":"post","link":"https:\/\/thedefender.media\/en\/2026\/10\/import-benefits-controversy\/","title":{"rendered":"Ukraine cuts the cost of importing defence components. What impact will it have on the market?"},"content":{"rendered":"\n

Ukrainian drone manufacturers depend heavily on imported components: some are not produced in Ukraine at all, while domestic production of others still does not meet the front’s needs. Component imports are subject to VAT and import duty, with rates determined by product classification codes. This directly increases component costs and, consequently, finished drone costs.<\/p>\n\n\n\n

To ease this burden, the state has introduced targeted exemptions since the start of the full-scale war. In June 2023, President Zelenskyy signed legislation exempting materials, assemblies, sub-assemblies, and components used for domestic production and repair of UAVs from VAT and import duties for the duration of martial law. At the end of 2024, parliament extended the exemptions for another year and expanded them to components used to manufacture munitions.<\/p>\n\n\n\n

However, these exemptions applied only to drone components purchased with funds from Ukraine\u2019s state budget. In early September 2026, the Verkhovna Rada<\/a> adopted further amendments to the Tax and Customs Codes concerning VAT and import duty. The changes expanded the scope for preferential component imports for drones.<\/p>\n\n\n\n

Lowering the financial burden of importing components benefits drone manufacturers and could allow the military to receive more equipment. At the same time, domestic component production has grown rapidly in Ukraine in recent years, and companies in the sector see the import exemptions as a mixed blessing. Defender Media analysed the new law and spoke to Ukrainian drone and component manufacturers.<\/p>\n\n\n\n

What has changed<\/h4>\n\n\n\n

The new law’s main issue is not which manufacturers qualify, but the source of purchase funding. Existing provisions of the Tax Code strictly exempted component imports for defence production from VAT when purchases were funded from the state budget\u2014essentially under state defence contracts.<\/p>\n\n\n\n

But a significant share of weapons, equipment and munitions for Ukraine is funded not from the state budget, but through international military and technical assistance. This may include investments from foreign governments, funding from international organisations and military aid programmes. The Code’s wording did not cover such cases, so customs authorities applied inconsistent interpretations of whether the exemption applied to purchases financed from other sources.<\/p>\n\n\n\n

\"Fiber-optic
Fiber-optic drone by 3DTech<\/figcaption><\/figure>\n\n\n\n

The new law removes this link to the source of funding. The VAT exemption on imported components for the domestic production of weapons, military equipment, arms and munitions will now apply regardless of the source of funding. The main conditions are that the end recipient of the goods under an end-user certificate or contract must be the Ministry of Defence, the Armed Forces of Ukraine, other military formations or other entities within the security and defence sector. The goods must be transferred to them free of charge.<\/p>\n\n\n\n

In simpler terms: whereas previously the exemption clearly applied only to purchases funded from the state budget, the source of funding is now irrelevant \u2014 provided the goods are transferred to the military free of charge.<\/p>\n\n\n\n

Separately, the law exempts the import and domestic sale of quad bikes and all-terrain vehicles<\/a> for defence purposes from VAT and excise duty, and expands the VAT exemption to the supply of weapons and certain categories of munitions under state defence contracts.<\/p>\n\n\n\n

What does this mean for drone manufacturers?<\/h4>\n\n\n\n

For manufacturers of finished products, lowering the cost of imported components has a direct economic effect. According to a representative of WIY Industries, even if imported parts do not make up the bulk of a finished product\u2019s cost, individual components can be critical, and replacing them quickly with Ukrainian or European alternatives is not always possible.<\/p>\n\n\n\n

\u201cThere are two key factors here: cost and speed,\u201d the company explains.<\/p>\n\n\n\n

According to WIY, European and US alternatives to some components can cost several times more than Chinese products with similar technical specifications. For serial production, price disparities in key components directly dictate the unit cost of the finished product.<\/p>\n\n\n\n

\"\u0411\u043f\u041b\u0410
Strila UAV by WIY Drones. Photo provided by tthe manufacturer<\/figcaption><\/figure>\n\n\n\n

The second factor is speed. Defence technologies are changing very rapidly: a product may need to be modified literally every month. Manufacturers need an accessible component base that allows them to test new configurations quickly, modify designs, and scale production.<\/p>\n\n\n\n

Therefore, according to the WIY representative, reducing the tax and customs burden on imports is not just about saving money. It makes it possible to reduce production costs, adapt products more quickly and produce more systems using the same resources.<\/p>\n\n\n\n

3D Tech also supports further easing of import conditions for Ukrainian manufacturers. The company says the existing preferential regime allows legally importing components specified by law without VAT, while further simplification would reduce the administrative and financial burden and help speed up production and deliveries to the Defence Forces.<\/p>\n\n\n\n

\n
Read more: <\/strong>Manufacturers are not being paid under the ePoints programme due to new budget approval requirements, \u2014 Fedirko<\/a><\/div>\n<\/div>\n\n\n\n

Where the problem arises for Ukrainian component manufacturers<\/h4>\n\n\n\n

The problem arises when a Ukrainian company doesn’t just assemble a finished drone but manufactures its own components.<\/p>\n\n\n\n

According to Motor-G CEO Oleksii Hrebin, China may account for around 70% of component supplies for UAVs. At the same time, strong demand for components for tens and hundreds of thousands of drones has also driven domestic production. For example, Motor-G already uses up to 85% Ukrainian components in some of its motors.<\/p>\n\n\n\n

However, the preferential regime for imported components creates a problem when a Ukrainian manufacturer attempts to produce an equivalent component itself.<\/p>\n\n\n\n

Hrebin gives motor production as an example. A finished Chinese motor can be imported without the relevant tax and customs burden. A Ukrainian manufacturer, by contrast, needs individual components to produce the same motor \u2014 bearings, copper wire, magnets, a stator and so on. Some of these lack a dedicated classification code that would allow them to be categorised specifically as UAV components.<\/p>\n\n\n\n

As a result, a Ukrainian manufacturer may have to pay VAT on raw materials and components, while a finished foreign motor can be imported without it.<\/p>\n\n\n\n

\u201cThis makes the Ukrainian motor more expensive and less competitive,\u201d the company explains.<\/p>\n\n\n\n

\"Motor-G
Motor-G UAV engine. Photo by the manufacturer<\/figcaption><\/figure>\n\n\n\n

Motor-G notes that while VAT paid on raw material purchases formally generates a tax credit, reclaiming it is administratively difficult. As a result, buying raw materials in Ukraine may be less attractive for a manufacturer than importing them without the tax burden.<\/p>\n\n\n\n

According to Motor-G\u2019s CEO, this problem is not limited to motors. A similar situation may arise in the production of batteries, cameras, metal parts and other components.<\/p>\n\n\n\n

Does the exemption give imported components an advantage?<\/h4>\n\n\n\n

This is where finished-product manufacturers and component manufacturers diverge.<\/p>\n\n\n\n

For companies assembling finished drones, preferential imports help cut costs and scale up production more quickly. For Ukrainian component manufacturers, the same exemption may mean that their products compete with imports on an uneven footing.<\/p>\n\n\n\n

IRON, a defence technology cluster, believes the solution should be to create equal conditions for Ukrainian and foreign production. \u201cIt is not enough simply to make imports cheaper; we need to create equal conditions for Ukrainian and foreign components,\u201d says Andrii Makhnyk, IRON\u2019s development director.<\/p>\n\n\n\n

The cluster proposes a differentiated approach: if no Ukrainian equivalent of a particular component exists, the import exemption should be retained. If Ukrainian production already exists or can be developed, the company proposes introducing a transition period.<\/p>\n\n\n\n

The provision could apply for one year: during this time, finished-product manufacturers could continue to benefit from the import exemption, after which they would gradually switch to Ukrainian alternatives. This approach would avoid a sharp cost increase for finished-product manufacturers while giving Ukrainian component makers time to scale up production.<\/p>\n\n\n\n

IRON acknowledges that in the short term, such a transition could increase costs for large finished-product manufacturers. However, without market balancing, Ukraine risks remaining dependent on foreign imports even in component categories it can already produce domestically.<\/p>\n\n\n\n

What component manufacturers want changed<\/h4>\n\n\n\n

Motor-G proposes an alternative mechanism: instead of linking tax and customs exemptions strictly to a product classification code, introduce a method to confirm the intended end-use. This would mean that component manufacturers could receive exemptions regardless of whether a specific nut, magnet or bearing is included on the list. The company believes this would remove the advantage imported components have over Ukrainian-made products, whose manufacturers have paid VAT when importing raw materials.<\/p>\n\n\n\n

At the same time, WIY and 3D Tech stress another side of the issue: Ukrainian manufacturers of finished defence products need to retain access to components that Ukraine does not yet produce or cannot replace quickly.<\/p>\n\n\n\n

The debate is not about whether exemptions on imported components are needed: market participants agree that they reduce costs and simplify production. The challenge is ensuring that tax relief does not simultaneously erect additional barriers to the growth of domestic component manufacturing. The market needs to balance access to components \u201chere and now\u201d with creating the conditions for domestic production in the long term.<\/p>\n\n\n\n

\n
Read more:<\/strong> Defence City residents will be able to lease state and municipal property without auctions<\/a><\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

The state is cutting costs for drone manufacturers but putting Ukrainian component makers at a disadvantage<\/p>\n","protected":false},"author":5,"featured_media":23075,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"pmpro_default_level":"","_featured_category_order":0,"_article_badge":"featured","footnotes":""},"categories":[1],"tags":[626,2583,216,572,174,2281,2315],"class_list":["post-103574","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-state","tag-3dtech","tag-components","tag-industry","tag-iron-cluster","tag-legislation","tag-motor-g","tag-wiy-drones","pmpro-has-access"],"acf":[],"yoast_head":"\nHow will cheaper imports affect Ukraine\u2019s defence industry?<\/title>\n<meta name=\"description\" content=\"The state is cutting costs for drone manufacturers but putting Ukrainian component makers at a disadvantage. 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