Ukraine's 'Defence City' Initiative Aims to Boost Arms Exports with Tax Breaks and Simplified Rules

Introducing the Defence City Framework

According to ХВИЛЯ: Ukraine's defense industry is adopting a new legal framework known as Defence City, designed to streamline export procedures for private manufacturers, introduce tax incentives, and establish a National Arms Manufacturers Register. The launch of this special regime was the focus of a closed-door meeting of the Ukrainian Arms Council. This move is part of a broader strategy to strengthen Ukraine's domestic defense production capabilities and integrate more deeply with international partners.

Under the new rules, the process for obtaining special export licenses, which previously took between 6 and 12 months, will be significantly simplified. The Ministry of Defense has announced the launch of the Arms Manufacturers Register for February-March 2026. To support exporters, an Export Support Office has already been established, providing over 20 consultations in its first month of operation.

Eligibility Requirements for Companies

Key requirements for companies seeking residency status under the Defence City regime include:

• Demonstrating that at least 75% of their revenue (50% for aviation) is derived from defense-related activities;
• Exemption from corporate income tax, conditional on reinvestment;
• Simplified customs clearance procedures;
• Assistance with business relocation.

Following an internal audit, companies must submit a compliance report to the Ministry of Defense.

Oleh Tsilvik noted that simplifying bureaucracy does not mean eliminating oversight.

A survey indicates that 30% of Ukrainian arms manufacturers have already registered with the export control service.

The Defence City framework represents a crucial step for the development of Ukraine's defense-industrial complex, as it aims to lower bureaucratic barriers and stimulate investment in the sector. Streamlined export processes and tax benefits could encourage more enterprises to engage in defense production, potentially enhancing the country's defense capabilities. At the same time, maintaining effective oversight of corporate activities is essential to safeguard national security. Successful implementation of this regime could serve as a model for other sectors of the Ukrainian economy.