Ukraine has moved quickly to bolster its defense industrial base, with a new Defense City regime offering tax, customs, and administrative incentives to manufacturers, according to Kinstellar Partner Natalia Kirichenko, with the framework aiming to cut red tape, speed up production, and attract both domestic and international players under wartime conditions.
"Ukraine’s defense sector has been at the center of legislative focus," Kirichenko begins. "On September 3, 2025, President Zelensky signed the first package of laws introducing a special tax and legal regime called 'Defense City.' It’s a targeted incentive framework for defense companies, a top priority under martial law, meant to remove bureaucratic obstacles, simplify operations, and attract both local and international manufacturers."
Explaining what the Defense City regime constitutes, Kirichenko explains that it is "a special hub that eases administrative, fiscal, and customs burdens. Benefits include exemptions from corporate income, property, land, and environmental taxes, plus streamlined customs for importing inputs and exporting finished military products. The goal is to strengthen supply chains, accelerate time-to-market, and position Ukraine as a competitive European defense manufacturing center."
According to Kirichenko, the first Tax Code amendments are already in force since October 5, 2025, while the customs-focused batch has taken effect on October 24, 2025. "We’re awaiting further subordinate regulations and implementing acts; the practical impact will crystallize as these are issued." As for the procedure to become a Defense City resident, Kirichenko outlines that "companies will apply directly to the Ministry of Defense. While the detailed procedure will be set by the Cabinet of Ministers, the intent is for a smooth, straightforward, and quick process so qualified enterprises can access the regime without delay."
Focusing on the customs and export reliefs, Kirichenko reports that one of the key bottlenecks was removed. "Exporting military goods previously required special authorization from the Cabinet of Ministers; this has been abolished, which should materially speed up exports. Not every proposed simplification made the final law, but the adopted changes are still highly impactful." Moreover, she reports that confidentiality and security measures have been included in the framework as well. "Public access to sensitive information on Defense City residents is restricted. Data will be withheld from public registries, including those on corporate, property rights, land cadastre, and the like. During martial law, residents may use a legal address different from their actual location and are not required to publish audited financial statements, enhancing operational security and flexibility," Kirichenko explains.
Kirichenko stresses that this new framework is a milestone for Ukraine. "If implemented effectively, the Defense City framework can anchor Ukraine’s defense industrial base for wartime resilience and long-term strategic growth, making the country a serious destination for defense innovation and production," Kirichenko concludes.
