New Legal Regime for the Defense Industry
On October 5, 2025, the Law of Ukraine No. 4577-IX came into force, establishing a special legal and tax regime known as Defence City.
The regime is designed to stimulate the development of Ukraine’s defense-industrial complex and will remain in effect until January 1, 2036, or until Ukraine joins the European Union.
Enterprises eligible for Defence City status are those engaged in:
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Fulfillment of defense orders;
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Production and development of weapons, equipment, and military technologies;
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Research and innovation in the field of national security and defense.
Key Tax Incentives
The new law provides a broad package of tax benefits to encourage reinvestment and modernization in the defense sector.
Defence City residents will receive exemptions from:
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Corporate income tax, provided that profits are reinvested into:
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Modernizing production;
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Upgrading technical infrastructure;
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Conducting scientific research;
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Acquiring intellectual property rights and technologies.
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Land tax, for:
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Plots occupied by defense production facilities;
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Land temporarily unused due to enterprise relocation.
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Real estate tax, for buildings used in business activities or employee accommodation.
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Environmental tax, starting from the next tax period after obtaining resident status.
These exemptions aim to direct more resources into technological renewal, production scaling, and innovation within Ukraine’s defense ecosystem.
Conditions and Compliance
Companies must strictly adhere to the reinvestment rules.
If a resident misuses profits or violates reinvestment conditions, the enterprise becomes liable for full tax payments and penalties.
Losing Defence City resident status leads to:
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Termination of all tax privileges;
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Submission of a clarifying report;
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Payment of all outstanding tax liabilities retroactively.
Additional Provisions
The law also abolishes increased land tax rates for mining enterprises, which were valid only until October 4, 2025.
The Defence City framework complements Ukraine’s broader defense industrial strategy — aimed at creating favorable conditions for joint production, foreign investment, and rapid technological advancement in the security and defense sectors.
