Ukraine’s State Tax Service has outlined tax exemptions available to enterprises operating under the Defence City regime for the defence-industrial complex.
Ukraine’s State Tax Service published Information Letter No. 3/2026 on 11 August 2026, setting out the tax incentives available to residents of the Defence City regime for enterprises in the defence-industrial complex (DIC).
The regime was introduced by Law of Ukraine dated 21 August 2025 No. 4577-IX “On Amendments to the Tax Code of Ukraine and Other Laws of Ukraine Regarding Support for Enterprises of the Defense-Industrial Complex”, which entered into force on 5 October 2025.
Corporate income tax
Defence City residents may qualify for an exemption from corporate income tax if profits are reinvested within the following year. The reinvestment deadline is 31 December of the following year and may cover upgrading the material and technical base, expanding production and implementing new technologies.
The exemption is subject to resident status, dividend restrictions and compliance with transfer pricing and controlled foreign company (CFC) reporting requirements.
Transfer pricing adjustments and CFC profits remain subject to corporate income tax at the 18% rate.
Other tax exemptions
Qualifying Defence City residents may also receive exemptions from land tax, real estate tax and environmental tax.
The tax preferences apply temporarily until 1 January 2036, but no later than the year of Ukraine’s accession to the EU.
Eligibility and regime
The Defence City regime applies to enterprises in the DIC and requires at least 75% of qualified income. For aircraft manufacturing, the threshold is reduced to 50%.
The Ministry of Defence of Ukraine maintains the Defence City register and is responsible for granting, terminating or revoking resident status and monitoring compliance.
Defence City resident status is voluntary. A legal entity acquires the status following an application to the Ministry of Defence of Ukraine, a decision granting resident status and entry into the Defence City register.
