The Diia City United business union has issued a statement on the proposed “Defence City” special regime, offering a mix of support and caution as Ukraine moves to bolster its defence-technological sector. While the union welcomes the initiative, it insists that the draft laws must be refined before the second reading to address critical gaps and ensure the regime’s effectiveness.
The union, which represents over 140 IT companies and funds, has identified five key areas requiring attention. First, it argues that all defence-technology companies should qualify for the Defence City regime, regardless of tax status or registration form. This includes firms producing dual-use goods, software monetized through royalties, and those engaged in research and development (R&D). Limiting benefits to specific categories, the union warns, risks market fragmentation and stifling innovation.
Second, Diia City United calls for a transparent, digital-controlled export system to facilitate Ukrainian developers’ entry into international markets, particularly in NATO and EU countries. This system, the union believes, will ensure predictability and transparency, crucial for fostering trust and collaboration.
Third, the union emphasizes the need to protect sensitive information about defence companies. Restricting access to public registers, it argues, will mitigate risks of sabotage and cyber threats, safeguarding both companies and national security.
Fourth, the union insists on unifying customs benefits for all companies involved in critical technologies. Quick access to necessary components, it argues, should not be hindered by registration status. Simplified customs procedures, the union believes, will streamline operations and boost efficiency.
Lastly, the union supports legal immunity for defence businesses, viewing it as essential for protecting critical industries and ensuring the stability of state defence orders during wartime.
The aviation industry echoes these concerns, warning that the current draft laws risk excluding critical players. The Aerospace Association of Ukraine highlights that the 90% defence product revenue requirement effectively bars most aircraft manufacturing and repair enterprises, including industry flagships like SE “Antonov” and “Motor Sich.” Viktor Popov, President of the association, stresses that the Defence City initiative is a lifeline for the aviation sector, which has lost state support since January 2025.
The Verkhovna Rada adopted the three key draft laws in the first reading on July 16, outlining tax, customs, and budget benefits for Defence City participants until 2036. These include income tax exemptions, abolition of land and environmental taxes, and simplified customs clearance. However, experts caution that these are merely initial steps, and further refinements are necessary to create a robust support mechanism for Ukraine’s strategic industries.
As Ukraine navigates the complexities of war and economic development, the Defence City initiative presents a critical opportunity to strengthen its defence-technological sector. The input from Diia City United and the aviation industry underscores the need for inclusive, transparent, and supportive policies to foster innovation, protect sensitive information, and ensure the stability of critical industries. The coming months will be pivotal in shaping the future of Ukraine’s defence capabilities and its role in the global defence-technological landscape.
