Rada sets up ‘Defence City’ for defense industry: key benefits explained

On Wednesday, August 21, the Verkhovna Rada adopted in the second and final reading draft laws No. 13420 and No. 13421, which establish a special legal regime called "Defence City" for Ukraine’s defense industry. The bills were approved by 260 and 258 MPs, respectively.

Residents of Defence City will enjoy significant tax benefits until 2036, or until Ukraine joins the European Union.

They will be exempt from income tax on reinvested profits, land and environmental taxes, and real estate tax. Customs procedures and export controls for military goods will be streamlined.

The National Bank may also set specific rules for currency supervision.

Danylo Hetmantsev, head of the Verkhovna Rada’s Tax Committee and initiator of the bills, called the decision historic and predicted that Defence City would significantly boost Ukraine’s defense industry.

"We will be able to fully equip our army with the necessary weapons, which will strengthen our defense and protection. The next step will be for Ukraine to become one of the world’s largest arms producers — we expect to rank among the top five arms exporters," he said earlier.

In 2021, the Verkhovna Rada launched a similar special legal regime called Diia.City for IT companies in Ukraine, providing low tax rates and an alternative employment model.