“Amendments to Defence City: a chance to restore critically needed support for Ukrainian aviationThe Verkhovna Rada is preparing for the second reading of the Defence City bills, which provide for the creation of a special
support regime for the defense-industrial complex. The proposed amendments aim to include the aviation industry in the list of
residents, expand selection criteria, and provide tax benefits for the development of aircraft manufacturing.
”, — write: unn.ua
Defence City: Ambitious Start and First ChallengesOn July 16, 2025, the Verkhovna Rada supported in the first reading three key draft laws aimed at creating Defence City. The documents provide for the creation of a unique legal regime in Ukraine for state support of enterprises of the defense-industrial complex. Residents of Defence City will have a number of tax benefits until January 1, 2036, will be able to use simplified customs procedures, facilitated export control for military technologies, state support for relocation, and a special regime of currency supervision, among other tools to strengthen defense production.
Experts generally positively assess the first steps in creating Defence City, noting that such decisions should have been made at the beginning of the full-scale war. At the same time, experts emphasize that the current vote is only the beginning, and for the initiative to truly work, further refinement of the draft laws is necessary. In particular, this refers to the effective definition of the circle of participants, clarification of the criteria for access to benefits, and consideration of the interests of key industries that ensure the state’s defense capability.
Thus, even before the vote, it was obvious that the current version of the draft laws did not cover enterprises engaged in the repair and modernization of aircraft for the needs of the Armed Forces of Ukraine. These companies ensure the technical readiness of aviation – the basis of the Air Force and other units that daily use aviation in confrontation with the enemy. They modernize weapons, implement communication and defense systems, manufacture components, and ensure the technical readiness of aircraft and helicopters that perform combat and evacuation missions along the entire front line. Market participants have repeatedly called on parliament to take into account the interests of this critically important sector.
Aviation out of focus: what was overlookedUNN has obtained a list of amendments and proposals to one of the draft laws concerning the creation of Defence City, which have already been submitted by people’s deputies for the second reading. In particular, it is proposed to expand the list of residents to include aircraft manufacturing entities that fall under the Law “On the Development of the Aircraft Manufacturing Industry.” This will allow officially including aviation enterprises, which were previously designated by the Cabinet of Ministers as critically important for the economy and defense capability of the state, into Defence City. Otherwise, Defence City will effectively ignore previous state decisions in the field of security and defense.
Another important block of amendments concerns the criteria for selecting Defence City residents. The current version of the draft laws stipulates that only enterprises where at least 90% of income comes from defense activities can be participants in the special regime. Such a threshold is excessively rigid, as even for leading companies, such as Antonov JSC, this indicator does not exceed 50%. Because of this, enterprises that actually perform state defense orders risk remaining outside the special regime and, accordingly, losing the right to tax preferences. The submitted amendments propose to reduce the requirement to 40–50%, take into account not only quarterly but also annual income, and include activities in the field of aircraft manufacturing, maintenance of aviation equipment, engines, and components in defense income. Separately, the possibility of including enterprises that participate in international contracts for the export of military or dual-use technologies in the list of the defense-industrial complex is provided.
In addition to strict criteria regarding income structure, market participants also draw attention to other restrictions that de facto block many enterprises from accessing the Defence City regime, even despite their participation in fulfilling defense orders. In particular, the current version stipulates that enterprises cannot be included in the list of residents if they have tax debt, overdue defense contracts, or dividend payments. The submitted amendments propose to abolish these discriminatory restrictions, as in a wartime economy, these factors do not always indicate the unreliability of a company. The activities of enterprises are affected by security risks, shelling, relocation, supply disruptions, and other circumstances beyond the manufacturer’s control. Instead, it is proposed to allow the inclusion of such enterprises in Defence City provided that tax arrears are repaid within three years. This will allow maintaining the principle of responsibility without cutting off real manufacturers who continue to work in extremely difficult conditions.
The submitted amendments to the draft law propose to extend the effect of tax benefits to the aircraft manufacturing sector – provided that funds are reinvested. Separately, customs preferences for critically important imports are provided, as well as the introduction of state guarantees and insurance of export contracts as tools to support exports. At the same time, the conditions for returning benefits in case the enterprise loses compliance with the criteria are clarified to avoid legal uncertainties. To ensure flexible administration, it is proposed to fix that in case of exclusion of an enterprise from the relevant lists of preferential taxation, sanctions should not be applied retroactively. At the same time, the released funds should generally be directed exclusively to development – in particular, to the production base, modernization of facilities, research and development work, implementation of new technologies, personnel training, and the acquisition of intellectual property rights in the field of aircraft manufacturing.
Ukrainian sky – a resource that can still be savedThe analysis of the submitted amendments demonstrates an attempt to restore at least partial support for the aviation sector – one of the most vulnerable in today’s conditions, but at the same time strategically important for Ukraine.
Even before the start of the full-scale invasion, the aviation industry was one of the most difficult to develop – due to high labor intensity, the need for significant financial investments, and the technological complexity of production. After 2022, these challenges only intensified, and state support, which was already limited, practically disappeared. Why it has not yet been restored remains an open question, especially given the real contribution of aviation enterprises to defense, the daily work of aviators at the front, and the synergy of civil and military aviation, which provides critically important functions in wartime conditions.
Amidst the excitement surrounding the modernization of the “Ruslan” and other high-profile aviation cases, it often goes unnoticed that behind these successes are the daily efforts of enterprises operating under chronic underfunding, constant risks, shelling, and unstable logistical support. They continue to work not for benefits, but for results that strengthen the country’s defense every day.
If the state continues to ignore this sector, the consequences will be irreversible: a critical weakening of the air component of the Armed Forces of Ukraine and the loss of unique competencies, the restoration of which will take years or even decades.