Military production in Ukraine in 2026 – licenses, procurement, taxes and workforce reservation

The author of the article: Denis Korablyov

Modified date: 13 April 2026

Military manufacturing in Ukraine in 2026 is a separate sector with increased state control: in some areas licenses are required, certification and codification are often needed, export control rules apply, as well as specific procurement procedures and enhanced bank financial monitoring. :contentReference[oaicite:0]{index=0}

Ukrainian entrepreneurs are increasingly entering this field: from drones and components to tactical equipment and software. But before starting, it is important to understand what exactly distinguishes defense manufacturing from “regular” business and what documents and decisions are required at the entry stage.

This article step by step: Sole Proprietor or LLC, which NACE codes/articles of association to prepare, which tax system to choose, when a license is required, how defense procurement works, what risks exist, tax incentives, and how employee reservation is оформляется.

Features of military manufacturing in Ukraine

Military manufacturing is an activity with an increased level of state control, regulatory requirements, and specific rules of interaction with banks, tax authorities, and law enforcement agencies.

Key features of the defense sector in 2026:

1. Enhanced financial monitoring

Banks check ownership structure (UBO), sources of funding, defense contracts, and end recipients of products. Payments may be additionally analyzed within financial monitoring procedures. Non-transparent structure or formal documents – risk of blocking transactions.

2. Export control

If products or components fall under military or dual-use goods, state export control applies. This concerns both export and import. Violation of the rules entails administrative or criminal liability.

3. State secrets (in certain cases)

Working with weapons or classified defense contracts may require clearances, special information access режим, and compliance with state secrecy legislation.

4. Closed defense procurement

Not all contracts go through the open system Prozorro. Some procurement is carried out through closed procedures or direct contracts – depending on the subject of the contract and the level of secrecy.

5. Mandatory codification (NSN)

For most products supplied to the Defense Forces, codification is required – assigning a NATO Stock Number. Without it, products are not integrated into the military supply system and are often not accepted for delivery.

6. Special tax regimes

The defense sector benefits from incentives – VAT and duty exemptions for certain categories of goods, as well as special regimes (including Defence City). At the same time, the use of incentives is subject to enhanced control by tax authorities.

7. Possibility of staff reservation

Companies working for the Defense Forces can obtain critical importance status and reserve part of their employees from mobilization, provided they meet the established criteria.

Who is military manufacturing relevant for: Sole Proprietor or LLC?

Can you operate as a Sole Proprietor, or is it mandatory to create a legal entity? It all depends on the scale and format of cooperation. :contentReference[oaicite:0]{index=0}

If you are testing the direction or working with small volumes through charitable foundations – a Sole Proprietor may be sufficient. This is a fast and simple way to legally manufacture and transfer products.

But if you plan to participate in state defense procurement, Prozorro tenders or direct contracts with the Ministry of Defense – in most cases a legal entity registration (LLC or another legal form) is required. These are the requirements typically specified in tender documentation.

Conclusion: A Sole Proprietor is suitable for starting or testing. For systematic work with the state and scaling – it is advisable to create an LLC from the beginning.

Before starting military manufacturing, it is necessary to legally confirm the right to carry out the relevant type of activity. For this purpose, NACE codes are used.

If you are already registered as a Sole Proprietor or LLC but previously worked in another field (trade, services, etc.), you need to add NACE codes corresponding to manufacturing, repair, or development of defense products.

For legal entities, this may require not only changes in the register but also amendments to the articles of association – if the list of activities is specified there. If the charter contains a general clause “any activities not prohibited by law”, it is enough to formalize a founders’ decision.

Why is this important?
Without relevant NACE codes, you will not be able to obtain a license (if required), pass certification, or participate in defense procurement. A mismatch of activity types may become grounds for contract refusal or additional inspections.

Tax system for defense manufacturing

One of the key financial decisions is the choice of tax system. For defense businesses, two options are usually considered: the simplified system (5% single tax) or the general system (18% corporate income tax).

Calculation example:

LLC income – 9 million UAH.
Expenses – 8.2 million UAH.

• Simplified: 9 million × 5% = 450,000 UAH
• General: (9 – 8.2) million × 18% = 144,000 UAH
  Difference – 306,000 UAH per year.

If expenses on components, salaries, and development are significant, the general system may be more выгодной despite the higher accounting complexity.

Licensing in military manufacturing: when it is mandatory

One of the biggest fears among entrepreneurs: “To manufacture for the military, you need a lot of permits and licenses”.

The truth is that not all defense activities are subject to licensing. Moreover, many popular areas do not require a license at all.

A license relates to the type of activity, but the customer may require certification, testing, or codification even where a license is not required. If the product or components fall under export control (military or dual-use goods), separate permits and conclusions from the State Export Control Service are required.

How to obtain a license if it is required?

Prepare a package of documents confirming compliance with licensing conditions (production facilities, safety, organizational capacity), submit an application to the relevant licensing authority, and pay the fee – 1 subsistence minimum; in 2026 it is 3,328 UAH. 

Since the requirements for documents are formalized and carefully reviewed, it is advisable to involve a specialized lawyer to prepare the package and verify compliance with licensing conditions.

Certification and NATO codification: mandatory specifics of the defense sector

The presence of a license (if required) does not guarantee acceptance of products for supply. To work with defense contracts, certification and codification of products are usually required. :contentReference[oaicite:0]{index=0}

1. Certification

To confirm compliance of products with legal requirements and standards, it is necessary to:

• develop and register technical specifications (TS);
• pass testing in accredited laboratories;
• obtain certificates of conformity (for example, DSTU 8782:2018 for body armor – if the relevant standard applies).

Without certification, products may not be allowed for defense procurement.

2. NATO codification (NSN)

For most products supplied to the Defense Forces, codification is required – assigning a NATO Stock Number (NSN). This allows integration of products into the military supply system.

In practice, codification is often a mandatory contract condition even in cases where a license is not required.

For certain areas (UAVs, electronic warfare), a simplified procedure applies, but customers may set additional requirements.

Risks of military manufacturing in Ukraine

The defense sector involves increased responsibility. Violations of regulatory requirements may lead not only to fines but also to suspension of operations.

Main risks:

1. License revocation

Violation of licensing conditions or non-compliance with safety requirements may result in license revocation and actual termination of activities.

2. Export control violations

Incorrect classification of goods or absence of permits from the State Export Control Service leads to administrative or criminal liability.

3. VAT blocking

Errors in HS codes, lack of confirmation of the end recipient, or incorrect documentation may lead to suspension of tax invoices.

4. Enhanced financial monitoring

Banks may suspend transactions or request additional confirmations in case of suspicious transactions or non-transparent ownership structure.

5. Inspections by the State Export Control Service

Companies dealing with military or dual-use goods may be subject to inspections regarding compliance with international transfer regulations.

Tax incentives for defense manufacturing in 2026

Companies in the defense sector are eligible for certain tax incentives, but their application requires strict documentary compliance.

VAT and duty exemptions

VAT exemptions apply to the import or supply of goods if the final recipients are:

• Ministry of Defense
• Armed Forces of Ukraine
• law enforcement agencies
• volunteer formations
• contractors of state defense contracts

Other incentives:

• Land tax exemption (for large manufacturers)
• Defence City regime: from January 2026, the first residents received benefits on corporate income tax (for reinvestment), property tax, and simplified customs procedures

Important: Tax incentives are subject to strict control. To avoid blocking of tax invoices or bank payments, maintain a complete set of documents: contracts, completion certificates, end-user certificates, customs declarations, and proof that goods qualify for preferential categories.

Export control in military manufacturing

If you plan to import components from abroad or sell your products to foreign partners, you need to understand export control rules. Defense sector companies are subject to the Law of Ukraine “On state control over international transfers of military and dual-use goods”.

Export control is required if:

• the product belongs to military goods
• the product is dual-use
• export of finished products is carried out
• certain components are imported

Permits are issued by the State Export Control Service of Ukraine.

For certain categories of goods (protective equipment, body armor, helmets, components), a simplified import procedure applies without standard permits from the State Export Control Service during martial law.

Liability for violations:

• Administrative: fines from 1,700 to 17,000 UAH or from 100% to 150% of the value of the goods
• Criminal: under Article 333 of the Criminal Code of Ukraine – fines up to 85,000 UAH or imprisonment up to 5 years (depending on the severity of the violation)

Reservation of employees at a defense enterprise

If your company manufactures for the army, you can obtain critical importance status and reserve your employees from mobilization.

Who grants the status:

• Ministry of Defense – for defense product manufacturers
• Ministry of Digital Transformation – for IT companies and developers of drone software

For companies applying through the Ministry of Defense: defense manufacturing must account for more than 50% of the company’s activities.

Requirements for employee reservation:

• Employees are officially employed
• Minimum average salary at the company – 21,617 UAH (in 2026 this equals 2.5 minimum wages)
• Availability of valid military registration documents

Quota: Typically, up to 50% of employees liable for military service can be reserved. If there are direct contracts with the Security Service of Ukraine, Defense Intelligence, or other special services, the quota may reach 100%.

Validity period: Up to 1 year or for the duration of the supply contract.

Submission is carried out via the Diia portal (for the Ministry of Digital Transformation) or directly through the Ministry of Defense.
In practice, if the system works correctly, reservation data appears in registers within 24 hours.