The Verkhovna Rada's defense committee is ready to listen to businesses and refine legislation on Defence City

The Defence City special regime requires targeted refinement so that it can become a real driver of the defense industry's development, rather than a tool for a narrow circle of large enterprises. This is possible after consultations with business representatives and the development of a consolidated position. Vadym Ivchenko, a member of the Verkhovna Rada Committee on National Security, Defense, and Intelligence, expressed this opinion in an exclusive comment to UNN.

I consider the Defence City special regime to be a correct initiative. But it is clear that, like any new mechanism, it will require additional adjustments. This will require consultations with businesses, which will point out specific barriers and deterrents, and then we need to work on these issues substantively.

In particular, among the legislative provisions that need improvement, according to representatives of companies working in the defense industry and aircraft manufacturing, is the abolition of VAT on Ukrainian-made components. Currently, this tax is abolished for imported parts.

Regarding VAT on Ukrainian-made components - a fair question: stimulating localization and development requires symmetrical rules for domestic and foreign manufacturers.

The MP emphasized that he has always advocated for the development of small and medium-sized businesses and is convinced that it is important that not only large market players can join Defence City. In this context, he supports the position of market players regarding the need to reduce the requirement for clarifying the turnover amount of enterprises - potential residents of the special regime.

Regarding the turnover amount - I have always advocated for the development of small and medium-sized businesses, so I am confident that it is important not to create a regime only for large players. Moreover, as practice shows, it is small and medium-sized manufacturers today who are most often more innovative. For example, regarding UAVs and some technological solutions.

In addition, according to the member of the parliamentary defense committee, the norms regarding the submission of audits by potential residents of Defence City, as well as the absence of criminal proceedings in which they are involved, also need clarification.

I am not an expert in legal subtleties, but I believe that the wording should be legally sound and clear, and the fact of registration (of criminal - ed.) proceedings without suspicion cannot automatically close access (to Defence City - ed.) to a company.

He is convinced that the legislation introducing the special regime needs to be refined after consultations with business representatives.

It is precisely such issues as those mentioned above that I had in mind when I spoke about refining the norms of the mechanism, which will allow us to expand the circle of доброчесних (conscientious/ добросовісних) manufacturers who will not create risks of abuse.

According to Vadym Ivchenko, if relevant initiatives to amend the legislation are submitted to the Verkhovna Rada Committee on National Security, Defense, and Intelligence, they will be considered.

I will say more - we have communication with many representatives of the defense business, with whom we discussed similar issues.

He noted that if high-quality amendments to the laws regarding Defence City are developed and there is a consolidated position of the parliament, government, and manufacturers, they can be quickly adopted by the Verkhovna Rada.

The parliament has repeatedly and promptly addressed the needs of the defense sector in recent years. In general, the issue is not about the ability to adopt, but about the quality of the document itself. These should be well-thought-out decisions that will expand production and not create illegal schemes. We are all ready to work on improving legislation. As for this particular document, it is necessary not just to increase the number of Defence City residents, but to truly strengthen the country's defense capabilities.

Recall

In Ukraine, the Defence City special regime has started operating. This is an element of systemic state policy in the field of security and defense. This legal regime is designed to create favorable conditions for scaling up defense production, attracting investment, and developing the Ukrainian defense industry.

Defence City residents receive a complex of economic and operational incentives that are intended to reduce the fiscal burden and accelerate production development. This includes exemption from corporate income tax, provided that defense industry enterprises reinvest funds in their development, as well as exemption from land, property, and environmental taxes.

In addition, simplified customs procedures will apply to residents; special guarantees for the protection of information and confidentiality of enterprise data during the regime; state support for relocation and increased protection of production facilities if necessary.

An enterprise can obtain the status of a Defence City resident if the legal entity meets the requirements for the share of qualified income (income from the sale of self-produced defense goods or the performance of work and/or provision of services related to defense goods) for the previous calendar year, and there are no circumstances for disqualification of such a person.

The share of qualified income must be at least 75% of the legal entity's total income (with exceptions) and at least 50% of the total income for aircraft manufacturing entities.

A company registered under the laws of a foreign state or that has violated the requirements for disclosing information about its ownership structure or ultimate beneficiaries cannot be a resident.

An enterprise cannot be included in the register if its shareholders/participants include persons associated with the aggressor state, or against whom sanctions have been applied, or which is associated with a person against whom sanctions have been applied.

Legal entities against which a violation of obligations under a state contract for defense procurement was established within the last 12 months, or which are not corporate income taxpayers or are included in the register of non-profit institutions and organizations, cannot join Defence City.

An enterprise cannot become a resident if it has tax arrears exceeding 10 minimum wages; if it is located and operates in the temporarily occupied territory of Ukraine, and is also involved in criminal proceedings.

The Ministry of Defense announced that the first company received resident status.