Ukraine may lose its aircraft repair infrastructure due to ESBU's persecution of airlines
Kyiv • UNN
The Economic Security Bureau of Ukraine (ESBU) is demanding that airlines pay leasing taxes as if they were royalties. This threatens to destroy the infrastructure for servicing military aircraft.
Thanks to the existence of the civil aviation sector, private aircraft repair enterprises, engineering bases, certified technical centers, and specialists continue to operate in Ukraine, providing maintenance and repair of military aircraft under conditions of closed skies for civil aviation. In the event of the destruction or shutdown of the industry, Ukraine risks losing critically important repair infrastructure for the army, UNN reports.
After the closure of Ukrainian airspace, a significant portion of airlines was forced to completely relocate their operations abroad. Despite this, they continue to maintain Ukrainian personnel, engineering services, technical bases, and preserve aircraft repair capacities. It is these enterprises that today ensure the survival of an entire aviation maintenance ecosystem that was built over decades.
However, due to pressure on the aviation business from the Bureau of Economic Security (BEB), Ukraine risks losing the civil aviation industry. This refers to the BEB's attempts to apply a 15% tax to aircraft leasing abroad by Ukrainian airlines as if it were "royalties."
Additional leasing fee from the BEB
Investigators from the Bureau of Economic Security have already opened a number of criminal proceedings involving almost all Ukrainian companies that lease aircraft abroad from non-resident companies of Ukraine. Investigators are convinced that airlines should pay royalties in Ukraine—a fee charged for the use of intellectual property. At the same time, the fact that transport is not intellectual property is completely ignored, as is the fact that Conventions for the avoidance of double taxation are in force between Ukraine and a number of countries. According to these agreements, Ukrainian companies pay taxes in the countries where the lessor companies are residents. At least 5 airlines have already suffered from BEB pressure: UIA, Constanta Airline, Urga, H3OPERATIONS, and Skyline. Furthermore, court materials indicate similar approaches in other industries, with attempts to impose an additional fee on leased railway transport and even agricultural machinery.
It is important to note that for over 30 years, the legislation regarding the taxation of leasing in Ukraine has not changed, and previously it did not raise questions or concerns from either tax or law enforcement authorities. Therefore, there are clearly no justified grounds for the investigators of the Bureau of Economic Security to change the interpretation of the law, and the situation looks exclusively like pressure on business that harms the state.
The situation changed after the State Tax Service of Ukraine published an article on May 24, 2024, with clarifications regarding the taxation of leasing operations by airlines. In these "reflections on the topic," tax officials indicate that the leasing of aircraft from non-resident companies must be taxed as royalties. In doing so, the fiscal authorities are juggling articles of international conventions on the avoidance of double taxation, claiming that for aircraft rentals, airlines must pay fees as if for the use of intellectual property.
Such an approach is not just an erroneous interpretation of tax law norms, both Ukrainian and international, but a "tax on the Ukrainian flag," which makes Ukrainian air carriers uncompetitive in the global market.
"Accordingly, this (change in the interpretation of the law – ed.) creates a situation where a Ukrainian airline becomes less attractive a priori. And this is not a question of management efficiency; it is a question of the rules of the game, which in this case are dictated by the state itself in the person of tax and regulatory authorities. I would say that our airlines are effectively forced to pay a premium for operating under the flag of Ukraine," noted Mykola Shcherbyna, an expert in transport and mechanical engineering and executive director of the Public Union "Ukrainian Air Transport Association," in an interview with UNN.
Aircraft repair enterprises under fire?
Despite the fact that airlines have relocated their operations abroad, aircraft repair bases remain in Ukraine. Many enterprises that historically worked in the civil transportation market are today involved in the repair, modernization, and technical support of military aviation, helicopters, transport aircraft, and specialized equipment. Often, it is the civil segment that ensures the financial stability of such plants and service centers.
Aviation market experts emphasize that in modern conditions, it is impossible to completely separate civil aviation infrastructure from defense infrastructure. It is a single technological ecosystem where the same engineers work, and the same production sites, equipment, and certification procedures are used.
Against this background, the actions of the BEB and the overt pressure on the aviation business look particularly dangerous. Industry representatives warn that if such practice continues, the consequences will go far beyond the economy of civil transportation or the problems of one sector. In the event of bankruptcy or the scaling back of airline activities, repair bases, technical centers, and engineering enterprises that currently provide aircraft repairs for the security and defense sector will begin to shut down.
The personnel issue poses a particular problem. The Ukrainian aviation industry consists of highly specialized professionals whose training takes years. Engineers for engine repair, avionics, flight control systems, airframe structures, and helicopter equipment are a strategic resource of the state. In case of job loss, they will simply move abroad, where the demand for such specialists is consistently high, and one should not expect their return after the skies over Ukraine reopen.
In fact, today civil aviation subsidizes the preservation of Ukrainian aviation competence during the war. While the state does not have a separate, full-fledged system for financing and supporting all aircraft repair capacities, it is the commercial sector that allows for the maintenance of equipment, production lines, and personnel in working order.
Importantly, even during the war, Ukrainian airlines continue to perform humanitarian, logistical, and special missions abroad, including in the interests of the UN. This is not only a source of foreign currency earnings but also maintains Ukraine's reputation as a state that has preserved its own aviation school and infrastructure. Moreover, the main competitor in the struggle for UN contracts is Russia. Therefore, by securing them, Ukraine deprives the enemy of an additional source of budget revenue, even if it is not very large.
Therefore, the question of the survival of civil aviation today is no longer just a matter of business or taxes. It is a matter of national security. The destruction of airlines will automatically mean the degradation of the repair base, without which military aviation will simply have nowhere to undergo maintenance and restoration. In a time of war, it is vital to consolidate all efforts aimed at strengthening the defense-industrial complex and preserving additional sources of income, instead of so overtly jeopardizing national security.