Annex B. Country Context and Key Markets

B3. Defence and MilTech overview 

Military Tech

Investment in Ukrainian military technology (MilTech) startups has been on the rise since the start of the russian invasion in 2022. Ukrainian government is actively supporting the MilTech industry through schemes such as Brave1 MilTech start-up accelerator which for this year it has a USD 40 mln fund for.

More than forty five MilTech companies operate publicly within Ukraine, but hundreds more are operating anonymously and in stealth mode with their focus primarily on air, sea and ground drones as well AI systems to enhance drone accuracy and electronic warfare (EW) equipment for defence against enemy drones and their EW.

Funding MilTech startups does not only support Ukraine’s defence efforts but also makes an attractive business case for investors who seek fast growing organizations that can impact globally as active phase of war provides unique opportunity to test all the new systems on battlefield skipping a number of intermediate stages to final practical result.

Moreover, MilTech includes not only offensive technologies but also defence in all means starting from early detection to passive and active defence systems.

Some of the major Ukrainian MilTech firms include: 

• TELETACTICA - Established in 2023 TELETACTICA designs long-range radio communication systems (EW-resistant telemetric and video communication modules) and offers R&D support services to local businesses.
• Promin Aerospace - Founded by Misha Rudominskyi, Promin Aerospace is working on innovative aerospace technologies: the company created a rocket that can deploy payloads into orbit in a revolutionary new way by using the proprietary method of gasification and subsequent burn of the solid fuel tank material in the rocket engine
• Himera - Co-founded by Misha Rudominskyi and Oleksii Oliynyk, Himera focuses on developing cutting-edge military technologies focusing on secure and EW-resistant communication system (FHSS technology) which can be used as a part of operational awareness system during combat operations
• UKRSPEC Systems – Founded in 2014, at the beginning of the russian intervention. Producing one of the most famous Ukrainian fixed-wing and rotor drones. Famous for their SHARK drone observing systems which include a full system, complicated with UAV software and camera gimbal
• GRISELDA – a relatively small company, with high ambitions for the development unique observing system. Their main aim is to process large streams of data and provide analysis through Neural networks and other modules. Ther famous DeepState map is created in collaboration with GRISELDA.
• Piranha-Tech – a company founded in 2014 specializes on manufacturing of EW systems. Their solutions create protective jamming domes against satellite navigation and drones. Piranha-Tech are famous for compact design and high reliability of their products.
• SkyLab UA – Established in 2023 as company that specialises in development and production of robotic systems and UAVs for military. Their most famous product is the Sirko-S1 UGV – ground drone with advanced camera and laser orienting system, and with the feature of autonomous following of person.

Defense City: special preferential treatment for defenсe sector enterprises

Ukraine has introduced a dedicated legal and tax regime — Defence City — aimed at accelerating investment into the defence and security sector, expanding domestic manufacturing capacity and fostering the development of advanced military technologies.

Strategic Purpose and Timeline

Defence City is intended to create a predictable and investor-friendly environment for companies engaged in the development, production and servicing of defence-related products and technologies.

The regime will be operational until 1 January 2036 and is expected to apply from the date the first resident is entered into the Defence City Register. The Ministry of Defence of Ukraine acts as the central authority responsible for administering the regime, granting residency status and monitoring compliance.

Eligible Investors and Projects

Defence City is open to Ukrainian legal entities operating in the defence and dual-use sectors, including manufacturers, R&D centres, technology developers and service providers supporting defence production.

To qualify, a company must generate the majority of its revenue from defence-related activities:

• at least 75% of total income (or 50% for aircraft manufacturing).

The regime excludes entities with links to sanctioned persons, the aggressor state, or entities that fail to meet transparency, tax compliance or national security requirements.

Key Investment Incentives

Corporate Income Tax Relief

Defence City residents may benefit from a corporate income tax exemption, subject to compliance with statutory conditions. The exemption applies to profits derived from eligible activities, excluding controlled transactions and controlled foreign company (CFC) income.

To maintain the exemption, profits must be reinvested into the resident’s business activities in accordance with statutory requirements.

During the exemption period, dividend distributions are generally restricted, thereby promoting long-term capital reinvestment and business development.

Additional Tax Benefits

Depending on the project structure, Defence City residents (other than Diia.City residents) may also benefit from exemptions from:

• land tax;
• real estate tax (non-land);
• environmental tax.