Preferential Import for Defense: How Tax and Customs Relief Actually Works

In 2025, the import of defence products has ceased to be a “spot” phenomenon and has turned into a systemic element of the wartime economy. Supplies of drones, optics, communication equipment, electronic warfare systems, medical devices for the frontline, and components for demining machines are no longer one-off projects, but a continuous chain. For businesses importing such goods, the preferential taxation and customs clearance regime is not merely a cost-saving tool, but a condition for surviving contracts and meeting the deadlines of defence procurement. At the same time, this regime requires not simplification, but rather — maximum caution and technical accuracy from the importer.

1. Regulatory Framework: How Defence, Tax and Customs Norms “Overlap”

The preferential import regime for the defence sector does not exist within a single law — it is formed at the intersection of several blocks of legislation.

The basic defence context is set by the Law of Ukraine “On Defence of Ukraine” No.1932-XII, which determines the legal foundations of the organisation of state defence and, in essence, legitimises the introduction of special supply regimes for the needs of the Armed Forces and other military formations. Alongside it operates the Law of Ukraine “On Defence Procurement” No.808-IX, which regulates the entire defence procurement cycle — from planning to control over the use of funds.

Under full-scale war, this block is complemented by the Law “On the Legal Regime of Martial Law” No.389-VIII, which allows the introduction of simplified procurement procedures, shortened approval deadlines, and special mechanisms for the circulation of critically important products.

In the Tax Code of Ukraine, key provisions include Paragraph 32 of Subsection 2 of Section XX “Transitional Provisions” and Paragraph 197.23, which provide temporary VAT exemption for certain operations involving the import of goods for defence purposes. The condition is that such goods must meet special lists approved by the Cabinet of Ministers of Ukraine, or be classified as military property.

The Customs Code of Ukraine “picks up” this logic in Section XXI “Final and Transitional Provisions,” where items 9–27 list specific UKT ZED codes that may be exempt from import duty. Separately, Article 282 of the Customs Code details the cases and conditions under which exemption applies.

This framework is complemented by subordinate legislation — primarily Cabinet Resolution №1275.

2. Tax and Customs Benefits: Not a “Bonus,” but a Component of the Wartime Economy

The current regime features three main instruments: VAT exemption, exemption from import duty, and simplified customs procedure. Formally, they appear as fiscal incentives for business, but substantively, they are a mechanism for reallocating resources in favour of defence needs.

Applying a zero VAT rate on imports of certain goods (within the defence context — under Art.197 of the Tax Code) means that the importer does not bear a 20% tax burden that would apply under normal import conditions. The ultimate financial beneficiary, however, is not only the business, but also the state customer, who receives goods at a lower price and can therefore procure more units under the same budget.

Exemption from import duty under Art. 282 of the Customs Code and items 9–27 of Section XXI functions similarly, eliminating an additional cost component associated with crossing the border. Combined with VAT exemption, this may reduce the cost of importing defence goods by tens of percentage points.

The simplified customs procedure — which provides priority processing, minimised formalities and shorter declaration review time — has a temporal rather than financial dimension. In wartime, the difference between four-hour clearance (as formally required by Part 1 of Art. 255 of the Customs Code) and seven days acquires a security meaning.

3. Draft Laws №14169 and №14170: What Will Change for Importers

The decision of the parliamentary profile committee on 12 November 2025 to support draft laws №14169 and №14170 effectively marks the beginning of another reform wave of preferential import rules in the defence sphere.

The focus of these documents shifts from purely “finished equipment” to components, modernisation elements, and training tools. They aim to expand the list of goods eligible for VAT and/or duty-free import through:

• components for demining machines;

• components for unmanned aerial vehicles and systems countering technical reconnaissance;

• professional simulators used for military personnel training.

A separate block concerns the write-off of non-liquid assets. The draft laws propose a clear mechanism for exempting from taxation goods that were lost or destroyed during testing, accidents, or force majeure, as well as defective products found unsuitable for use. The legal value is that — with proper documentation — such write-off will not create additional tax liabilities for the importer.

4. What Counts as a Defence Good: UKT ZED, Technical Documentation and End-User

For business, the key question is not how a good is commercially named, but how it is classified under its UKT ZED code and whether it appears in the approved lists.

Neither the Tax nor Customs Codes contain a universal “named” list of defence goods. Instead, the system operates through references to Cabinet-approved lists in which specific UKT ZED codes are defined. Thus, the decisive criterion is not the phrase “this is a drone,” but whether the product matches the code and appears in the list.

Typical items include:

• unmanned aerial vehicles and their components;

• optical and collimator sights, night vision devices, thermal imagers;

• EW devices and anti-drone systems (including anti-drone “guns”);

• specialised communication equipment;

• protective gear (helmets, body armour);

• special medical devices for the frontline;

• certain types of special steel, protective glass, and materials used in military equipment production.

Equally important is the criterion of the end-user. Exemptions apply only if the goods are intended for direct use or transfer to security and defence entities: the Armed Forces, Ministry of

Defence, Security Service of Ukraine, Ministry of Internal Affairs, Border Guard Service, National Guard, and others. This is confirmed by contracts, guarantee letters, End-User Certificates, and transfer documentation.

Judicial practice shows a clear pattern: if a consistent documentary chain exists — from contract to transfer act to the military — courts tend to rule in favour of the taxpayer. A single documentary gap, however — absence of a letter or mismatch of wording — is usually interpreted for the benefit of the fiscal authority.

5. Customs Clearance: Legal Four Hours vs. Practical Seven Days

Formally, Part 1 of Art. 255 of the Customs Code sets a clear standard: customs clearance, including decision-making, must be completed within four working hours from the moment goods are presented and the declaration is submitted with all required documents. This provision is critical for defence deliveries where every day of delay has strategic implications.

At the same time, the same article allows exceeding this deadline in cases defined in Part 2 — such as expert examinations, clarification of technical characteristics or additional document requests. In practice, these “additional formalities” are the main reason why instead of four hours, clearance may stretch to seven working days.

For business, this means storage costs, risk of missing contractual deadlines with state customers, and potential contractual sanctions.

A particularly sensitive issue is correcting a declaration submitted without preferential coding. After submission and registration under a “regular” import regime, ex-post application of benefits is almost impossible — refusals often must be challenged in court, with unpredictable outcomes.

6. Liability for Abuse of Benefits: From Re-Assessments to Criminal Cases

The preferential regime is target-specific. Any use beyond defence-related purposes is considered abuse.

Financial liability: Article 123 of the Tax Code provides additional tax assessments and penalties of 25%–50% of unpaid tax.

Customs liability: Article 485 of the Customs Code establishes fines of up to 300% of unpaid duties for false information aimed at reducing payments.

Criminal liability: Articles 212 (tax evasion) and 191 (embezzlement, misappropriation) of the Criminal Code may apply in cases of large-scale evasion or abuse of office.

Control does not end at customs. Monitoring continues for at least 1 095 days: customs controls the fact of preferential import; tax authorities monitor accounting and tax records; state customers confirm use for defence purposes.

7. Practical Guidance for Business: Where the Fate of the Benefit is Decided

Given the complexity of the regime, success is determined not by declaring “intent to use a benefit,” but by the consistency of documentation. Contracts must clearly and unambiguously state the defence purpose, with precise nomenclature matching invoices, specifications and technical passports.

Classification must rely on technical documentation and purpose, not marketing names. A mistake here negates any reference to Cabinet lists: if the code differs, no benefit applies, even where substance is defence-related.

End-User Certificates and guarantee letters are decisive documents for both customs and courts.

Internal inventory control — transfer acts, write-off notes for destroyed equipment, accounting of stock — is not a formality, but a protective instrument during audits.

8. Conclusions: Benefits as a Test of Wartime Economic Maturity

The preferential tax and customs regime for defence imports is Ukraine’s wartime economic response. In 2025, it is not a temporary “patch,” but a full-scale mechanism designed to simultaneously:

• reduce the financial burden on defence-oriented business;

• accelerate logistics;

• strengthen domestic manufacturers by reducing the cost of imported components.

New draft laws №14169 and №14170 continue this trajectory — expanding scope, eliminating grey zones, and addressing practical bottlenecks.

From the business perspective, however, the regime remains legally high-risk: procedures are not simplified — the demand for precision only increases. Correct code, flawless paperwork, end-use control and readiness for post-audit — this is what determines survival in wartime economy.

In this sense, benefits are not a “tax gift,” but a test of a business’s ability to operate under wartime rules — where a wording mistake can cost more than a tax payment, and a well-built legal position accelerates supplies to the front faster than any slogan-based support.