On March 25, 2025, the Business Ombudsman Council (the Council) presented the results of its own-initiative investigation on the topic “Tax Incentives: How Can Ukrainians Protect Their Defence Industry Market?”
The Council’s work on individual complaints from defence sector entrepreneurs and consultations with industry businesses and experts highlighted several issues, particularly regarding tax benefits, including VAT. This prompted the Council’s team to conduct a deeper analysis of the matter and develop recommendations for government authorities to improve conditions for national manufacturers.
“Initially, our goal was to examine the interaction between businesses and the state in the defense industry. During the investigation, we realized that entrepreneurs frequently complain about tax-related issues. As is well known, taxation is one of the Council’s key areas of expertise. Tax-related complaints consistently account for about 60% of all business grievances reviewed by the Council. Therefore, we decided to focus specifically on taxation issues, particularly VAT incentives,” said Yulia Andrusiv, Deputy Business Ombudsman.
As part of its own investigation, the Council analyzed both the impact of tax benefits for component manufacturers on local production and specific issues related to the application of the preferential tax regime.
“The economic viability of the defense sector is crucial for the country’s effective defense. The Council’s investigation showed that the application of tax benefits for defense firms requires a balanced approach. Tax policy should act as an ally in the fight against external threats. Reviewing the preferential tax regime for companies working for defense needs and improving VAT administration are necessary steps to encourage and develop national manufacturers,” stated Roman Waschuk, Business Ombudsman.
During the investigation, inspectors Maryna Pavlenchyk and Vladyslav Kaluha discovered that due to unbalanced tax benefits, certain products—specifically components for military equipment produced in Ukraine for defense purposes—end up being more expensive than imported alternatives. Additionally, issues with tax benefit application have led to numerous court disputes between the state and businesses over VAT refunds. The taxation mechanism for repair and modernization services of military equipment results in funds essentially being transferred from one state account to another, which may weaken the country’s defense capabilities.
Based on the investigation results, the Council recommended that the government review the application of tax benefits, particularly for component manufacturers and repair enterprises, and clarify how tax incentives apply to transactions involving defense-related goods.
The Council remains open to further cooperation with government authorities to implement these recommendations and is ready to share its extensive tax expertise to improve legislation and remove barriers for defense businesses.
Download the report (UA version) here.
