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Ukraine Launches Defence City: A New Special Regime for Scaling Defense Production
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Ukraine has officially launched Defence City, a special regulatory and economic regime designed to accelerate the scaling of domestic defense manufacturing. The announcement was made by the Ministry of Defence of Ukraine, which also confirmed that the first company has already received resident status under the new framework.
Defence City is positioned as a long-term state policy aimed at strengthening Ukraine’s defense industrial base by creating favorable conditions for production growth, investment attraction, and technological development — particularly in the context of an ongoing full-scale war.
First resident: large-scale drone manufacturing
While the Ministry of Defence did not publicly disclose the name of the first resident company, officials confirmed that it is one of Ukraine’s largest defense manufacturers, producing combat-proven unmanned systems. These include attack drones and interceptor platforms that have demonstrated operational effectiveness on the battlefield.
[Неперевірене] Based on publicly available information and industry context, Ukrainian media suggest that the first resident is likely SkyFall, a major domestic drone producer. This has not been officially confirmed by the Ministry of Defence.
What Defence City offers resident companies
The Defence City regime introduces a package of fiscal, regulatory, and operational incentives intended to remove structural barriers that traditionally slow defense production:
Residents are exempt from corporate income tax, provided profits are reinvested into production development. The regime also includes exemptions from land, property, and environmental taxes, alongside simplified customs procedures for importing equipment and components.
In addition, Defence City provides special guarantees for information security and data confidentiality during the period of residency, as well as state-backed support for relocation or physical protection of production facilities if security conditions require it.
According to Defence Minister Denys Shmyhal, Defence City represents “a systemic state policy to create favorable conditions for scaling defense production, attracting investment, and developing Ukraine’s defense industry.”
Financial liberalization for defense manufacturers
Shortly after the launch of Defence City, the National Bank of Ukraine announced a partial easing of currency controls specifically for Defence City residents. These changes affect the purchase of foreign currency for imports and certain types of cross-border transactions, addressing one of the key bottlenecks for defense manufacturers operating under wartime financial restrictions.
How companies can become Defence City residents
To obtain resident status, defense companies must submit an application to the Ministry of Defence, along with a defined package of documentation. This includes compliance reports, financial and audit statements, and information confirming participation in state defense contracts.
Applications can be submitted electronically with a qualified digital signature or in paper form. Following review, the Ministry may approve the application, reject it, or return it without consideration. Approved companies are entered into the official Defence City register.
Why Defence City matters beyond Ukraine
For an international audience, Defence City signals a structural shift in how Ukraine approaches defense industrial policy. Rather than relying solely on emergency procurement or ad hoc wartime measures, the government is institutionalizing incentives for rapid scaling, private investment, and technological iteration within the defense sector.
The model reflects a broader trend visible across Ukraine’s wartime innovation ecosystem: the state acting as an enabler rather than a centralized producer, focusing on removing friction, aligning incentives, and allowing private manufacturers to scale at speed.
In the context of global discussions on defense readiness, industrial resilience, and dual-use technologies, Defence City positions Ukraine not only as a battlefield innovator, but as a testing ground for new approaches to defense industrial governance under extreme conditions.
This article is based on reporting by Scroll.media.
