Defense City residents are exempted from paying land and real estate taxes

Defense City residents are exempted from paying land and real estate other than land plot taxes. Exemption applies from month following the receipt of such status and until the end of month in which it is terminated.

Such peculiarities are provided for by the Law of Ukraine № 4577, which amended the Tax Code of Ukraine. Law entered into force on 05.10.2025.

New rules will be in effect until 1 January 2036, but not later than year of Ukraine’s accession to the European Union.

Exemption applies to:

land tax:

- land plots on which production facilities are located, used in the economic activities of the Defense City residents;

- land plots that are temporarily not used in economic activities of the Defense City residents during the relocation period and are not transferred for use to the third parties.

real estate tax:

- real estate objects located in the settlement territory selected for relocation, if they are not rented, leased or loaned (except for employees of the Defense City resident) and are used in economic activities of the Defense City residents and/or for residence of their employees;

- industrial buildings classified as “Industrial and warehouse buildings” (code 125) of the Classifier of buildings and structures National Classifier 018:2023, which are not used for their intended purpose in their economic activities and are not rented, leased or loaned during the relocation of the Defense City residents.

For the Defense City residents, rules on the accrual of penalties do not apply for accrual and payment of the land and real estate taxes. 

In case of loss of the Defense City resident status:

- tax exemption right is lost;

- by the 20th of the following month after loss of status, clarifying land and real estate tax declarations must be submitted; tax liabilities and penalties paid;

- penalties are accrued from the first reporting period when status was lost, without application of statutes of limitations.

For reference.

Part 6 Article 36 of the Law “On national security of Ukraine” № 2469 as of 21.06.2018 (with changes) (hereinafter – Law № 2469) stipulates that the Ministry of Defense of Ukraine ensures formation and implementation of state policy regarding legal regime of the Defense City, makes decisions on granting, terminating or losing status of the Defense City resident, monitors compliance by the Defense City residents with requirements established by the law, and also exercises other powers provided for by this Law.

According to Parts 1, 3 – six Article 37 of the Law № 2469:   

Defense City resident is a legal entity that has been granted status of the Defense City resident in accordance with this Law and which, according to information contained in the Defense City register, continues to have such status;   

legal entity acquires status of the Defense City resident from the date of adoption by the Ministry of Defense of Ukraine of decision to grant status of the Defense City resident and relevant entry in the Defense City register;

status of the Defense City resident is terminated/lost from the date of making relevant entry in the Defense City register, but not later than the expiration date of legal regime of the Defense City; 

Ministry of Defense of Ukraine makes decision on granting status of the Defense City resident, provided that legal entity that has applied for status of the Defense City resident meets requirements for the share of qualified income for the previous calendar year established by Part 6 of this Article, and such entity does not have circumstances provided for by Part 7 of this Article. Determining compliance with requirements for the applicant’s share of qualified income, financial reporting indicators for the annual reporting period preceding the date of application has to be taken into account;     

applicant and the Defense City resident’s qualifying income share must be: 

1) not less than 75 percent of the legal entity’s total income, except for exceptions provided for in Paragraph 2 of this Part;

2) not less than 50 percent of the legal entity’s total income – for aircraft manufacturing entities subject to provisions of Article 2 of the Law of Ukraine “On development of the aircraft manufacturing industry”;

qualified income is income from the sale (supply) of defense products of its own production, performance of work and/or provision of services for development, manufacture, repair, modernization or disposal of defense products, as well as other income received in cash as charitable assistance and used for production and supply of defense products. For the legal entity that was involved in the execution of state contract (agreement) on defense procurement on the co-executor/subcontractor terms, qualified income also includes income of such legal entity (according to accounting data) from the sale of materials, components and parts that were delivered (shipped) to the Defense City resident for direct manufacture of defense products of its own production under relevant state contract (agreement) on defense procurement, to execution of which the legal entity, income of which is being determined, was involved on the co-executor/subcontractor terms. In this case, participation of the co-executor/subcontractor in performance of state contract (agreement) on defense procurement is confirmed by relevant state customer.

Law of Ukraine № 4577 as of 21.08.2025 “On amendments to the Tax Code of Ukraine and other Laws of Ukraine regarding support of the defense industrial complex enterprises”.