Tax for Foreign Investors in a Ukrainian Defense Deal

The tax an investor actually bears is not read off a single Ukrainian rate. It is the sum of three decisions, and two of them are made before the money moves: where the holding is incorporated(which sets the treaty that reduces Ukrainian withholding, and your own country's tax on the way home), whether the operating company sits inside a preferential regime, and only then what Ukraine charges on profits and on money leaving. The cross-border holding that lets a foreign investor own the company, and that insulates the asset from war risk, is the same instrument that sets the tax. That is why tax belongs in the structuring conversation, not the accounting one.

One worry to retire early: controlled-foreign-company (CFC) rules are not a Ukrainian tax on you. Ukraine's CFC regime (Tax Code Article 39-2) binds a Ukrainian-residentcontrolling person — it folds a foreign company's profit into a Ukrainian owner's tax base. A foreign investor with no Ukrainian tax residency is outside it entirely. Where CFC exposure exists, it is in your own jurisdiction, on the holding you own — a question for your home tax adviser, not Kyiv's.

The rate an investor pays is chosen, not discovered. It is set by the jurisdiction the holding sits in, the treaty that jurisdiction has with Ukraine, and whether the company reinvests its profit or pays it out. Decide those three at structuring, with counsel, and the tax follows; leave them to chance and you model a return you never see.

Ukraine runs two preferential regimes, and which one applies is set by what the company makes. Both are opt-in, and both are designed for exactly the companies a defense investor looks at — the point is to use them deliberately, not to assume the default 18%.

Diia City — for defense software and UAV companies

Diia City is the tech regime. A resident chooses either a 9% tax on distributed profit (nothing until profit leaves) or ordinary 18% corporate tax, and its specialists are taxed at a 5% personal income tax up to a high annual cap. Defense-tech is explicitly in scope — cybersecurity, defense-product development, and UAV design, production, maintenance and operator training all qualify — so a drone-software or autonomy company can sit inside it. Weapons manufacturing proper is served by the other regime.

Defence City — for the manufacturers

Defence City is the new one, and for a hardware maker it is the more important. Enacted as Law of Ukraine No. 4577-IX and in force from 5 October 2025, it runs until 1 January 2036 (or Ukraine's EU accession, whichever is first). Its core benefit is a corporate-profit-tax exemption on profit that is reinvested into development — new weapon types, equipment, modernization — together with exemption from land, property and environmental taxes on qualifying assets and simplified customs for imported components. Eligibility runs through the Ministry of Defence and a qualified-income test (broadly 75% of income from defense activity, 50% for aircraft makers). The regime has its own full explainer; here the focus is only on what it changes for the investor's after-tax return.

That condition is the whole investor calculus. Defence City lifts retained cash and, with it, enterprise value — but the exemption holds only while profit stays in the company. Pull it out as dividends and you forfeit the exemption and meet the withholding tax below. So the regime rewards a reinvest-and-exit thesis more than a dividend-yield one — which is how most defense growth deals are underwritten anyway.

When money leaves Ukraine to a non-resident, Ukraine withholds tax at source. The domestic default is 15%on dividends, interest and royalties (Tax Code Article 141.4), and it is the rate that applies with no treaty in place. A double-tax treaty between Ukraine and the holding's jurisdiction reduces it — often into the 5–10%range, with the exact figure set by the specific treaty and holding. Ukraine has a broad network of more than 70 treaties, which is a large part of why the holding's jurisdiction is a tax decision and not a formality.

Treaty relief is not automatic. The recipient must be the beneficial owner of the income — not a conduit or nominee — and the arrangement must survive the principal purpose test under the multilateral instrument, in force for Ukraine since December 2019. A holding with real substance and a real business purpose gets the treaty rate; a letterbox interposed only to cut tax does not.

A separate constraint sits next to the tax, and it is easy to mistake for one. Under martial law the National Bank limits cross-border payments (the base rule is NBU Resolution No. 18 of 2022), and it has progressively liberalized dividend repatriation since. As of August 2026, dividends are payable abroad within a monthly cap of about €1 million, extended to cover dividends accrued for periods from 1 January 2023. This is a liquidity and timing constraint, not a tax — the money is yours and leaves eventually, but a dividend-heavy model has to plan around the ceiling. The NBU revises these rules often, so treat the number as a snapshot and confirm it as of your payment date.

Exit is where a foreign investor most directly meets Ukrainian tax. A non-resident's gain on selling shares in a Ukrainian company is Ukrainian-source income, taxed at 15% (Tax Code Article 141.4). Two features matter for how a deal is built.

• The property-rich rule reaches offshore sales.Where 50% or more of the Ukrainian company's value comes from Ukrainian real estate, even an indirect sale — selling the foreign holding rather than the Ukrainian shares — is taxable in Ukraine, and most treaties let Ukraine tax it. A capital-light defense company usually sits outside this; a real-estate-heavy one does not.
• The buyer carries an obligation. A non-resident buyer acquiring such shares from another non-resident must register with the Ukrainian tax authoritiesand account for the tax on the seller's gain — a step that belongs in the closing mechanics, not a post-close surprise.

None of this is a reason not to invest; it is a reason to decide the holding, the regime and the exit path at the start. That is the same discipline that gets the capital in cleanly and that underwrites whether the company is investable in the first place.

The full tax map, at a glance: