Production for the Armed Forces — Through the Thorns of State Plans to Private Export

Ukraine's defence industry is growing year on year. According to former head of the Ministry of Strategic Industries Herman Smetanin, in 2022 arms manufacturers produced goods worth USD 1 billion, in 2023 — USD 3 billion, and in 2024 — USD 9 billion. In 2025 the upward trend continued — the figure was around USD 12 billion, almost double the output of the entire IT sector.

According to the Defence Procurement Agency, in 2024, 46% of weapons were ordered from domestic manufacturers and the rest were imported. In 2025 the share of domestic companies in orders increased to 76%. Clearly, the trend of 'Ukrainianising' the battlefield will not change in 2026.

Such significant and sustained growth rates are linked not only to multi-billion-dollar investments, lobbying, and the existential needs of the state, but also, fortunately, to dedicated domestic legislation that has been in a constant — if variably intense — process of improvement since 2022 and has come a long way from the Soviet model of state orders for unnecessary but 'mastered' products subsidised by industry, to a reorientation towards a dynamic and competitive private sector.

Thus, to supply the Armed Forces, a manufacturer must choose the correct organisational and legal form of enterprise, enter the relevant economic activity codes into its charter and the register, and remember four 'fearsome' consecutive words: licensing, certification, standardisation, and codification.

1) Licensing — under the Law of Ukraine 'On the Licensing of Types of Economic Activity,' an official procedure for granting business entities permission to carry out a particular activity. Since the security and defence sector is closely linked not only to explosive substances but also to restricted-access information, national security, IP products, and inter-state interaction, the scope of and requirements for licensing depend critically on the type of the enterprise's activity.

2) Certification — the process of establishing the conformity of goods supplied to the Armed Forces with quality requirements and standards.

Certification is periodically optional for production; however, the subsequent supply of uncertified weapons to the military will certainly not be lawful. At the same time, certain rules are at least ambiguous, since Resolution of the Cabinet of Ministers of Ukraine No. 763 of 21 July 2023 provides for the issuance of a certificate for each item of ammunition — and certifying every single cartridge is certainly not expedient, nor entirely feasible, so the need to improve the legislation remains.

3) Standardisation and codification of a product — procedures for establishing the conformity of a product with NATO standards (for example, STANAG 4569 for armoured vehicles) and assigning a NATO Stock Number. Codification is not only highly desirable (and sometimes mandatory) when supplying weapons, but is also a key indicator — on a par with 'battle-proven' — for ensuring export potential.

In addition, even before registration begins, and all the more so before actual operations commence, it is highly advisable to carry out due diligence to determine the regulatory requirements (and hence the actual feasibility) of the planned business model as such, since, for example, the mere purchase of ammunition requires, in particular:

• A storage facility that meets the Technical Safety Requirements for the storage of industrial explosive materials.
• A certificate of suitability of the premises where the explosive materials will be stored, drawn up by a commission of representatives of the police, fire supervision, the State Labour Service of Ukraine, and the interested organisation.
• A permit for the storage of military explosive materials.
• A copy of the contract for the purchase of industrial explosive materials.
• A copy of the document confirming the entry of the business entity into the electronic register of participants in the selection and performance of state contracts.
• A permit to acquire explosive materials, and so on.

Unfortunately, the narrow 'bottleneck' of arms production, of which the President warned as long ago as two years back, is the limited financing amid underutilised production capacities. The means of attracting additional financing was also outlined by the President in 2025 — the export of weapons.

But, sadly, there are so many pitfalls in supplying weapons abroad that not only a ship but even an uncrewed boat could sink.

Thus, in 2023 the US Naval Institute first described the strike on the Russian warship Ivan Khurs by a 'Magura' uncrewed surface vessel produced by Ukraine's UFORCE, calling such vessels a 'capability equaliser' in the Black Sea theatre of operations. After that, in 2025, Defence Express reported that the American company Red Cat Holdings would manufacture and sell Ukrainian Magura V7 vessels in the US. It would seem an export success — yet at the World Defense Show 2026 in Riyadh, the V7 is already positioned as an American development, and Red Cat representatives state that they were once partners with UFORCE but have now become competitors.

The situation is especially resonant given the renown of the product and the manufacturer, but in reality it is a typical example of an infringement of intellectual property rights in order to gain access to the technologies and the export potential of a Ukrainian defence-industry product.

So how can one cooperate effectively and safely with a foreign investor so as not to learn that your product was always American and that its export potential is now being realised in Riyadh by some Red Cat?

The first option is 'Build in Ukraine' — a way of attracting international investment through a Ministry of Defence programme for creating joint production capacities with European enterprises (with an obligation to transfer at least 50% of the goods produced to the Armed Forces free of charge). The gold standard of such cooperation is the agreement concluded between Germany's Quantum Systems and Ukraine's Frontline Robotics, where the German side not only agreed to transfer 100% of the drones produced to the needs of the Armed Forces of Ukraine but also plans to create several more joint ventures.

Through 'Build in Ukraine,' Tencore, Aerologix, TAF Industries, Ukrspecsystems, and others are also scaling up; however, this programme requires, first, a benefactor-partner willing to donate a significant portion of the product manufactured, and second, medium-term investment in building the joint venture: in the extremely successful example of Frontline Robotics, the mediation negotiations alone on the terms of joint production lasted 7 months, and the first batch of UAVs was transferred only 4 months after its launch.

Another option is registration as an exporter. To sell finished products and goods, under the 'Procedure for State Control over International Transfers of Dual-Use Goods' and the Law of Ukraine 'On State Control over International Transfers of Military Goods and Dual-Use Goods,' the State Service for Export Control (the 'SSEC') first registers the manufacturer as an entity carrying out international transfers of goods and issues a certificate. During martial law, however, decisions on such exports are taken with regard to the review by the Interagency Commission on Military-Technical Cooperation and Export Control Policy at the National Security and Defence Council (the 'ICMTC').

Having resumed its activities in early 2026, the Commission currently comprises 17 representatives from 16 state bodies, which have 90 days to review an application for a permit from the day a correctly completed application is accepted for review. The renewed membership has held two meetings and reviewed 80 applications. Since around 180 applications are constantly under review, where a proposal for a permit is submitted, a decision will in practice take 4–5 months.

The final nail in the coffin of direct exports comes from RBC-Ukraine, which reports — and the executive director of the Ukrainian Council of Arms Manufacturers, Ihor Fedirko, confirms in an interview with Militarnyi — that the export procedure has de facto been halted. Defence manufacturers received a letter from one of Ukraine's special services (which is part of the ICMTC) stating that the SSEC would suspend the review of applications, while the SSEC, in response to RBC-Ukraine's enquiry, replied that no decisions to suspend the validity of permits had been taken.

At the same time, the sale of military and dual-use goods without ICMTC permission will not only result in the state regulator blocking performance of the contract but also in the opening of proceedings under Article 333 of the Criminal Code.

Moreover, following the example of proceedings No. 22021000000000224, law enforcement officers are likely to classify the exported product as a military good on the basis of 'secret' SSEC documents drawn up after the export was carried out. In case No. 359/13106/21, the Supreme Court found such evidence inadmissible, but the next defendant may not be so lucky.

Another form of cooperation is attracting foreign funds. Ukrainian defence companies receive a wide range of cooperation offers: from direct financial support or the free transfer of material resources to consulting and R&D expertise.

1. In this case, first, it is extremely important to identify the investor's real offer. For example, the American accelerator fund MITS offers venture investment of USD 200,000 for Ukrainian miltech start-ups. An important caveat: only USD 100,000 is provided as a direct investment in the company, while USD 100,000 is the cost of an audit of the production structure by the American University Kyiv. Thus the size of the grant that the developer will be entitled to use is halved, and an obligation to show corporate documents to someone arises. And does your enterprise really need a USD 100,000 audit?

2. Second, the manufacturer also bears responsibility for screening the counterparty — checking whether it is included in the lists of countries importing Ukrainian defence technologies, that it is not under sanctions, verifying the lawfulness of the company's existence, and examining its financial stability and litigation history.

3. Third, one must understand why your enterprise is being invested in and what you can offer the investor: the right of access to the technology now or after the end of active hostilities, a team of specialists, a patent and design documentation of choice, or a share in the scalable manufacturing company, and so on. Understanding the asset structure is a critical precondition for entering the defence market. Even a technologically 'mature' UAV system proven in combat will not be admitted to supply to the Armed Forces of Ukraine, let alone export, if its production is carried out without formalised intellectual property rights, confidentiality policies, and settled non-compete terms.

4. Finally, the agreements reached must be properly formalised in writing, since oral promises of investment, as a rule, do not withstand regulatory restrictions and do not provide adequate legal protection for the parties. Remember, too, that the introduction of martial law in Ukraine does not cancel the application of the norms of international law and the obligations to perform the provisions of a concluded foreign trade agreement, so invoking the special legal regime as a ground for non-performance of obligations creates significant risks of litigation and the imposition of penalties.

In summary, although the restrictions that condition the gradual development of Ukraine's defence-industrial complex are indeed bureaucratic and caused by untimely rule-making, a significant number of them are linked to high product-quality requirements, the safety of production lines, and protection against industrial espionage.

At the same time, a certain part of the sector's regulation is indeed unharmonised and ineffective, and sometimes — as in the matter of selling surplus weapons abroad — simply does not work.

The defence-industrial sector also requires constant R&D and extremely rapid scaling in order to preserve the effectiveness of a technology after passing through all the circles of hell of licensing procedures — and the key to meeting these requirements is hidden deep within the realisation of the export potential of battle-proven, technological, and scalable solutions.

In any event, both harnessing the advantages and mitigating the shortcomings described are greatly facilitated by systematic planning, analysis of the regulatory framework, prior review of contracts, and the presence of a professional legal partner.

Volodymyr Romanchuk, Associate at LCF Law Group, exclusively for Liga.Zakon.