Export Duty vs. Danish Model: Risks for Defence Contracts

The enactment of Cabinet of Ministers Resolution No. 875 on July 1, 2026, represented a significant step toward liberalizing defence exports and formalizing relations with international partners. However, as often occurs with progressive regulations, a critical legal conflict emerged during implementation. This concerns the 'Danish Model'—a strategic mechanism wherein partners fund weapons production at Ukrainian facilities specifically for our Defence Forces. The current version of the resolution creates a scenario where receiving prepayments from partners is formally interpreted as an export operation, triggering a mandatory 20% duty, even if the goods remain in Ukraine for the Armed Forces.

Regulatory Trap: The Source of the Conflict

The core of the problem lies in the lack of clear differentiation between direct export of products abroad and weapons production under international contracts for domestic consumption. For customs and regulatory authorities, the receipt of foreign currency proceeds or targeted financing is equivalent to a foreign economic operation. Consequently, a manufacturer working under the 'Danish Model' faces a situation where the delivery of a finished product to the Ministry of Defence of Ukraine is perceived by the fiscal system as an export, automatically activating the requirement for a 20% deduction to the special fund. As of late July 2026, the professional community, including NAUDI, has already appealed to the Ministry of Defence to urgently resolve this contradiction, as it threatens to block projects worth billions of euros.

Risks to Manufacturers and Defence Industry Scaling

Blocking contracts is not just a financial blow, but a threat to the continuity of production cycles. Companies that relied on partner investments to scale capacity are now forced to revise their financial models. Key risks for businesses include:

• Suspension of existing international agreements due to the risk of non-targeted use of working capital.
• Additional tax burden (20% duty) not originally factored into production costs.
• Reduced investment attractiveness of the Ukrainian defence industry for international donors.
• The need for urgent legal challenges or reclassification of contracts under complex conditions.

Current Status: Steps Toward Change

Legislators are already considering initiatives (such as Draft Law No. 15400) to improve the distribution of funds from permits, but the issue of exempting 'Danish Model' contracts from duty remains open. It is essential to recognize that despite the adoption of Resolution No. 875, the state continues to seek a balance between attracting budget revenue and stimulating domestic defence production.

How to Navigate Uncertainty

A regulatory conflict is not a final verdict, but a temporary barrier. The key to the solution lies in the correct legal qualification of contracts and immediate communication with the Ministry of Defence to exclude such operations from the scope of export customs rates.

At Global Miltech Legal, we strongly recommend that manufacturers do not wait for general changes to the resolution, but rather initiate an individual analysis of every contract. It is necessary to verify contract wording regarding the transfer of ownership and the intended use of goods. If your business has faced demands to pay duties on internal deliveries under the 'Danish Model,' we offer a free initial case assessment. Our attorneys will help prepare requests to regulators and minimize risks to your company's operations.