Obtaining Licenses for Production of Military Supplies in Ukraine

Over the past year, the Ukrainian government has streamlined the legislation governing the production of unmanned aircraft vehicles (UAV - drones) and ammunition, which has eliminated many bureaucratic procedures.

The government has also created certain benefits for domestic drone producers, including the cancellation of VAT and import duties for drone components required for production and repair of the systems by Ukrainian entities.  These benefits are valid throughout the duration of martial law.

The Ukrainian government has also passed a series of “experimental projects,” which streamline procedures for the production, procurement and supply of drones and ammunition, including means of radio-electronic warfare and active countermeasures against technical intelligence targeted on domestic production.

One of the most recent experimental projects has now allowed domestic producers to produce, procure and supply ammunition for UAV use and by those combat units that operate them during the period of martial law.  This will allow domestic drone producers to expand their production activity and create new local jobs as well as proceeds for the armed forces.

Last, but not least, Ukraine may soon lift its ban on drone exports in an effort to increase production and attract investment.

Since the start of the 2022 full-scale invasion, Ukraine has prohibited the export of military goods to ensure the army is fully supplied with the necessary weaponry. Because of limited government resources, Ukrainian drone manufacturers want to be able to export their products to obtain additional income to expand their production.  Importantly, lifting the export ban will not only attract investments but also support research and development in this crucial field.

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Transfer of Dual Application Technology to Defense Production Facilities in Ukraine

The first of a series of articles by Frishberg & Partners, adapted by Kyiv Post, describes the steps foreign investors need to take to produce munitions and military equipment.

Let us examine and overview of licensing requirements for Ukrainian producers of drones and munitions (including joint ventures and foreign-owned subsidiaries).

Licensing Requirements for Military Drone Production

Classified as state aviation materials under the Aviation Code of Ukraine, combat/attack drones come in three classes, in line with NATO standards and definitions:

• up to 150 kilograms (330 pounds) – for use by tactical units and formations.
• up to 600 kilograms (1,320 pounds) – for tactical use.
• over 600 kilograms (1,320 pounds) - for strategic use.

The “up to 150 kilograms” is the most widely produced class among domestic manufacturers and, therefore, our focus will be on this class.

All combat/attack drones require state certification, for both the production process and the final product.  These drones must be registered into the register of state aircraft, which also requires certification of the apparatus, an airworthiness certificate, and an operator’s certificate, where necessary.  The required production documentation includes operational, repair and serial documentation required by the Ministry of Defense.

Additionally, in order to produce combat/attack drones for supply to the Ukrainian armed forces, the manufacturer must include the correct economic code(s) into its business activity - “Manufacture of air and space aircraft and related equipment”).

Combat/attack drones, and their components, are included under the general category of “weapons, military and special equipment, weapons and ammunition, special components for their manufacture and operation, materials and equipment specially designed for their development, manufacture or use, special technical means, technical means of intelligence” for security and defense needs.

Depending on the manufacturer’s scope of production, other codes may need to be included, such as “wholesale trade of other machines and equipment” and “repair and servicing of air and space crafts”.

Licensing and Permit Requirements for Munitions Production

In addition to obtaining licenses for its drone production activities, the producer should also consider obtaining a permit for the production of drone ammunition or other munitions, where applicable.  The permit system is operated by the National Police acting for the Ministry of Internal Affairs of Ukraine in conjunction with the State Service for Labor Issues, which can issue permits for the purchase, storage and transportation of explosives.

For the acquisition of explosive materials, the drone or ammunitions manufacturer must firstly apply for a certificate from the State Service for Labor Issues, under the auspices of the Ministry of Economy.  The applicant should be prepared to submit documents regarding the suitability of their production premises and employees’ qualifications, especially with respect to the applicant’s directors.  A commission consisting of representatives of the National Police, State Security Service, State Labor Service, and the applicant’s representative will assess the premises for compliance.

The State Service for Labor Issues also issues certificates for explosives storage facilities.  The applicant has to submit documentation for its premises, including a diagram of the facility and a plan of the surrounding area within a radius corresponding to the safe distance calculations for the maximum quantity of explosives to be stored.  An appointed individual must be responsible for storage and compliance issues and a list of individuals with access to or guarding of the facilities must be submitted.

The ammunition producer also has to receive a permit to transport explosives throughout the territory of Ukraine.  This procedure requires the submission of extensive information relating to the carriers, reasons for transport, security arrangements, training certificate of authorized personnel (including drivers and their authorization documents), vehicle approvals, insurance policies, etc.  Some exceptions apply if the producer is using “in-house” transportation between warehouses or within one city or region.

Special permits are additionally required for the destruction of explosives from the Mine Action Center, which certifies mine operators and processes to determine compliance with Ukrainian legislation.  This process entails the submission of information relating to staff management, subcontractors and equipment.

The views expressed in this opinion article are the author’s and not necessarily those of Kyiv Post.

Scott Brown is Director/Partner at Frishberg & Partners, an American-owned law firm based in Kyiv since 1991, one of the oldest corporate law practices in Ukraine.