Overview of the Main Regulatory and Market News in the Defence Sector as of end August

According to the Ukrainian Council of Defence Industry, the number of defence industry enterprises has already exceeded 1,500, and the private sector produces more than 65% of the weapons used by the Security and Defence Forces of Ukraine. At the same time, according to industry estimates, during the first year after the controlled resumption of exports, the private sector executed just about 10–15 export contracts and started production only within one joint venture (JV) abroad.

Against this backdrop, several developments are particularly worth watching: the recent discussions around the Procedure for International Transfers of Military and Dual-Use Goods for the Period of the Legal Regime of Martial Law in Ukraine, approved by the Resolution of the Cabinet of Ministers of Ukraine No. 875 dated 1 July 2026 (Resolution No. 875), the conclusion of new Drone Deals, the development of joint production abroad, and Ukraine’s latest agreements with the United Kingdom on defence technologies and access to Ukrainian battlefield data.

On 1 July 2026, the Cabinet of Ministers of Ukraine adopted Resolution No. 875, introducing a special procedure for certain international transfers of military and dual-use goods during martial law, including a separate mechanism for obtaining permits from the State Service for Export Control of Ukraine (for more detail, see Sayenko Kharenko’s legal alerts).

The new mechanism has been announced as an important step towards resumption of defence exports, but some of its practical terms have also attracted criticism from the private sector. According to the Ukrainian Council of Defence Industry, by the end of August the mechanism had not yet delivered the large-scale increase in exports expected by the market, and a number of its provisions need to be revised.

One of the key issues is the permit fee: 20% of the value in case of the export of ready goods and technologies and 30% for components. For high-value defence products, this can directly impact the competitiveness of Ukrainian manufacturers in international tenders and commercial deals.

There are also practical questions around the administration of this payment. Proof of payment must be submitted together with the application, meaning that exporters need to incur this cost before they know whether the export will ultimately be approved. Resolution No. 875 currently does not provide a specific mechanism for refunding the payment if the permit is not issued. This may be particularly relevant for companies entering new markets and working with new foreign customers.

Another limitation is the minimum contract value of UAH 15 million (~EUR 300,000). This makes the mechanism less suitable for test or pilot deliveries, which can often be an important first step in establishing a new international customer relationship. The threshold does not apply to components.

These are only some of the practical issues that the market is currently facing. The adoption of the mechanism introduced by Resolution No. 875 will depend on both possible adjustments to the rules and how the permitting process works in practice.

Against this background, business models in which Ukrainian manufacturers do more than simply sell finished products to foreign buyers are becoming increasingly important. Companies are looking at joint production, localisation, technology transfer, R&D and long-term partnerships with foreign partners.

One of the main models for this cooperation is the Drone Deal. On 23 August, Norway became the latest country to join the format. The agreement covers cooperation in defence technologies, including drones and autonomous systems. Ukraine has already concluded similar arrangements with a number of partners, including the Baltic states, Denmark and the Netherlands, and negotiations on further Drone Deals are reportedly underway.

The Drone Deal is broader than a traditional export arrangement. Drone Deals to date have included joint production, localisation, investment in defence infrastructure, R&D, technology transfer and the exchange of combat experience. For example, Ukraine’s agreement with the Netherlands covers joint development and production of drones, missiles, electronic warfare systems and other defence technologies.

A similar approach is being developed through the Build with Ukraine programme, which focuses on establishing production facilities of Ukrainian defence companies in partner countries, using local capital and infrastructure. For Ukrainian manufacturers, this can provide a direct route into foreign markets while also helping to address logistical and regulatory barriers and access financing available in the partner country.

This trend also has a broader economic driver. International defence funding is increasingly linked to requirements on where the funds are spent and where production takes place. As a result, for some Ukrainian manufacturers, establishing a local production presence jointly with a foreign partner may be a more practical way to enter an international market than exporting ready products from Ukraine.

The recent cooperation between Ukraine and the United Kingdom is a good example of how these partnerships are evolving.

On 24 August 2026, the UK Prime Minister, Andy Burnham, announced an agreement allowing the release of classified information on British components of the SCALP/Storm Shadow cruise missile. This is expected to support local production and assembly of relevant systems in Ukraine, with the involvement of British defence companies.

This is a different type of international cooperation from a conventional sale of ready defence products. It involves sharing of technological and classified information and creation of local production capacity in Ukraine, with the relevant export control, IP and security considerations becoming part of the project.

On the same day, Ukraine and the United Kingdom signed a Joint Declaration of Intent on a partnership in AI. The United Kingdom became the first international partner to receive access to the Ukrainian platform Avengers AI Labs, which uses real-world data collected from cameras and sensors on the Ukrainian battlefield.

For Ukrainian defence companies, this points to a broader shift in the international market. Cooperation is increasingly going beyond physical products and can also involve technology, software, data, AI, R&D and combat experience.

Resolution No. 875 is an important step towards restoring Ukraine’s defence exports, but its first months in effect show that the market will need time before the new mechanism becomes fully operational. The permit fee, contract value threshold and other procedural requirements continue to create practical challenges for exporters and further amendments to the mechanism are already being discussed.

At the same time, the overall direction is positive. Ukraine is actively building new channels for international defence cooperation, from the Drone Deal and Build with Ukraine to joint production, technology partnerships and R&D projects. The latest agreements with the UK on SCALP/Storm Shadow technologies and access to Ukrainian battlefield data further show how quickly the scope of international cooperation is expanding.

For Ukrainian defence companies, this means that the next stage will be about turning these new opportunities into practical international projects. The export mechanism under Resolution No. 875 is formally operational, and its practical implementation is developing, while joint ventures, local production, and technology partnerships are creating alternative ways to access international markets. The framework is still evolving, but the process is moving forward.

Sayenko Kharenko team will be happy to support Ukrainian and foreign defence manufacturers in taking advantage of these opportunities – from obtaining the necessary export permits and navigating the new mechanism under Resolution No. 875 to structuring international partnerships, technology transfers, joint production and joint ventures.