Obtaining licenses for the production of military goods in Ukraine

Over the past year, the Ukrainian government has streamlined legislation regulating the production of unmanned aerial vehicles (UAV – drones) and ammunition, eliminating many bureaucratic procedures.

The government has also created certain benefits for domestic drone manufacturers, including the cancellation of VAT and import duties on drone parts necessary for the production and repair of the systems by Ukrainian entities. These benefits are valid for the entire duration of martial law.

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

One of the latest experimental projects has now made it possible for domestic manufacturers to produce, purchase and supply ammunition for use by UAVs and by the combat units operating them during the period of martial law. This will allow domestic drone manufacturers to expand their production activities and create new local jobs, as well as revenue for the armed forces.

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

Since the start of the 2022 large-scale invasion, Ukraine has banned the export of military goods to ensure the military is fully supplied with the necessary weapons. Due to 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 investment but also support research and development in this crucial area.

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Nowhere is Ukraine more often called the “testing laboratory for the future of war” than in the development of the technology and military use of drones, with a million UAVs set to be deployed this year.

Let’s overview the licensing requirements for Ukrainian producers of drones and ammunition (including joint ventures and foreign-owned subsidiaries).

Licensing requirements for the production of military drones

Classified as state aviation equipment under the Aviation Act of Ukraine, combat/attack drones are available in three classes, in accordance 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 produced class among domestic manufacturers and therefore our focus will be on this class.

All combat/attack drones require state certification, both for the manufacturing process and the final product. These drones must be registered in the State Aircraft Register, which also requires device certification, an airworthiness certificate and, if necessary, an operator certificate. Required production documentation includes operational, repair and serial documentation required by the Ministry of Defense.

In addition, to produce combat/attack drones for supply to the Ukrainian Armed Forces, the manufacturer must include the appropriate economic code(s) in its business activity: “Manufacture of air and space aircraft and related equipment”).

Combat/attack drones and their components fall 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 intelligence tools” for security and defense needs.

Depending on the manufacturer’s production volume, other codes may need to be included, such as “wholesale sale of other machinery and equipment” and “aircraft and spacecraft repair and maintenance.”

License and permit requirements for ammunition production

In addition to obtaining licenses for its drone production activities, the manufacturer should also consider obtaining a license for the production of drone ammunition or other munitions, if applicable. The licensing system is managed by the National Police, acting on behalf of the Ministry of Internal Affairs of Ukraine, in cooperation with the State Service for Labor Issues, which can issue permits for the purchase, storage and transportation of explosives.

To purchase explosive materials, the drone or ammunition manufacturer must first apply for a certificate from the National Office for Labor Affairs, under the auspices of the Ministry of Economic Affairs. The applicant must be prepared to submit documents on the suitability of its production sites and the qualifications of its employees, especially with regard to the applicant’s directors. A committee consisting of representatives of the National Police, the State Security Service, the State Labor Service and the applicant’s representative will assess the property for compliance.

The National Office for Labor Affairs also issues certificates for explosives storage facilities. The applicant must provide documentation for its premises, including a diagram of the facility and a map of the area within a radius consistent with the safe distance calculations for the maximum quantity of explosives to be stored. A designated individual should be responsible for storage and compliance issues and a list of individuals with access to or surveillance of the facilities should be submitted.

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

In addition, the destruction of explosives requires special permits from the Mine Action Center, which certifies mine operators and processes to determine compliance with Ukrainian law. This process includes submitting information related to personnel management, subcontractors and equipment.

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

Scott Brown is director/partner at Frisberg & Partnersan American-owned law firm based in Kiev since 1991 and one of the oldest corporate law practices in Ukraine.