Defence Innovations, AI and Intellectual Property in the Defence Industrial Sector

The development of military AI solutions, a new procurement model for defence innovations, unified rules for the management of intellectual property in the defence industrial sector, and new tax incentives for suppliers of unmanned ground robotic systems (UGVs)

LEGISLATIVE UPDATE: RECENT DEVELOPMENTS

In March – May 2026, the Government of Ukraine introduced a number of measures aimed at accelerating the development of defence technologies, their testing by the armed forces, further implementation into production, proper protection of proprietary rights, as well as the introduction of certain additional incentives for suppliers of ground robotic systems (GRSs).

These changes form part of the State’s broader approach to the development of the defence tech sector, which is intended to shorten the path from the development of a technological solution to its practical deployment by the armed forces. At the same time, the new rules increase the importance of proper documentary formalisation of products, legal protection of technologies, sanctions and export-control compliance, as well as the correct classification of goods for tax and defence procurement purposes.

The key changes relate to four main areas:

• development of military-purpose goods in the field of artificial intelligence
• procurement and combat testing of innovative defence products
• management of intellectual property rights in the defence-industrial sector
• VAT exemption for supplies of ground robotic systems (GRSs) for the needs of the Defence Forces

1. Experimental project launched for the development of military-purpose goods in the field of AI technologies

On 12 March 2026, the Cabinet of Ministers of Ukraine adopted Resolution No. 310 approving the Procedure for the implementation of the experimental project concerning the development of military-purpose goods in the field of artificial intelligence technologies.  

The purpose of the project is to develop military AI solutions by granting access to software products created within the Ministry of Defence and/or by military units, military command and control bodies, and institutions subordinated to it. Such access may be used for the training, configuration, testing, and quality assessment of artificial intelligence models.

According to a statement by Minister of Defence Mykhailo Fedorov, an AI platform has been developed on the basis of the Ministry of Defence’s Centre for Innovation and Defence Technology Development. The platform enables neural networks to be trained without providing direct access to sensitive databases. It operates with large volumes of labelled photo and video materials, which may be used, inter alia, for training models in the field of unmanned systems.

Key Provisions of the Procedure

Under the experimental project, military-purpose goods in the field of AI include computer programs, data compilations, databases, artificial intelligence models, and other technological solutions developed within the framework of the project.

The participants in the experimental project may include:

• the Ministry of Defence, as well as military units, military command and control bodies, and institutions subordinated to it
• business entities that meet the established eligibility criteria

Participation may be open, in particular, to suppliers of the Ministry of Defence’s State Customer Service, contractors under state defence contracts, enterprises recognised as critical for the needs of the Armed Forces of Ukraine, or entities included in the electronic register of participants in selection procedures and contractors under state contracts.

The Procedure also provides for the possibility of granting access to software products to defence authorities of foreign states. Such access may be granted on the basis of international treaties of Ukraine and/or agreements on access to computer programs or software platforms.

At the same time, this possibility does not extend to the defence authorities of the aggressor state, states with significant deficiencies in the area of Anti-Money Laundering / Combating the Financing of Terrorism (AML/CFT), states in respect of which the EU has imposed restrictive measures concerning international transfers of military-purpose goods, or states included by the Cabinet of Ministers of Ukraine in the list of offshore zones.

Participation procedure for businesses

To participate in the project, business entities submit letters of proposal to the Ministry of Defence in free form. Such letters must be accompanied by information on the legal entity, its chief executive officer, contact details, information confirming the absence of sanctions and any links with the aggressor state, as well as documents confirming compliance with the eligibility criteria.

The Ministry of Defence reviews the submitted proposals within 30 days. If the business entity meets the established requirements, the Ministry of Defence initiates the conclusion of an agreement on granting access to software products.

Such agreement must define, in particular:

• the territory and term of permitted use
• the non-exclusive nature of the authorisation
• whether the use is granted on a paid or free-of-charge basis
• confidentiality terms
• the procedure for monitoring compliance with the access conditions
• liability for breaches
• the dispute resolution procedure
• the possibility of engaging subcontractors

For Ukrainian business entities, authorisation to use intellectual property rights is granted free of charge.

Data protection and access restrictions

Importantly, the Procedure does not provide for opening direct access to the Ministry of Defence’s digital content databases. Direct access that would allow the extraction, copying, transfer, public communication, or other similar actions in respect of such content is expressly not permitted.

It is separately provided that, for the purposes of the experimental project, the Ministry of Defence may export military-purpose goods on the basis of an authorisation issued by the State Export Control Service of Ukraine. This means that the international transfer of such solutions remains subject to state export control procedures.

Practical implications

The introduction of this mechanism creates a legal framework for the controlled use of military data and software products in the field of AI. For Ukrainian and foreign defence tech companies, this may open up the possibility of training and testing their own models on relevant data without direct access to sensitive databases.

At the same time, businesses should take into account requirements relating to sanctions policy, ownership structure, confidentiality, the regime for the use of IP assets, and potential export-control restrictions.

2. New procurement model for defence innovations launched

On 10 April 2026, the Cabinet of Ministers of Ukraine adopted Resolution No. 489 approving the Procedure for the implementation of the experimental project on the development of innovation activities for defence needs under the legal regime of martial law.

The Procedure establishes specific rules for the defence procurement of innovative defence products, their experimental combat use, and subsequent codification. The purpose of the project is to facilitate the development, production, and implementation of innovative defence products in order to strengthen Ukraine’s defence capability and enhance the combat capabilities of the Armed Forces.

According to the Ministry of Defence, there had previously been no separate procedure allowing innovative solutions to be procured specifically for testing by the armed forces, as a result of which such solutions reached military units in a non-systemic manner. The new model provides that the Ministry of Defence may rapidly procure innovative products under a simplified procedure, transfer them to military units for combat testing, and include combat-proven solutions in supply requirements.

Products covered by the new model

Resolution No. 489 covers innovative defence products, namely newly developed or upgraded models of weapons, military and special equipment, their component parts, and other goods that are new or have improved tactical and technical, qualitative, or other characteristics.

The participants in the experimental project include:

• the Ministry of Defence
• the Armed Forces of Ukraine
• the State Special Transport Service
• the Ministry of Defence’s State Customer Service
• the Innovation Development Fund
• Ukrainian and foreign legal entities that manufacture and supply innovative defence products

How the procedure will operate

The Ministry of Defence will organise the collection, systematisation, and analysis of information concerning problematic issues and challenges faced by the Defence Forces, as well as innovative solutions that may potentially address such issues.

The following will be taken into account, in particular:

• a description of the tactical and technical characteristics of the products
• the potential tactics or method of their use
• the results of previously conducted tests or prior use
• the quantity of products required for experimental combat use
• the list of units to which the products are proposed to be transferred for testing

Based on the results of the analysis, the Ministry of Defence will decide whether to carry out a defence procurement of the relevant products for their experimental combat use. The Procedure expressly permits the procurement of both codified and non-codified innovative defence products.

Following procurement, the products are transferred to designated units for experimental combat use. Based on the results of such use, a report is prepared assessing the products’ compliance with the declared characteristics, their ability to address problematic issues faced by the Defence Forces, and the feasibility of their further implementation and codification.

Documentation and pricing

Resolution No. 489 also establishes specific requirements for the documentary support of procurement procedures. In particular, contractors under state contracts must provide a price calculation, as well as an expert opinion or property valuation report determining the possible estimated value of the innovative defence products.

At the same time, the profit of the contractor under a state contract included in the price may not exceed 25% of the production cost of the innovative defence products, while the contractor under the state contract bears responsibility for the incorrect calculation of the price.

Business entities must also provide information on the legal entity, contact details, information on the chief executive officer, data on the products and their price, as well as confirmation of the absence of links with the Russian Federation, the Republic of Belarus, and the Islamic Republic of Iran.

Codification and further implementation

In the event of a positive conclusion based on the results of experimental combat use, the products may be implemented for the needs of the Armed Forces and, where necessary, codified.

To confirm the results of combat use, the report may be accompanied by extracts, copies of documents, photo, audio and video materials, log files, data from technical reconnaissance assets, radio interception data, verified open-source information, and other objective control data.

It is separately provided that it is prohibited to require a business entity to submit documents not envisaged by the Procedure for the purposes of codifying the item to be supplied or including it in staffing tables and equipment schedules.

Practical implications

For defence tech manufacturers, the new model creates a clearer path from development to practical deployment:

1. identification of the need and procurement of a limited quantity
2. combat testing
3. preparation of a report
4. decision on further implementation
5. codification
6. scaling

This is particularly important for companies developing new technologies, software, unmanned systems, communication tools, sensors, components, or other solutions that may rapidly enhance military capabilities.

At the same time, companies should prepare in advance technical documentation, confirmation of the declared characteristics, price calculations, documents supporting the value of the products, sanctions-related assurances, information on ownership structure, and materials that may confirm the effectiveness of the solution during combat use.

3. Rules for the management of intellectual property in the defence-industrial sector introduced

In April 2026, the Government approved a policy for the management of intellectual property (IP) in Ukraine’s defence-industrial sector. The document establishes approaches to the allocation and exercise of rights to defence technologies, as well as their effective use in production for the needs of the Defence Forces.

The policy concerns the management of rights to technologies created in the public sector or procured with public funds and is aimed at ensuring the ability to effectively scale up new technological solutions in production.

At the same time, these approaches remain relevant for private-sector enterprises as well.

Key approaches

The policy emphasises the key rules that should be followed in the development and commercialisation of intellectual property in the defence sector. This concerns not only the formal registration of rights, but also the systematic management of technologies as assets.

In particular, it is important to determine, in properly executed documents and taking into account the provisions of applicable law:

• who owns the rights to the results of development;
• who is entitled to use the relevant technologies;
• how such rights may be transferred or licensed;
• how confidentiality is ensured;
• how to prevent the unauthorised use of defence developments;
• how to scale up technologies in production.

This means that rights to the results of development must be clearly regulated in agreements, the regime for the use of technologies must be defined, confidential information must be protected, internal rules for handling IP assets must be implemented, and these issues must be taken into account when cooperating with partners, subcontractors, or investors.

Importance for international cooperation

The introduction of a unified policy is also of practical importance for international cooperation. The Ministry of Defence directly links respect for intellectual property rights with trust in relations with international partners and the development of joint defence projects.

This is particularly important for Ukraine’s defence tech sector, where combat experience increases the commercial and strategic value of technologies, including software solutions, data, design documentation, and know-how, which may have independent commercial value.

Practical implications

For businesses, it is important to take into account the principles established by the policy for the effective commercialisation of intellectual property in defence projects.

Companies should pay particular attention to:

• intellectual property rights provisions in agreements with employees, contractors, and other partners
• establishing and maintaining a confidentiality regime, including through the conclusion of NDAs and the implementation of internal policies
• licensing models
• allocation of rights in the course of cooperation on technology development
• the procedure for using technologies, including after the completion of a state contract
• protection of rights to technologies in Ukraine and, where necessary, abroad

Proper formalisation of IP rights may also affect a company’s investment attractiveness, its ability to attract partners, scale up production, and enter foreign markets.

4. Supplies of GRSs for the needs of the Defence Forces exempted from VAT

On 28 May 2026, the Verkhovna Rada of Ukraine adopted the Law based on Draft Law No. 15259 “On Amendments to the Tax Code of Ukraine regarding the exemption from value added tax of transactions involving the supply of ground robotic systems”.

The Law provides for a VAT exemption for transactions involving the supply of GRSs within the customs territory of Ukraine for the needs of the Defence Forces.

The purpose of the amendments is to reduce the cost of supplying GRSs to combat military units, as well as to improve the efficiency of the use of budget funds within defence procurement.

What the amendments provide for

The amendments are targeted in nature and are specifically aimed at transactions involving the supply of unmanned ground systems / GRSs for the needs of the security and defence sector.

In particular, the exemption applies to unmanned ground systems classified under commodity groups 84, 85, 87, 90, and 93 according to the Ukrainian Classification of Goods for Foreign Economic Activity (UKT ZED), provided that they are supplied for the needs of the Defence Forces.

Importantly, this exemption does not constitute a general exemption for any commercial sale of GRSs.

The Law expressly provides that the end recipient of such goods, according to the end-user certificate or the terms of the agreement, may be:

• state authorities of the security and defence sector
• military formations and territorial defence forces
• enterprises acting as contractors under defence contracts

UKT ZED codes and product description

For the purposes of this exemption, the relevant criteria are not KVED codes, but commodity groups under the Ukrainian Classification of Goods for Foreign Economic Activity (UKT ZED), since the issue concerns the classification of goods rather than the type of business activity carried out by the enterprise.

The relevant commodity groups may include:

• Group 84 UKT ZED - nuclear reactors, boilers, machinery, equipment and mechanical appliances; parts thereof. In the context of GRSs, this group may cover certain mechanical units, mechanisms, drives, structural elements, or other mechanical components of the system;
• Group 85 UKT ZED - electrical machinery, equipment and parts thereof; sound recording or reproducing apparatus, television image and sound recording or reproducing apparatus, and parts and accessories of such articles. In the context of GRSs, this may include electric motors, batteries, controllers, electronic control units, communication modules, cables, and other electrical or electronic components;
• Group 87 UKT ZED - vehicles other than railway or tramway rolling stock, and parts and accessories thereof. In the context of GRSs, this may cover a wheeled or tracked ground platform, a transport module, chassis, parts, and equipment of such a system. Depending on the characteristics of the specific goods, logistics or evacuation GRSs may, for example, be considered under commodity headings of Group 87 as motor vehicles or parts thereof;
• Group 90 UKT ZED - optical, photographic, cinematographic, measuring, checking, precision, medical or surgical instruments and apparatus; parts and accessories thereof. In the context of GRSs, this may include cameras, optical modules, sensors, rangefinders, navigation and control instruments, surveillance systems, or other detection and control elements;
• Group 93 UKT ZED - arms and ammunition; parts and accessories thereof. In the context of GRSs, this group may be relevant for robotic systems or their components that have a combat purpose, weaponised modules, launch elements, parts of weapons, or other components related to the use of arms or ammunition.

The final classification of a specific GRS or its components will depend on the technical characteristics, functional purpose, configuration, and documentary description of the goods.

Practical implications

For manufacturers and suppliers of GRSs, these amendments may have significant practical implications, as VAT directly affects the final cost of products within defence procurement.

The VAT exemption may make it possible to supply a larger number of GRSs within the same budget funding or to reduce the unit price of the products for the state customer. This is particularly important given the growing role of GRSs in logistics, casualty evacuation, mining, demining, reconnaissance, engineering tasks, and other operations in the combat zone.

At the same time, companies need to pay careful attention to the documentary formalisation of such supplies. In particular, the correct classification of goods under the UKT ZED, confirmation of the defence purpose of the products, proper execution of the state contract or other documentation relating to supplies for the needs of the Defence Forces, as well as an accurate description of the goods in primary, tax, and customs documents will be important.

KEY TAKEAWAYS FOR THE DEFENCE MARKET

The new rules are intended to shorten the path from development to deployment on the battlefield, make defence innovations more scalable, strengthen the protection of Ukrainian technologies, reduce the tax burden on certain critical defence supplies, and create more predictable conditions for participants in the defence market.

For businesses, this means that, alongside the technological readiness of a product, legal, tax, and documentary readiness will become increasingly important. Manufacturers of defence products and defence tech companies should verify in advance:

• proper ownership and formalisation of intellectual property rights
• readiness of technical documentation
• confirmation of the declared characteristics
• ownership structure and sanctions compliance
• confidentiality arrangements
• pricing documentation
• correct classification of goods under the UKT ZED
• availability of applicable tax exemptions
• potential export-control restrictions

For further information, please contact Asters Partner Yuna Potоmkina and Counsel Anton Sintsov.