Document

Reference

Key Provisions for Suppliers

Law on Defence Procurement

No. 808-IX of 17.07.2020 (as amended by No. 2526-IX, No. 2958-IX, No. 3589-IX, No. 4111-IX)

General legal framework; Art.2 — prohibition of unjustified price inflation; Art.30 — wartime specifics, Part 3 — maximum profit margin

Law on Public Procurement

No. 922-VIII of 25.12.2015

General procedures for above-threshold procurement; applies subsidiarily

Law on Protection of Economic Competition

No. 2210-III of 11.01.2001

Art.13 — prohibition of price discrimination for monopolists; Art.50 — liability

Law No. 3589-IX

of 22.02.2024 (effective 16.03.2024)

Amends Art.30 of Law No. 808: maximum profit margin for non-competitive procurement set by CMU; if not set — contractor’s offer applies

Law No. 4111-IX

of 04.12.2024

Further amendments to Law No. 808; clarification of contracting authority powers

Laws No. 4709-IX and No. 4710-IX

of 04.12.2025 (effective 26.12.2025)

Extension of customs duty and VAT exemptions for defence goods

Document

Reference

Content and Significance

CMR No. 1275 (main)

of 11.11.2022 (14+ amendments, latest ed. 02.03.2026 No. 279)

Wartime defence procurement specifics: procurement methods, 25% profit cap (cl.9), WMS regime (cls.43–49), UAV/EW procedure (annex to No. 1450)

CMR No. 1450

of 20.12.2024 (effective 24.12.2024)

Separate Procedure for procurement of domestically produced UAVs and EW systems

CMR No. 918

of 30.07.2025

Right of UAV/EW producers to include loan costs (interest and fees) in contract price — up to 10% of contract value

CMR No. 736

of 18.07.2023 (effective 21.08.2023)

Key revision: cancellation of framework agreements for general contracting authorities; new cl.9 (25%); WMS section (cls.43–49)

CMR No. 122

of 01.02.2024 (effective 07.02.2024)

Restoration of framework agreements — but only for the Defence Procurement Agency and SSSCIP (cl.7)

CMR No. 1178

of 12.10.2022

Wartime public procurement specifics; cl.19 — grounds for amending contract terms (referenced by cl.8 of CMR No. 1275)

CMR No. 363

of 03.03.2021 ‘Defence Procurement Issues’

Planning procedure, scope of contracting authorities; cl.49 — 1%/30% profit norm for peacetime classified procurement; cls.64–67 suspended during wartime

CMR No. 693

of 11.06.2025

Expanded list of goods subject to localisation requirements from 04.08.2025

CMR No. 1378

of 09.12.2022

List of UAVs and components imported without permits

Document

Content

Order of Ministry of Economy No. 275 of 18.02.2020

Model methodology for determining expected value: market price comparison method — primary tool used by SAIU in audits

Order of Ministry of Economy No. 708 of 15.04.2020

Subject matter identification procedure; referenced by cl.8 of CMR No. 1275

Letter of Ministry of Economy No. 33-11/85 of 13.02.2024

Clarifications on defence procurement specifics after 07.02.2024 amendments; clarification on framework agreements and procurement methods

NAS 16 ‘Expenses’ (Order of MoF No. 318 of 31.12.1999)

Basis for determining production cost (cls.11–16): materials, payroll, SSC, depreciation, manufacturing overhead — the 25% calculation base

NAS 9 ‘Inventories’ (Order of MoF No. 246 of 20.10.1999)

Imported goods cost: supplier price + duty + handling costs + non-refundable indirect taxes

NAS 1 (Order of MoF No. 73 of 07.02.2013)

Definition of ‘profit’: excess of revenues over related expenses — basis for the 25% cap

Subject

Threshold

Regime

Profit Margin

Defence goods and services / goods for defence needs

≥ UAH 200,000

Mandatory procedures (cl.8) or conditional direct contract (cl.9)

25% for direct (cl.9); no cap via Prozorro

Defence works

≥ UAH 1.5 million

Same as above

Same as above

General goods, services and works

< UAH 200,000 / < UAH 1.5 million

Not regulated by CMR No. 1275; free regime. No reporting required

Art.30 Part 3 of Law No. 808: CMU cap (25%) for non-competitive procedures. If CMU has not set a cap — contractor’s offer

Weapons and Military Systems (WMS): weaponry, equipment, ammunition, development/repair/upgrade services, fortification construction

Any amount

Regime cls.43–49: no procedures; contracting authority sets its own rules

Cl.44: no state regulation of expected value. Art.30 Part 3 of Law No. 808 remains in force at the same 25% level

Domestically produced UAVs and EW systems

Any amount

Separate Procedure (annex to CMR No. 1275, added by CMR No. 1450)

25% (cl.9) + optional up to 10% loan costs (CMR No. 918)

Key Prozorro advantage for suppliers: The 25% profit cap under competitive procedures does NOT apply. Price is set by the market. Winning a tender is the strongest proof of market-conformity, though it is advisable to consider the principle of efficient use of budget funds and not abuse the absence of a direct restriction.

Basis

Condition and Restriction

Sub-cl.1 cl.9 — contractor is the manufacturer

Profit ≤ 25% of production cost (NAS 16). Verified by cost breakdown or financial statements.

Sub-cl.2 cl.9 — contractor is not the manufacturer (intermediary)

Total profit of all supply chain participants from manufacturer to contractor ≤ 25% of the manufacturer’s initial production cost. Verified by contractor’s guarantee letter.

Para.2 cl.9 — simplified procurement cancelled due to no participants

Subject, specifications and amount must remain unchanged from the cancelled announcement.

Cl.13 of Specifics No. 1178 (by reference)

When cl.13 of No. 1178 grounds apply — CMR No. 1275 imposes no requirements on profit level or price formation.

Mandatory commercial offer content for WMS (para.2 cl.45): Full name + HS code + NATO stock number (if available); technical specifications; condition; manufacturer, country of origin, logistics route; delivery terms; total value and payment terms.

Level

Norm and Content

Law (highest)

Art.30 Part 3 of Law No. 808-IX (as amended by No. 3589-IX of 16.03.2024): for any non-competitive or procedure-free procurement — profit ≤ maximum level set by CMU. If CMU has not set a cap — price per contractor’s offer. Applies to all wartime contracts concluded without competitive procedures.

Resolution (specific)

Cl.9 of CMR No. 1275: CMU set the maximum level = 25% of production cost. Applies to procurement ≥ UAH 200,000 / ≥ UAH 1.5 million without Prozorro.

Competitive procedure

No profit restrictions. Price determined by market competition.

NOT included in production cost (25% base): Administrative expenses (office, legal services, management staff) · Selling expenses · Financial expenses (loan interest) — except UAV/EW manufacturers from 30.07.2025 (CMR No. 918, up to 10% of contract value)

Allowable contract price = Production cost × 1.25 Check: (Price − Cost) / Cost ≤ 25% After corporate income tax (18%): net profit ≈ 20.5% of production cost (not 25%)

Condition: Total chain profit / Manufacturer’s initial production cost ≤ 25% = (Final price to contracting authority − Manufacturer’s initial production cost) / Manufacturer’s initial production cost ≤ 25% Therefore: Final price ≤ Manufacturer’s initial production cost × 1.25

Critical nuance — the base is always the manufacturer’s initial production cost: Each intermediary does NOT get its own 25% on top. The entire chain shares one 25% pool of the manufacturer’s production cost. An intermediary’s profit = its revenue minus the price it paid the previous link, not minus the manufacturer’s production cost.

Participant

Operation

Financial Indicators

Manufacturer

Produced, sold to intermediary

Cost = UAH 500,000; sold for UAH 580,000. Profit = UAH 80,000.

Intermediary 1

Resale

Bought for UAH 580,000; sold for UAH 610,000. Profit = UAH 30,000.

Contractor (intermediary 2)

Supply to contracting authority

Bought for UAH 610,000; sold for UAH 625,000. Profit = UAH 15,000.

TOTAL

Aggregate chain profit

125,000 / 500,000 = 25% ✓ — within the limit

Price structure for UAVs/EW: Production cost (NAS 16) + Profit (≤ 25% of cost) + Loan costs (≤ 10% of contract value)

Operation

VAT Rate/Regime

Legal Basis

Supply of defence goods (under defence state contracts)

VAT exempt during martial law

Cl.32 sub-cl.4 sub-sec.2 sec.XX of the Tax Code; benefit code 14060514

Supply of UAVs (HS 8806) and parts (8807) where the end recipient is the Armed Forces/MIA/SBU etc.

VAT exempt across the entire supply chain

Cl.32 sub-cl.5 sub-sec.2 sec.XX of the Tax Code

Supply of goods under state contract to a general contracting authority (non-defence)

Standard rate of 20%

Art.193 of the Tax Code

Supply not covered by exemptions

20%

General Tax Code regime

Impact of VAT on the 25% base: If the supplier is a VAT payer: input VAT is recovered via tax credit and is therefore not included in production cost. If not a VAT payer: VAT on imported components is not recoverable → included in cost → increases the 25% base → the absolute amount of allowable profit increases.

Operation

VAT Rate/Regime

Legal Basis

Components (materials, parts, assemblies) for UAV production/repair (HS 8806, 8906)

VAT exempt during martial law — for manufacturer entities only

Laws No. 3123-IX and No. 3124-IX of 29.05.2023; cl.32 sub-sec.2 sec.XX of the Tax Code

UAVs (HS 8806, except 8806 10, 8806 29 20 00, 8806 99 20 00)

Exempt from import duty and VAT during martial law

Sec.XXI of the Customs Code (cl.924); Laws No. 4709-IX, No. 4710-IX (from 26.12.2025)

Demining equipment, combat simulators, counter-reconnaissance systems

Expanded exemptions from 26.12.2025

Laws No. 4709-IX and No. 4710-IX

General defence goods (per CMU lists)

Exempt from VAT and/or duty — subject to correct HS classification

Art.197 of the Tax Code; Art.282 of the Customs Code

Goods not on exemption lists

20% VAT + import duty

General regime

Risk of incorrect HS classification: The most common cause of customs exemption denial is incorrect HS code. It is recommended to obtain a preliminary customs classification ruling (Art.23 of the Customs Code) before starting import.

Tax Regime

Actual net profit at maximum 25% mark-up on cost

Standard (CIT 18%)

25% − (25% × 18%) = 25% − 4.5% = ~20.5% of production cost

Diia City (CIT 9%)

25% − (25% × 9%) = 25% − 2.25% = ~22.75% of production cost

Diia City with gig contracts

Lower payroll → lower cost → smaller absolute profit cap at the same % rate

Aspect

Content

Regulatory regime

Separate Procedure (annex to CMR No. 1275, added by CMR No. 1450 of 24.12.2024) + CMR No. 918 (loan costs)

Contract price

Production cost × 1.25 + optional loan costs ≤ 10% of contract value

Exemptions on component imports

VAT and duty exemption on UAV components (Laws No. 3123-IX, No. 3124-IX, No. 4709-IX)

Supply of drones to Armed Forces

VAT exemption across the entire chain (cl.32 sub-cls.4,5 sub-sec.2 sec.XX of the Tax Code)

Production localisation

Requirements expanded by CMR No. 693 (from 04.08.2025)

Key risk

CMR No. 918 does not apply to UAV/EW contracts concluded before its entry into force

Aspect

Content

Regulatory regime

Cls.43–49 of CMR No. 1275 Specifics; contracting authority sets its own procedure

Pricing

Cl.44: no state regulation of expected value for non-competitive procedures. Art.30 Part 3 of Law No. 808-IX remains in force.

Mandatory commercial offer

Details per para.2 cl.45: HS code, NATO stock number, specs, manufacturer, route, terms, price

Contract price change

Cl.48 allows broader grounds than cl.8: exchange rate, minimum wage, tax rates, technical solutions

Import via intermediary

Cl.46: supplier fee = 3% of foreign trade contract (only upon full performance)

Classified procurement

No public reporting; procedure and price entirely at contracting authority’s discretion

Aspect

Content

Regulatory regime

Cl.8 of CMR No. 1275 — general rule: mandatory competitive procedures at ≥ UAH 200,000

Food

Special subject matter identification procedure (Procedure to CMR No. 1275); state contract includes component cost breakdown

Medicines

Maximum trade mark-ups per Art.191 of the Commercial Code: up to 35% of manufacturer’s wholesale price for retail; up to 10% for publicly-funded healthcare facilities

25% cap

Applies under direct contract (cl.9). No restriction for tenders

Price monitoring

SAIU actively applies Methodology No. 275 to verify expected value

Aspect

Content

Profit cap under direct contract

Cl.46: only 3% of foreign trade contract value (NOT 25%)! Paid only upon full performance of the state contract.

Cost for calculation

NAS 9 (cl.9): price + duty + handling costs + non-refundable VAT

VAT exemptions on import

Art.197 of the Tax Code + provisions of Sec.XX, XXI of the Tax Code and Customs Code; depends on lists and HS code

Import authorisation

Requires appropriate permits — ‘granted authority to import the relevant types of WMS’

Key distinction from manufacturer

Manufacturer: 25% of manufacturer’s cost. Importer: 3% of foreign trade contract. Two fundamentally different regimes.

Aspect

Content

Key document

Guarantee letter from the state contract executor confirming the aggregate 25% chain limit is met

Liability

The contractor bears responsibility for the entire chain — even for links it does not control

Risk

If earlier chain links have consumed more than 25% — the contractor either violates the condition or sells at a loss

Recommendation

Before signing a state contract: obtain written confirmation of the manufacturer’s production cost and calculate the actual chain %

Alternative

Conduct procurement via Prozorro (competitive procedure) — the 25% cap does not apply

Scenario

Permissibility and Restrictions

Supplier is NOT a monopolist / dominant

Full freedom to differentiate prices. Different prices for Prozorro vs direct contract vs commercial buyer — lawful. The only restriction is not exceeding 25% under a direct contract.

Supplier is a monopolist / dominant (share >35% or no significant competition)

Art.13 of Law No. 2210-III: prohibited to apply different prices to equivalent transactions without objectively justified reasons. Different delivery conditions, volumes, timelines — justified. Difference solely because ‘contracting authority = big money source’ — NOT justified.

What price differences are ‘objectively justified’: Different order volumes (volume discounts) · Different delivery conditions and logistics · Different payment terms (advance payment / deferred) · Different warranty and service levels · Different customer risk levels

Sales Channel

Profit Restriction

Documentation Requirements

Direct contract ≥ UAH 200,000, without Prozorro (cl.9)

25% of production cost (strict)

Cost breakdown or financial statements; guarantee letter (intermediary)

Through Prozorro (competitive procedure)

None — price determined by market

Market monitoring documents at bid submission date

Commercial buyer (non-contracting authority)

None — free pricing

Invoice, contract; for monopolist — justification upon AMCU request

WMS (cls.43–49)

Not set by resolution; Art.30 Part 3 of Law No. 808 applies (CMU maximum level)

Commercial offer per para.2 cl.45

Sub-threshold procurement (< UAH 200,000)

Not regulated by CMR No. 1275; Art.30 Part 3 of Law No. 808 for non-competitive; otherwise free

Market price confirmation; budget principles

Body

Powers

Scope of Defence Procurement Review

SAIU (State Audit and Inspection Service)

Financial audit, inspection, procurement reviews, monitoring (Law No. 2939-XII)

Compliance with CMR No. 1275 (25%); market conformity of prices (Methodology No. 275); document accuracy

SSTU (State Treasury)

Operational control — registration and payment of contracts

Prozorro reporting presence; correct registration of commitments

AMCU

Competition and consumer protection

Price discrimination by monopolists; anticompetitive concerted actions; monopoly price gouging

SBU / SBI / NABU

Criminal proceedings

Corruption, misappropriation of state funds, price gouging with criminal intent and damage

Accounting Chamber

Parliamentary control

Overall effectiveness of defence budget spending

Practical case 2023 — SAIU vs Ministry of Defence: SAIU found violations totalling UAH 2.5 billion: suppliers had included profit in 2022 contract prices, which was not permitted under the then-applicable Resolution No. 335. Despite No. 335 being cancelled in July 2023 and profit being legitimised, law enforcement continued gathering evidence and opening criminal proceedings on previously concluded contracts. The case demonstrated: regulatory conflict + absence of documents = criminal risk even without intent.

Criterion

When Applied / Consequences

% of production cost (25% cap per cl.9)

Primary criterion for direct contracts. If exceeded — SAIU automatically records a violation and refers materials to law enforcement. Defence: prove the price is market-conforming and there is no state damage.

Market price conformity (Methodology No. 275)

Applies always — both for tenders and direct contracts. SAIU checks via market price comparison. If price exceeds market → state damage → criminal risk.

State damage (criminal level)

Key element of the criminal offence. If the price is market-conforming — no damage, criminal case collapses in court. Supreme Court: entities sell products at prices independently determined by the parties.

Document / Action

What It Confirms / Protects

Production cost breakdown (NAS 16)

Compliance with the 25% cap; justification of cost structure

Source documents for components

Market conformity of each cost item (invoices, purchase orders)

Chamber of Commerce certificate or independent market price assessment

Confirmation of market conformity of the final contract price at signing date

Commercial contracts with NON-government buyers at comparable prices

Strongest argument: contracting authority was charged the same price as the market

Guarantee letter (for intermediary)

Confirmation that total chain profit ≤ 25%

Competitor price monitoring at procurement date

Refutes overpricing allegations; protection for both contracting authority and supplier

Version of CMR No. 1275 at contract signing date

‘Transitional’ rule: contracts are performed under the rules in force at the conclusion date

Supply chain counterparty risk assessment

Elimination of counterparties with signs of shell companies, sanctions, Russian/Belarusian connections

Position / Case

Decision Content

Supreme Court (Tax Chamber, 26.03.2024, case No. 200/773/20-а)

Entities sell products at prices independently determined by the parties to the contract. The contractual price is market-conforming unless the controlling authority proves otherwise.

SC (Administrative Cassation Court, 05.03.2019, No. 815/3424/17)

The contractual price is the normal/market price unless the contrary is proven by the prescribed methods for determining the normal price. The burden of proof rests with the controlling authority.

SC (27.08.2020, No. 818/35/17)

Claiming prices are above normal solely on the basis of contracts for identical goods without considering conditions is unsubstantiated.

SAIU 2023 Practice (Ministry of Defence)

SAIU classified inclusion of profit in 2022 prices as a violation of Resolution No. 335 (then in force). Referred materials to law enforcement. Manufacturers used market conformity and absence of damage as a defence.

General judicial position

Existence of damage is a mandatory element of criminal liability. If the price is market-conforming, there is no damage → case collapses in court even with a formal % violation.

Prohibition of price increase (cl.8): Contract price under cl.8 CANNOT increase. Risk of cost growth after signing is borne by the supplier. Exception: WMS (cl.48) — broader grounds.

Restriction

Content

Prohibition of goods from Russia / Belarus / Iran

Mandatory rejection of bids containing goods originating from these countries

Prohibition of beneficial owners linked to Russia / Belarus

Legal entities connected to Russia/Belarus, or nationals of those countries (except persons with legal status in Ukraine) — cannot be suppliers

2+ bids on a single request

Mandatory rejection of a participant submitting 2+ bids on the same request

Prior non-performance of a contract with the same contracting authority

Contracting authority’s right to reject — if in the last 3 years a contract with that authority was terminated early with sanctions applied

Failure to provide information to SAIU

Violation of Art.8 Part 5 of Law No. 922 → administrative liability under Art.164-14 of the Code of Administrative Offences

Localisation requirements (from 04.08.2025)

Expanded list of goods per CMR No. 693 — mandatory confirmation of localisation level

Risk

Consequence

Mitigation

Cost increase after contract signing (direct contract under cl.8)

Price is frozen; growth is borne by the supplier; real profit → negative

Build in a buffer; monitor component price trends; for WMS — require cl.48 on exchange rates

CIT ‘eats into’ the 25%

25% is pre-tax; net profit ≈ 20.5% of cost at 18% rate

Model finances including CIT; consider Diia City regime (CIT 9%)

Exceeding 25% across the intermediary chain

Guarantee letter proves false → SAIU refers materials to law enforcement

Obtain manufacturer’s cost before signing; calculate the chain in advance

Incorrect HS classification for customs exemptions

Exemption denied → additional duty and VAT charges → actual cost increases

Preliminary customs classification ruling before starting import

Risk

Consequence

Mitigation

Formal 25% excess at market price

SAIU records violation and refers materials. But in court — defence through market conformity and absence of damage

Always maintain a market evidence package; do not rely solely on the % calculation

Ambiguity of the 25% calculation base with an imported manufacturer

Contracting authority and supplier interpret cost differently

Agree on calculation methodology in advance; include details in the guarantee letter

Risky counterparty in the chain

Increases criminal liability risks for the state contract executor

Check each counterparty: sanctions, NACP, shell company indicators, Russian/Belarusian links

Resolution revision during contract performance

New rules may complicate conditions

Keep a copy of the resolution version at signing; rely on the protective rule (procurement is completed under the rules at conclusion date)

False information in intermediary’s guarantee letter

Liability falls on the state contract executor, not the manufacturer

Sign only after verification; include data accuracy liability in the contract with the manufacturer

Situation

Recommended Channel

Actual mark-up ≤ 25% of production cost

Direct contract (cl.9) — lawful and without additional procedures

Actual mark-up > 25% of production cost but price is market-conforming

Must go through Prozorro (competitive procedure) — 25% cap does not apply

Unique product, de facto monopoly

Prozorro + thorough market price documentation + independent assessment

WMS, urgent need

Cls.43–49 regime (direct state contract); mandatory commercial offer per cl.45

Domestically produced UAVs / EW systems

Separate Procedure (CMR No. 1450); consider right to loan costs (CMR No. 918)

Document

Retention Period / Purpose

Production cost breakdown with line-item detail

Min 5 years after contract performance (statute of limitations for financial crimes)

Source documents for components (invoices, purchase orders)

Min 5 years

CCI certificate / independent market price assessment at contract date

Indefinite — until all possible proceedings are concluded

Screenshots / printouts of competitor market prices

Capture date is critical — must correspond to the contract signing date

Guarantee letter (for intermediary) with manufacturer’s cost confirmation

Keep together with the state contract

Version of CMR No. 1275 at signing date

PDF from the Rada website or Budstandart — with date and version

Commercial contracts with non-government buyers at comparable prices

Strongest argument against price discrimination of the contracting authority

Question

Provision

Document

Details

Who may procure without Prozorro?

Cl.9 (conditions)

CMR No. 1275

Manufacturer: ≤25% of production cost. Intermediary: aggregate chain ≤25% of manufacturer’s cost

Where is the production cost composition defined?

NAS 16 cls.11–16

MoF Order No. 318/1999

Materials, payroll, SSC, depreciation, manufacturing overhead

What rate applies to an intermediary importing WMS?

Cl.46

CMR No. 1275

3% of foreign trade contract value (not 25%)

Does the 25% cap apply to WMS procurement?

Art.30 Part 3

Law No. 808-IX, No. 3589-IX

CMU sets the maximum level. No separate level for WMS; cl.44 — no state regulation of expected value

When may the 25% cap be disregarded?

Cl.8 (competitive)

CMR No. 1275

When conducted via Prozorro — the 25% cap does not apply

Is there a cap for sub-threshold procurement?

Art.30 Part 3

Law No. 808-IX

CMR No. 1275 does not regulate. Art.30 Part 3 applies. CMU has not set a separate level → contractor’s offer

Who verifies the price?

Various bodies

SAIU, SSTU, AMCU, SBI/SBU/NABU

SAIU: formal %; Methodology No. 275 — market; Law enforcement: state damage

What VAT rate applies to UAVs for the Armed Forces?

Cl.32 sub-cls.4,5 sub-sec.2 sec.XX

Tax Code

VAT exemption across the entire supply chain

May loan costs be included?

CMR No. 918 of 30.07.2025

CMR No. 918

Only UAV/EW manufacturers; ≤10% of value; justification required

Framework agreements: who may use them?

Cl.7

CMR No. 1275 (ed. of 07.02.2024)

Only the Defence Procurement Agency and SSSCIP Procurement Department

May a manufacturer sell at different prices to different customers?

Art.13

Law No. 2210-III

Yes — for non-monopolists. For monopolists: objectively justified reasons required

When may a WMS contract price be increased?

Cl.48

CMR No. 1275

Exchange rate, minimum wage, tax rates, technical solutions — with justification

Is there liability for price gouging?

Art.2 Part 2

Law No. 808-IX

Prohibition of unjustified price inflation; criminal liability with intent and damage