State aid under the martial law regime: anticipated changes and trends in legal regulation

This article was prepared with the participation of Intern Sofiia Lashchuk.

Adaptation of the regulatory framework for the granting of state aid to the acquis communautaire of the European Union (“EU”) is part of the second negotiating cluster, “Internal Market”. It is one of the key areas of Ukraine’s European integration. Furthermore, Article 263 of the Association Agreement between Ukraine, on the one hand, and the European Union, the European Atomic Energy Community and their Member States, on the other hand (the “Association Agreement”) obliges Ukraine to ensure transparency in the field of state aid.

Within the meaning of the Law of Ukraine “On State Aid to Undertakings” (the “Law”), state aid is defined as the provision of state support to economic “entities on non-market terms in a certain form (e.g. by way of subsidies, compensation, tax breaks, debt write-offs, etc.) that confers significant advantages and may distort competition. It should also be noted that not every involvement of the state in economic processes is automatically recognised as “state aid”: in particular, measures that do not grant an advantage to any undertaking, apply to all undertakings equally and do not “strengthen” any of them cannot be recognised as state aid.

The Law also clearly defines the forms of state aid. Such measures are implemented in four key areas:

• Direct budget financing: grants, budgetary transfers, compensation, and subsidies.
• Tax and payment incentives: granting of privileges, debt write-offs, etc.
• Use of financial instruments: state guarantees, preferential loans.
• Property incentives: provision of goods or services at below-market prices, sale of state property at below-market prices, etc.

According to the Law, state aid in Ukraine is provided by public authorities, local self-government bodies, and administrative and economic management bodies. It may also be provided by legal entities acting on their behalf and authorised to dispose of state or local resources. However, the ”provider” of state aid is not only the ministry or local council that adopts the relevant decision. It also includes any structural unit that implements support programmes or disposes of public resources on behalf of the state or a community. The Antimonopoly Committee of Ukraine (the “AMC”), which serves as the Authorised Body for State Aid, published its 2024 Annual Report on the Granting of State Aid to Undertakings. The report noted that local authorities accounted for approximately 95% of all state aid measures.

Although the Association Agreement formally links the prohibition on state aid to its potential impact on trade between Ukraine and the EU, in practice, Ukraine has implemented a comprehensive model of state aid control similar to that operating in the European Union. This approach is in line with the established EU practice, which interprets the impact-on-trade criterion very broadly and even covers local measures if the relevant sector is open to competition. Therefore, since its inception, the Ukrainian state aid system has been aimed not only at fulfilling formal obligations under the Association Agreement, but also at structurally forming a competitive domestic market in line with European standards.

In practice, limiting state aid supervision solely to measures affecting Ukraine-EU trade would be unworkable. The impossibility of clearly distinguishing between “domestic” and “cross-border” aid ex ante, as well as the Agreement’s requirements regarding the institutional architecture of control, led to the implementation of a comprehensive model of state aid in Ukraine aimed at protecting competition on the domestic market. Historically, Ukraine has adopted the EU approach to state aid supervision but initially implemented only primary legislation without detailed secondary regulations. This gap has created excessive pressure on both state aid providers (government bodies) and beneficiaries (businesses), increasing administrative costs and creating unpredictability for all parties. This approach has also placed a significant burden on the AMC. All this ultimately led to criticism from certain experts regarding the way the mechanism was implemented in Ukraine, rather than the EU model itself.

In peacetime, state aid in Ukraine functioned according to the procedural logic of “notification of state aid implementation – assessment of state aid admissibility – decision-making – monitoring of state aid”. However, the events after 24 February 2022 led to a transition from the so-called “ex-ante control” mechanism to, in fact, a suspension of control, in order to provide rapid and effective support to the economy in the context of a full-scale russian invasion.

Amendments to legislation on the granting of state aid to undertakings after the introduction of martial law

In 2022, Section 9 of the Law was supplemented by paragraph 5-2, which introduced changes to the legal regulation of state aid to undertakings during martial law. In particular, as stated in the AMC’s Guidance No. 1-rr/DD of 15 April 2022:

• during the period of martial law, state aid providers shall not submit notifications of new state aid and changes to existing programmes (in particular, when the increase in existing funding exceeds 20%);
• state aid introduced by a regulatory act during martial law is considered compatible if it complies with the objectives of the Law;
• the procedural deadlines for considering notifications and cases have been suspended, and the obligation to submit information on such aid has been postponed: it must be submitted by 1 April of the year following the year of termination/cancellation of martial law;
• during the year following the termination/cancellation of martial law, state aid providers remain exempt from the obligation to notify of new state aid and changes to current aid.

It is also important to note that the AMC’s monitoring of existing state aid is suspended for the duration of martial law.

In November 2024, paragraph 5-2 of Section 9 of the Law was supplemented by a new paragraph as follows: “The exceptions provided for in this paragraph shall not apply to the granting of state aid through the Business Development Fund (“BDF”). The provisions of the Law shall apply to such state aid in full.” 

Strategically, the BDF is a state financial institution that provides business support, through which the state (and donors) provides financial assistance to micro, small, and medium-sized enterprises (SMEs) in Ukraine. As a result of these changes, in general, starting 8 November 2024, the granting of state aid by the BDF in amounts exceeding the thresholds for de minimis state aid[1] was subject to notification to the AMC. This provision expired in December 2025, and with it the obligation to notify the AMC of the BDF’s granting of state aid, regardless of its amount.

On 30 December 2025, Draft Law No. 14345 was registered in the Verkhovna Rada (the “Draft Law No. 14345”). The bill addresses amendments to the Law of Ukraine “On State Aid to Undertakings” regarding the restoration of certain provisions thereof, the specifics of their application during the legal regime of martial law, and improving the monitoring of state aid to business entities”. It was initiated by the Prime Minister of Ukraine, Yulia Svyrydenko. This draft law proposes resuming monitoring of state aid, taking into account the specifics of the martial law regime.

Key novelties of the Draft Law No. 14345

• The list of providers of state aid/de minimis aid has been expanded: now they can also include undertakings, public associations and entities without legal personality (unincorporated entity), or other executive bodies that formulate and implement state policy in the relevant areas in which state aid is provided.
• The thresholds for de minimis aid have been raised: the general threshold is EUR 300,000, and the general threshold for services of general economic interest (hereinafter referred to as SGEI) is EUR 750,000.
• Changes to the rules on SGEI: in particular, it is envisaged that they will be determined by state authorities or local self-government bodies
• The scope of the Law has been expanded: now it does not apply only to support in the following areas:
  • agriculture;
  • fisheries; and
  • the supply of goods, works, and services to the security and defence sector for defence purposes (provided such support is directed exclusively at defence-related supplies).
• Application of the EU practice: when applying the provisions of this Law and other regulatory acts adopted in accordance with it, the AMC and courts shall take into account the relevant legislation, guidelines, framework provisions and case law of the Court of Justice of the European Union in the field of state aid to economic entities.
• Expansion of the AMC’s powers: in particular, powers have been added to determine the amount of state aid for certain forms of state aid, the conditions under which an activity is not considered an economic activity, and other conditions under which measures to support economic entities do not constitute state aid and do not require notification of the Authorised Body of new state aid, as well as the conditions for classifying support from state or local resources as de minimis aid.
• Repayment of state aid: the AMC cannot demand the repayment of illegal and inadmissible state aid if 10 years have passed since it was granted. At the same time, the 10-year period is “suspended” (i.e. not counted) for the duration of the AMC’s monitoring/consideration of the state aid case and for the duration of any judicial appeal of its decisions.
• Recommendations on the admissibility of state aid: if, after monitoring state aid, the AMC finds it inadmissible, it may issue recommendations to bring the conditions of the state aid into line with the requirements of the Law. If relevant recommendations of the AMC are not implemented within the specified time frame and there is no evidence that the state aid provided is admissible, the AMC opens a state aid case. The Draft Law No. 14345 proposes to set a time limit for the consideration of such cases of no more than 18 months from the date of opening the case. If there are reasonable grounds, the time limit may be extended for up to 18 months by notifying the state aid provider in writing.
• State aid register: the Draft Law No. 14345 provides for updating existing electronic databases on the granting of state aid and converting them into an official public electronic register. The relevant changes follow the EU’s logic of compliance with the transparency principle in the granting of state aid.
• Consultations on the granting of state aid: to ensure a correct list of materials in accordance with the requirements of the Law, state aid providers may contact the AMC for consultation. The AMC must respond to aid provider requests within 10 working days of receiving them.
• Territorial features of the Law: the key provisions of the Law (Articles 9-16 of the Law) will be temporarily suspended in territories that are officially included in the list of territories of active hostilities or temporarily occupied by the russian federation (“TOT”). This exception shall apply until the date of the end of hostilities/occupation is determined for the territory, and for another year after the date of the end of hostilities/occupation. Thus, in areas of active combat operations and in TOT, the state has retained a more “flexible” regime of state aid with a reserved provision to resume monitoring after the situation stabilises.
• The effect of the Law on “systemically important banks”: under martial law, the state can quickly increase the authorised capital of such banks for the needs of the defence-industrial complex without having to comply with the established procedures for the granting of state aid.
• Exceptions to the Draft Law No. 14345 on state aid control: it is proposed not to monitor the granting of state aid to compensate for losses from emergencies, provided there is a causal link between the event and the losses, and the amount of compensation does not exceed the actual unrecovered losses.

Thus, the state aid system in Ukraine under the legal regime of martial law is being adapted to the current circumstances, where a rapid response to security and economic challenges has become key. The proposed changes in legislation are aimed at restoring transparency in the granting of state aid and bringing it closer to the EU standards without losing the flexibility of legal regulation necessary in conditions of war and post-war recovery.

Implications for business:

• As a rule, legislative changes are not applied retroactively, restrictions will not apply to agreements that have already been concluded.
• At the same time, further extension, change of terms or increase in funding of such programmes after the AMC resumes control may be subject to mandatory notification to the AMC, and previous payments may be taken into account when assessing the admissibility of such aid.
• We advise companies participating in projects involving state aid to include in their project plans timeframes for the AMC’s consideration of state aid notifications (including the preparation of necessary documents and responses to possible requests for information). This will reduce the risk of delays, funding suspension, and further adjustments to project terms.

It is currently difficult to estimate when this bill will enter into force. However, based on 2024 statistical data, the average period between a bill’s registration in the Verkhovna Rada (the Ukrainian Parliament) and its signing was 186 days. Additionally, 55% of bills were adopted within 126 days of registration[2]. Thus, depending on the duration of the bill’s consideration by the responsible committees in the Verkhovna Rada of Ukraine, its signing can be expected by the end of May 2026. At the same time, the adoption of the Draft Law No. 14345 will most likely depend not so much on the Verkhovna Rada of Ukraine’s internal procedures as on the dynamics of negotiations with the European Union within the “Internal Market” cluster.

Simultaneously, an analysis of the state aid system in Ukraine would be incomplete without considering the provisions of Article 15 of the Law of Ukraine “On Protection of Economic Competition”, which prohibits anticompetitive actions by state authorities and local self-government bodies. This provision covers, in particular, actions by public authorities that result or may result in granting certain economic entities advantages that place them in a privileged position on the market.

Before the introduction of a special state aid control regime, Article 15 of the Law served as the main legal instrument for addressing selective state support that distorted competition. At the same time, this mechanism has a fundamentally different legal nature: it provides for an ex post assessment of the actions of public authorities within the framework of proceedings for violations of legislation on the protection of economic competition and does not provide for a preliminary assessment of the admissibility of state support measures.

The introduction of separate legislation on state aid did not abolish or replace the application of Article 15 of the Law of Ukraine “On Protection of Economic Competition”. Still, it supplemented it, forming a two-component supervising model. In this model, the state aid regime performs a preventive and regulatory function. At the same time, Article 15 remains an instrument for responding to anticompetitive actions by public authorities in cases that go beyond or violate the established rules of admissibility of state aid.

Thus, even under the suspension of state aid control procedures during martial law, the Antimonopoly Committee of Ukraine is not exempt from its obligation to ensure the protection of competition. Control over anticompetitive actions by public authorities in accordance with Article 15 of the Law of Ukraine “On Protection of Economic Competition” remains in effect and plays a key role in preventing distortions of the competitive environment, thereby avoiding a regulatory vacuum until the special state aid regime is fully restored.

[1] According to paragraph 9 of Part 1 of Article 1 of the Law, state aid is considered insignificant if its total amount, regardless of its form and sources, does not exceed, for any three-year period, the equivalent of 200,000 euros, determined at the official exchange rate set by the National Bank of Ukraine on the last day of the financial year.

[2] First reading: how quickly do bills pass through the Verkhovna Rada and how can the process be made more efficient?