Investment in this country: the essential regulatory framework

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This website aims to provide useful legal information for those natural or legal persons who wish to initiate any kind of relationship with Ukraine - focusing on certain aspects related to international law and domestic commercial law. This website is not intended to describe international law or domestic commercial law in an exhaustive manner, but simply to place attention on the most practical and interesting aspects for those natural or legal persons wishing to enter into business relations with the country. This website has no political content: it is free and open to all individuals who wish to make a contribution in the field of civil, commercial and administrative law. For any information, clarification or suggestion, you can contact us at: mail@decapoa.com

The Ukraine è an Eastern European state with a population of about 46 million. È a post-Soviet country, which became independent in 1991. Despite the protracted crisis in the areas of economy and politics, Ukraine strengthens its positions in the world market year by year, particularly, in the European market.

The Association Agreement between the European Union and Ukraine è an international treaty aimed at deepening integration between Ukraine and the European Union in the fields of politics, trade, culture and security. The ratification procedure by all parties to the Agreement è ended on July 11, 2017, a starting point for strengthening mutual relations between the countries.

Thanks to the direction of European integration, Ukraine is introducing reforms not only in the economic and political sectors, but also in the legal sector. In particular, over the past three years, the Ukrainian government has made significant changes to the legislative system by introducing compliance with European Union laws.

In spite of this, Ukrainian norms remain different from European ones. At present, thanks to the signing of this Agreement, Ukrainian companies have the opportunity to enter the European market more easily.

However, there are difficulties in the legal sphere and in drafting all the necessary documentation, aspects to which the de Capoa Law Firm canò offer multiple solutions.

The Studio Legale de Capoa & Partners, thanks to its more than thirty years of experience in the field of international law as well as to the close collaborative relationships it maintains with qualified local professionals and native-speaking in-house associates, canò offer interested entrepreneurs quick, efficient advice that is fully aware of the complexity of the Tunisian legal-economic reality.

In Ukraine, the agency contract è is regulated by Art. 295 of the Code (of Legislation) Domestica Ukraine (CDU for short), which defines it as an entrepreneurial activity which takes the form of the performance by the agent in the name, in the interest, at the expense and under the direction of another person (the so-called principal or the principal) of the activity of commercial mediation. According to Ukrainian law, the role of the agent can be performed indifferently by a natural or legal person, provided that the functions performed by the agent find their basis in an agency contract and consist of commercial mediation. It follows that, in Ukrainian law, the agency contract governs the relations between the agent and the principal, where the parties to the said contract assume the status of entrepreneurial entities.

As to the subject matter of the agency contract, Ukrainian law specifies that the services offered by the agent for the benefit of the principal consist in the conclusion of agreements/contracts or in facilitating their conclusion and, in any case, these must be concrete and factual activities, carried out in the name and at the expense of the principal.

From this follows, therefore, a bipartition of the agency contract into two cases: on the one hand, the more widespread one, having as its object the conclusion of commercial agreements, and on the other hand, the one aimed at providing a series of activities and services in order for the conclusion of the contract/agreement to materialize. For the agency contract, Ukrainian law expressly requires that it be in writing and lists a number of requirements under penalty of nullity, including, but not limited to, the specific skills and functions of the agent, the duration of the contract, the amount of remuneration and others, as well as the penalties applicable in case of non-performance.

When drafting the agency contract è it is advisable to define the territory limited to which the agent carries out its activities. In the absence of specific contractual provisions with reference to the territory of competence, it is assumed that the agent operates within the borders of the State of Ukraine.

Under Ukrainian law, the agent is obliged to periodically report on the activities performed. In addition, the agent must personally perform the functions assigned to him/her and cannot delegate the activities to others. The agency contract terminates by the will of the parties and other cases expressly provided for by local law. Taking into account the legal protections reserved by Ukrainian law for the figure of the agent, when drafting the agency contract it is suggested to carefully consider the applicable law.

The distribution contract, although not expressly regulated by Ukrainian law, è is particularly common in business relations involving Ukrainian operators and entrepreneurs. By virtue of the principle of contractual autonomy of the parties enunciated in Articles 6-8 of the Ukrainian Civil Code, which recognizes the possibility for the parties to enter into contracts that are not typified by law (so-called typical or named contracts), the parties can therefore conclude a distribution contract.

In addition, Ukrainian law allows the parties to attach legally binding value to established custom in domestic and international business relations.

However, despite Ukraine’s efforts to standardize certain legal institutions peculiar to foreign legal systems in order to foster greater exchange of goods and services, it’s still premature to argue for perfect cohesion of legal concepts and institutions actually applied.

It follows that the distribution contract in Ukraine, not having its own discipline, tends to be subject to a number of laws such as those on competition, consumer protection, intellectual property protection and advertising. It should be noted that if one of the contracting parties is a foreign national the rule of Ukrainian private international law applies to the distribution contract.

In accordance with the norms of Ukrainian private international law, when one of the contracting parties è a Ukrainian citizen or a legal entity established on the territory of’Ukraine, regardless of the applicable law and the place where it was concluded, the contract must be in writing.

In Ukraine, the franchise agreement è recently became part of business practices. According to’art. 1115 of the Ukrainian Civil Code by virtue of the franchise contract one party (“pravovladelez” a.k.a. franchisee) grants to the’other party (“polsovatel” – franchisor), for a fee, the right to use in accordance with the precise indications of the’set of rights belonging to the former with purposes of production or sale of goods or services.

The precise definition of the contractual case is provided by Art. 366 of the Code of Ukrainian Domestic Rules, where the franchise contract presupposes that one party is obliged to grant to the other, for a certain period, the right to use in the franchisor's business activity the rights belonging to the franchisee, while the franchisor is obliged to observe and comply with the imposed conditions of use and to pay the franchisee the agreed consideration.

The subject matter of the franchise agreement may consist of a trademark, business know-how, trade secrets, name, invention and other intangible assets.

Essential requirements of the franchise contract

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Article 1118 Ukrainian Civil Code for the franchise contract requires, under penalty of nullity, the written form. In addition, such a contract must be registered with the same institution that registered the right granted franchise. In case the franchisee is a foreign entity, the registration of the contract will have to be done at the’Institution at which è the same franchisor was originally registered.

The rule places among the essential requirements of the franchise agreement: the conclusion of the agreement having as its object the right to use identified assets, the transfer by the franchisor of the power to use the right granted, the patrimoniality of the use.

The Ukrainian Civil Code expressly defines the duties and obligations of the franchisor and the franchisee. It should be noted that the franchisee is vicariously liable for any claims made against the franchisor.

In the event that the franchisor may qualify as a manufacturer, the franchisee è jointly and severally liable in the event of a defective product, but retains the right of recourse against the franchisor. However, the consumer or user of the service may bring suit directly against the franchisee only if the franchisor has refused to make good such damage.

Amendments to the distribution contract under Ukrainian law are permitted by express consent of the parties. Any amendment made to the franchise contract requires a new registration of the amended contract.

Import and export transactions in Ukraine are subject to various taxes such as customs duties and VAT. In some cases you may have application of special excise taxes and/or the requirement for other payments related to licensing and approval of product labeling. Customs duties and the items for which they apply are subject to change only in accordance with the decisions of the Ukrainian Parliament.

The Ukrainian Classification of Foreign Economic Activities (UCFEA) è based on the Harmonized Commodity Description and Coding System (1996) and the EC Combined Nomenclature (2000) and is the customs classification system currently in use. The UCFEA serves as the basis for calculating the country's customs tariffs.

Import duties are calculated in accordance with the Unified Customs Tariffs of Ukraine on the basis of the Harmonized System and are calculated as a percentage of the customs value of goods and other commodities, either per single unit (of goods or products) or for a number of units. Special customs duties are in effect for certain types of goods and commodity groups, such as special, countervailing, antidumping and seasonal import and export duties. Customs duties must be paid in Ukrainian currency, the Hryvnia.

VAT è 20% calculated on the value of goods at customs exit, i.e. CIF value plus customs and excise duties. VAT must be paid at the time when customs duties and other taxes are paid at a rate determined according to the customs value of the goods. In addition to VAT and customs duties in accordance with the Unified Customs Tariffs there is an additional customs tax on the customs value of goods. This additional tax in 2017 è was lowered from 0.2% to 0.15%. The additional tax has a maximum limit of 1,000 USD. An’additional excise tax applies to luxury goods imported into Ukraine such as precious metals, alcoholic beverages and tobacco. È required that importers, especially those dealing with luxury products, always be aware of the latest regulations governing the particular products they deal with. Generally, the documentation required at customs are certificates of origin of the products or machinery and the commercial invoice.

Import duties are applied in partial or full amount depending on the country of origin of the goods. The concessional regime is granted in particular to those countries or groups of countries that are most active as trading partners in Ukraine.

According to Article VII of the Law of Ukraine on Foreign Economic Activity, the tariff scheme in Ukraine includes three types of import duties depending on the country of origin of goods:

  • Full –above MFN (Most Favored Nation) rate, for goods from states that do not enjoy special facilities.
  • Most Favored Nation (MFN) – for goods that come from states that enjoy "most favored nation" treatment and can be 2 to 10 times lower than the full rate.
  • Preferential –which applies to imports from countries with which Ukraine has a Free Trade Agreement or other trade agreements, for example, imports from CIS countries (Armenia, Azerbaijan, Belarus, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan and Uzbekistan) and are further lower than MFN rates.

After becoming a member of the World Trade Organization in 2008, Ukraine applied new and reduced MFN rates for all goods originating from WTO member countries. Beyond being a member of the WTO, Italy enjoys a facilitated regime as Most Favored Nation being one of the most active countries as Ukraine's trading partners.

For customs purposes, the value, in accordance with ’Article 259 of the Ukrainian Customs Code, è is defined as the value stated by the declarant (this is usually the value stated on the purchase invoice, so-called “transaction value”) or determined by customs on the basis of alternative determination criteria to transaction value. The Ukrainian customs tariff includes more than 11,000 items, the majority of which è are subject to ad valorem duties, while a very small percentage (about 6 percent) are affected by specific or mixed duties. The latter, in particular, apply mainly to imported agricultural products, especially those that compete with domestically produced goods. To give an example on sunflower oil è a 30 percent duty is applied and on sugar a 50 percent duty, compared to a general average of 11.5 percent of customs duties on agricultural products. With regard to industrial products, the average duty rate è of 4.91%, and therefore also with regard to electrical/electronic equipment we should be around these values, subject to the application of preferential regimes to be verified in relation to the specific type of goods and their origin.

Duties for imports from Ukraine to the European Union

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The customs duty applied by the European Union varies depending on the type of good imported and is calculated according to its value contained in the seller's declaration, which usually corresponds to the invoice sent with the product. If a check is made and the Customs employee finds a mismatch between what was paid and the value of the goods, the goods will be revalued and the duty will be calculated on the new valuation. This procedure è at the discretion of the Customs clerk, is based on assumed valuations. The selection of packages that are opened to check the contents is done randomly.

In any case, the customs fee is calculated on the value of the goods including shipping costs. If these are not indicated it is, again, calculated on the basis of an assumed value.

In shipments with destination the European Union, the duty applied corresponds to the Integrated Community Tariff (TARIC). The TARIC is calculated as a percentage according to the commodity tables introduced by Reg. (EEC) No. 2658/87 at the first customs entry into the Union. Unfortunately, in order to calculate the TARIC you need the specific commodity code for the good you intend to import. Otherwise, it is not è possible to calculate duties accurately given the multiplicity of entries and different qualifiers of use. To give a trivial example, the import of a dishwasher for household use è subjected to a duty of 2.7 percent, while if è imported for other uses è subjected to a duty of 1.7 percent. If the commodity code is not available, it would be helpful to have a minimal description of the good or its intended use.

Activities in the country

  • Corporation of companies, branches and corporate joint ventures
  • Contract tenders
  • Manufacturing relocations
  • M&A and due diligence
  • Business missions and negotiations
  • Contracts in accordance with local national and international regulations
  • Protection and protection of intellectual and industrial property
  • Technical regulations
  • Judicial and extrajudicial assistance
  • Judicial and extrajudicial assistance in private international law
  • Succession and family law
  • Collection of debts

The editors

Fabrizio Fiori

Olga Manservigi Kichitskaia

Disclaimer

This website and the information it contains has been developed and provided by Studio Legale de Capoa for informational purposes only. This website is not intended to be, and is not a substitute for, legal advice. Do not use any information contained in these pages as a source of legal advice. This website contains direct links to sites that have not been prepared by Studio Legale de Capoa. These links are offered as a courtesy. The de Capoa Law Firm has no relationship with them, and their mention does not imply validation or approval. Studio Legale de Capoa is not responsible for the contents of all linked sites or any links contained in the linked sites. This website is not for advertising purposes. The de Capoa Law Firm does not intend to represent anyone seeking representation based on the review of this website anywhere where it does not comply with all laws and ethical rules. No attorney-client relationship is established between users of the website and the de Capoa Law Firm.

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