INTERNATIONAL CONTRACT MANUAL

INTERNATIONAL CONTRACT

MANUAL

Chapter 77A

Ukraine

By: Nataliya Mykolska, Esq., Anzhela Makhinova, Esq.,Svitlana Kheda, Esq., Dmitry Taranyk, Esq., DmytroIvanusa, Esq., Olena Perepelynska, Esq., and OlexanderDroug, Esq.*

I. INTRODUCTION§ 77A:1 Source and nature of Ukrainian law

*Nataliya Mykolska is a counsel at Sayenko Kharenko with a partic-ular focus on international trade. Ms. Mykolska has over 10 years of experi-ence advising clients on all aspects of international trade including cross-border trade transactions and contracts, agency and distribution, franchising,trade �nancing and other matters. Ms. Mykolska is named among Top 2lawyers in Foreign Trade by Ukrainian Law Firms 2013; recommended byThe International Who's Who of Franchise Lawyers 2013, The InternationalWho's Who of Business Lawyers 2014, The International Who's Who of Trade& Customs Lawyers 2013 and The International Who's Who Legal: CIS 2011in Trade & Customs. Ms. Mykolska is a country expert of the InternationalDistribution Institute (IDI) on franchising in Ukraine. Ms. Mykolska special-izes in trade remedy proceedings and regularly counsels on the application ofWTO rules. Ms. Mykolska also focuses on industries with speci�c regulatoryrequirements, such as pharmaceuticals and gambling. Ms. Mykolskaauthored more than 40 articles published in leading Ukrainian and foreignlaw periodicals.

Anzhela Makhinova is an associate at Sayenko Kharenko special-izing in international trade. She regularly advises clients on a wide varietyof trade law aspects, involving development of distribution and franchisingagreements, hotel management, etc. Ms. Makhinova has extensive experi-ence of advising on trade investigations and applications of WTO laws. Herarticles in the �eld of international trade, including international contractsincl. distribution, trade investigations, and WTO related issues have beenpublished in leading law periodicals.

Svitlana Kheda, counsel heading the �rm's labour and employmentpractice, has over 16 years of experience in advising clients on a wide rangeof complex issues in the area of labour and employment law, privacy anddata protection regulation, anti-corruption and anti-bribery legislation andpublic-private partnerships (PPP) in infrastructure projects. She is named

77A-1K 2013 Thomson Reuters, 12/2013

among Top three in labour law according to Ukrainian Law Firms 2013;ranked among Top six lawyers for employment law in Ukraine, according toChambers Europe 2013, and listed among the country's Top four lawyers inlabour law and PPP, based on the results of the all-Ukrainian survey Client'sChoice. Top-100 Lawyers in Ukraine 2012–2013 conducted by the Ukrainianlegal weekly Yurydychna Gazeta. Ms. Kheda is a certi�ed mediator at theUkrainian Mediation Centre. Ms. Kheda actively participates in the legisla-tive drafting. Ms. Kheda is a published author of a monograph and over 70articles in the U.S., U.K., Turkey, Ukraine, India, and Canada, and is afrequent speaker on various legal issues.

Dmitry Taranyk is a counsel at Sayenko Kharenko heading theFirm's Antitrust and Competition practice. Dmitry is named AntitrustLawyer of the Year in Ukraine by Lawyer Monthly Legal Awards 2012; andrecognized among leading lawyers in competition law by Ukrainian LawFirms 2013, Chambers Europe 2013, Best Lawyers International 2013, Euro-money Expert Guides, The Legal 500, 2013, The International Who's Who ofCompetition Lawyers 2013, and PLC Which Lawyer?, 2012. Mr. Taranykregularly advises clients on a wide variety of antitrust law aspects, involvingmerger control, concerted practices, abuse of dominance, monopolization, andunfair competition. He also counsels on antitrust matters in relation tomultinational and domestic acquisitions and joint ventures, including mergerclearances by the Antimonopoly Committee of Ukraine. Mr. Taranyk isexperienced in resolving complex antitrust disputes involving multinationalcompanies, particularly the abuse of dominance claims, and engaged indeveloping antitrust compliance programs and policies for many internationalclients.

Dmytro Ivanusa, counsel at Sayenko Kharenko, focuses on taxation,currency control, foreign trade and customs. Mr. Ivanusa also practices incorporate, M&A, dispute resolution, concessions, real estate, commercial law,labor law and sports law. Mr. Ivanusa is among recommended practitionersin tax according to Ukrainian Law Firms 2013. He practiced law from 1996at the Kyiv o�ces of KPMG, Baker & McKenzie, CMS Cameron McKennaand at a Ukrainian boutique law �rm Levenets, Maciw & Partners. The taxpractice created by Mr. Ivanusa at CMS Cameron McKenna has been recom-mended by the Legal 500.

Olena Perepelynska is a counsel at Sayenko Kharenko with over 10years of experience in international commercial arbitration and internationaltrade. Ms. Perepelynska has been named among Top 5 leading CommercialArbitration lawyers for Ukraine by The International Who's Who of Com-mercial Arbitration. She is also recommended as one of the best experts fordispute resolution in Ukraine by Chambers Global and Ukrainian Law Firms.According to Client's Choice. TOP-100 best lawyers of Ukraine 2012–2013lists Ms. Perepelynska among Top 100 best lawyers of Ukraine, andrecognized as one of the top Ukrainian lawyers in the areas of internationalarbitration, international trade and customs law. Ms. Perepelynska hasacted for Ukrainian and foreign clients in more than 60 arbitral proceedingsunder a variety of arbitration rules (ICC, LCIA, SCC, International Com-mercial Arbitration Court, Maritime Arbitration Commission at the Ukrai-nian CCI, International Commercial Arbitration Court at the CCI of the Rus-sian Federation, GAFTA, FOSFA, LMAA, UNCITRAL Arbitration Rules and

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§ 77A:2 Choice of law§ 77A:3 Arbitration

II. CONTRACT PRINCIPLES

A. CONTRACT LAW IN GENERAL§ 77A:4 Types of contracts§ 77A:5 Material conditions of the contract, general

requirements on the validity of contracts§ 77A:6 Delay, debtor's liability§ 77A:7 Contractual penalty§ 77A:8 Quality guarantee§ 77A:9 Legal defects§ 77A:10 Adhesion contracts§ 77A:11 Limitation periods

B. COLLATERALIZATION§ 77A:12 Collaterals§ 77A:13 Pledge§ 77A:14 Other methods of securing claims—Surety§ 77A:15 —Guarantee§ 77A:16 —Advance deposit§ 77A:17 —Retention

III. GOVERNMENT AUTHORIZATIONS§ 77A:18 In general

IV. TAXATION§ 77A:19 Personal income tax (PIT)

others). Ms. Perepelynska handles arbitration proceedings covering a widerange of commercial issues including the sale of goods and services, corporaterights transactions, maritime, and other matters. Ms. Perepelynska is amember of the Chartered Institute of Arbitrators (MCIArb), admitted to KyivCity Bar, and is a Board member of the Ukrainian Arbitration Association.She is listed as recommended arbitrator of various arbitration institutions inKazakhstan, Lithuania, Romania, Czech Republic, Poland and Ukraine.

Olexander Droug is an associate at Sayenko Kharenko. Mr. Drougspecializes in dispute resolution, insolvency and banking with a special focuson arbitration and commercial litigation. Mr. Droug advises local and foreignclients on dispute resolution proceedings in Ukrainian and foreign courts, aswell as arbitration under various arbitration rules. He represents both lend-ers and borrowers (banks and corporates) in debt restructurings in Ukraine.He publishes extensively in his areas of expertise and is engaged in legisla-tive and regulatory advocacy on behalf of clients.

Ukraine


§ 77A:20 Corporate income tax (CIT)§ 77A:21 Value added tax (VAT)§ 77A:22 Payroll taxes§ 77A:23 Stamp duty§ 77A:24 Excise tax§ 77A:25 Land tax§ 77A:26 Real estate tax

V. STRUCTURING OF EXPORT TRANSACTIONS

§ 77A:27 Permanent establishment§ 77A:28 Source rules for principal types of income

A. REPRESENTATION OF COMPANIES

§ 77A:29 In general§ 77A:30 Corporate rules of representation§ 77A:31 Speci�c rules of representation§ 77A:32 —Commercial proxy§ 77A:33 —Power of attorney§ 77A:34 Representation of noncommercial partnerships

B. OTHER CONSIDERATIONS

§ 77A:35 Agency§ 77A:36 Distributorship agreements§ 77A:37 Trade regulation and foreign trade§ 77A:38 Antitrust regulation and merger control

VI. EMPLOYMENT

§ 77A:39 In general§ 77A:40 Employment agreements§ 77A:41 Employment of foreigners§ 77A:42 Minimum salary§ 77A:43 Working week, overtime, and vacation§ 77A:44 Global policies§ 77A:45 Data protection§ 77A:46 Termination of employment

VII. COMMERCIAL DISPUTE RESOLUTION

§ 77A:47 In general

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KeyCiteL: Cases and other legal materials listed in KeyCite Scope can beresearched through the KeyCite service on WestlawL. Use KeyCite to checkcitations for form, parallel references, prior and later history, andcomprehensive citator information, including citations to other decisionsand secondary materials.

I. INTRODUCTION

§ 77A:1 Source and nature of Ukrainian law

Ukraine follows a civil law system where the legislationconsists of a constitution, international agreements rati�ed bythe Parliament, laws, decrees of the President, acts of thegovernment and normative acts of various governmental andlocal bodies (ministries, di�erent local authorities etc.).

The current Constitution of Ukraine was adopted on June28, 1996. According to the Constitution, Ukraine is a sovereign,independent, democratic, and social state ruled by law. TheUkrainian system is based on the principle of separation ofpowers into the legislative, executive, and judicial branches.The legislative power is exercised by the Parliament of Ukraine(Verkhovna Rada) that is the only legislative body in Ukraine.All laws adopted by the Parliament of Ukraine should be instrict compliance with the Constitution of Ukraine. The Parlia-ment of Ukraine is also entitled to ratify international treatiesof Ukraine in the form of laws of Ukraine. As a result of rati�-cation, international treaties become the part of the nationallegislation of Ukraine. The executive power is exercised by theCabinet of Ministers of Ukraine, the central executive authori-ties and local executive authorities. The judicial power isexercised by the Constitutional Court of Ukraine and by courtsof general jurisdiction. The President of Ukraine is the head ofthe state and the commander-in-chief of the military.

The Constitution guarantees fundamental personal rightsand freedoms for the Ukrainian nationals. According to theConstitution foreigners and stateless persons have the samerights and obligations as the Ukrainian nationals subject tocertain exceptions explicitly provided by Ukrainian laws orinternational treaties, (e.g., foreigners are explicitly prohibitedby law from owning agricultural land).

Constitutional norms are directly applicable, which meanseach individual or legal entity may seek protection of his/her/its rights in the national courts of Ukraine relying directlyupon the norms of the Constitution of Ukraine.

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Based on the Roman legal system, the Ukrainian legalsystem is divided into private and public law. Following thisapproach, the law in Ukraine is further uno�cially dividedinto the wide range of areas, such as civil law, commercial law,criminal law, administrative law, labor law, family law, etc.

Since obtaining independence in 1991, Ukraine has become amember of numerous international organizations such as theCommonwealth of Independent States (1991), the Organizationfor Security and Cooperation in Europe (1992), the NorthAtlantic Cooperation Council (1992), the World Trade Organi-zation (2008), and others.

Ukraine was the �rst post-soviet country signing the Agree-ment on Partnership and Cooperation with the EuropeanUnion (1994), which provided for political dialog and coopera-tion in �elds of trade, investment, economics, culture and�nance. In September 2008, the European Union o�eredUkraine to enter into an Agreement of Association, the Deepand Comprehensive Free Trade Agreement, which makesUkraine a potential candidate for a future enlargement of theEuropean Union. On March 30, 2012, the Agreement of As-sociation was initialed by Ukraine and the European Union.The signature of the above Agreement is pending and isexpected to be rati�ed by the end of 2013.

Moreover, Ukraine has e�ective free trade agreements withthe following countries: Armenia, Azerbaijan, Belarus, Kazakh-stan, Kyrgyzstan, Moldova, Tajikistan, Uzbekistan, RussianFederation, Georgia, Macedonia, Turkmenistan, Iceland,Lichtenstein, Norway, Switzerland, and Montenegro. Addition-ally, in accordance with the o�cial information placed on theweb-site of the Ministry of Economic Development and Tradeof Ukraine, negotiations on conclusion of Free Trade Agree-ments with Singapore, Turkey, Canada, Serbia, Syria, Israel,Morocco, and Mexico are pending.

§ 77A:2 Choice of lawIn Ukraine, the Law on International Private Law governs

the issue of con�ict of laws. Under the general rule, the partiesto the contract may choose the governing law of the commercialagreement, provided the transaction contains a “foreign ele-ment,” the rules of foreign law do not contradict the mandatoryrules of Ukrainian law, the parties have not resorted to the“evasion of law,” and the consequences of the application of therules of foreign law are not incompatible with the public orderof Ukraine.

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A “foreign element” is deemed to exist where:(i) at least one of the participants in the transaction is a

citizen of a foreign state, a stateless person, or a foreignlegal entity;

(ii) the subject-matter of transaction is located in a foreignstate; or

(iii) a legal fact, as a result of which legal relations arise,change or terminate, takes place in a foreign state.The agreement of the parties on the choice of law governing

the contract may be expressed or implied from the actions ofsuch parties, terms of the contract, or circumstances of thecase. The law chosen by the parties may govern the wholecontract or to a part thereof. The parties may at any time agreeto subject the contract to a law other than that which previ-ously governed it. The change in the governing law has a retro-active e�ect, but it may not prejudice the formal validity of thecontract or adversely a�ect the rights of third parties.

Should the parties fail to choose the applicable law, the lawthat has the closest connection to the contract shall govern thecontractual relations. Under the Law on International PrivateLaw, the contract shall be considered to be most closely con-nected to the law of the country where the party required to ef-fect the characteristic performance of the contract has its resi-dence or domicile.

Article 44 of the “Law on International Private Law” de�nesa party that e�ects the characteristic performance of thecontract as follows:

E a seller, in a sale and purchase contract;E a grantor, in a donation agreement;E a lessor, in a lease agreement;E a carrier, in a contract of carriage;E a lender, in a loan agreement;E a bank, in a bank deposit agreement; etc.However, the Law provides for a number of exceptions to

this general rule. In particular, the Law provides that the clos-est connection in real estate contracts is the law of the countrywhere such real estate is located or registered; in joint activityagreements—the law of the country where such activity is car-ried out; in contract concluded at an auction or at an ex-change—the law of the country where such auction has takenplace or where such exchange is located.

In addition, the Law provides that mandatory rules of Ukrai-nian law may apply despite any otherwise applicable law.

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§ 77A:3 ArbitrationThe primary sources of law relating to arbitration proceed-

ings in Ukraine are: (i) the “Law on International CommercialArbitration,” which governs international commercial arbitra-tion issues, and (ii) the “Law on Arbitration Courts,” whichprovides for general principles of domestic arbitration. Theprocedure of recognition and enforcement of foreign arbitralawards is governed by the Code of Civil Procedure (ChapterVIII), the New York Convention on the Recognition andEnforcement of Foreign Arbitral Awards, rati�ed by Ukraine,and the “Law on International Commercial Arbitration.”

The Law on International Commercial Arbitration is basedon the UNCITRAL Model Law, with very few deviations, suchas the one regarding the determination of the internationalcharacter of a dispute. According to the Law, the followingdisputes may be referred for the settlement by either ad hoc orinstitutional international commercial arbitration:

E Disputes resulting from contractual and other civil lawrelationships arising in the course of foreign trade and otherforms of international business relations, provided that theplace of business of at least one of the parties is situatedabroad; and

E Disputes arising between enterprises with foreign invest-ment, international associations or organizations establishedin the territory of Ukraine, disputes between the sharehold-ers of such entities and disputes between such entities andother subjects of the Ukrainian law.According to Ukrainian law, certain types of disputes are not

arbitrable. Among these non-arbitrable matters are: disputeson registration and bankruptcy of Ukrainian companies, IPdisputes, including disputes on validity of registered trade-marks and/or patents and establishment of the IP owner, etc.

In order to submit a potential dispute to arbitration, the par-ties to a contract should enter into an arbitration agreement(or agree upon an arbitration clause) indicating a precise state-ment of the subject of the dispute or the legal relationshipfrom which the dispute may arise (e.g. “any and all disputesarising out of or in connection with . . .”). An enforceablearbitration agreement must be in writing and signed by theparties. The reference in a contract to any document contain-ing an arbitration clause constitutes an arbitration agreementin writing, provided that the reference is such as to make thatclause part of the contract. Generally, an exchange of letters,


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telegrams, or faxes will meet the “in writing” requirement. Anexchange of e-mails, however, may not be su�cient in all cases.In the absence of a written document, an enforceable arbitra-tion agreement can be implied where one party asserts the ex-istence of an arbitration agreement in a pleading, and the otherparty does not object in the responsive pleading.

When executing the arbitration agreement, the parties mayindicate a permanent arbitral institution to administer arbitra-tion or provide for ad hoc arbitration. The parties are free todetermine the number of arbitrators and, should the partiesfail to do so, Ukrainian law provides that the number ofarbitrators shall be three. The President of the UkrainianChamber of Commerce and Industry shall act as the appoint-ing authority in the absence of any other agreement betweenthe parties.

Currently, in Ukraine there are only two permanent interna-tional arbitral institutions—the International CommercialArbitration Court (ICAC) at the Ukrainian Chamber of Com-merce and Industry, and the Maritime Arbitration Commission(MAC) at the Ukrainian Chamber of Commerce and Industry,the latter dealing exclusively with maritime disputes. Accord-ing to the rules of the ICAC, the parties are free to agree uponthe place of arbitration, the language to be used in the proceed-ings, and on the applicable law. Arbitration fee (which includesthe fees due to the arbitrators and the ICAC costs) arecalculated on the basis of the amount in dispute. Other arbitra-tion fees and costs include expenses of the parties, and ad-ditional costs of the arbitral proceedings. The parties maychoose arbitrators from an explicit list provided by ICAC, whichin practice is regarded as closed (i.e., the parties may notchoose arbitrators outside this list).

The parties wishing their disputes to be referred to theInternational Commercial Arbitration Court at the UkrainianChamber of Commerce and Industry are recommended toinclude the following arbitration clause into their contract:

Any dispute, controversy or claim arising out of or relating to thiscontract, or the interpretation, execution, breach, termination orinvalidity thereof, shall be settled by the International Com-mercial Arbitration Court at the Ukrainian Chamber of Com-merce and Industry in accordance with its Rules.

The arbitral award must be made in writing and signed bythe arbitrators. It should also state the reasons on which it isbased, a resolution regarding satisfaction or rejection of the

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claim, the amount of the arbitration fee and costs, and theirapportioning.

The courts are not allowed to intervene into the arbitrationproceedings except in cases speci�cally provided for in the Lawon International Commercial Arbitration. In particular, theLaw provides that the courts may grant interim measures andassist in taking of evidence in support of arbitration (although,due to inconsistent civil and commercial procedure rules. it isproblematic to obtain such measures and/or assistance inpractice). In addition, the courts can decide on the matter ofsetting aside of a �nal arbitral award, as well as of an arbitraltribunal's ruling as a preliminary question that it hasjurisdiction.

A party to the dispute may apply to the state court for thesetting aside of an arbitral award on the following grounds:

E a party to the arbitration agreement was under someincapacity or said agreement is invalid;

E a party making application was not given proper noticeof the appointment of an arbitrator, the arbitration proceed-ings, or was otherwise unable to present its case;

E the subject matter of the dispute falls beyond the scopeof the arbitration agreement;

E the composition of the arbitral tribunal or the arbitralprocedure was not in accordance with the agreement of theparties;

E the arbitral award is in con�ict with Ukraine's publicpolicy or the subject-matter of the dispute is non-arbitrableunder Ukrainian law.The grounds for setting aside an arbitral award resemble the

grounds for refusing recognition and enforcement of a foreignarbitral award set forth in Article 5 of the New York Conven-tion on the Recognition and Enforcement of Foreign ArbitralAwards.

The party seeking recognition and enforcement of a foreignor domestic arbitral award can petition a court and submit theoriginal award (or a certi�ed copy thereof), its translation intoUkrainian or Russian, as well as the original or a certi�ed copyof the respective arbitration agreement. Once the nationalcourt recognizes and permits enforcement of the arbitral awardand the respective ruling of the court enters into force, it is-sues a writ of execution. Thereafter, the arbitral award may beexecuted in accordance with the same procedure as the one ap-plicable to the execution of domestic court judgments.


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II. CONTRACT PRINCIPLES

Generally, contracts are regulated by provisions of the CivilCode of Ukraine No. 435-IV of January 16, 2003, and the Com-mercial Code of Ukraine No. 436-IV of January 16, 2003. TheCivil Code of Ukraine applies to personal property and non-property relations (civil relations) founded on the basis of legalequality, goodwill and property independence of their parties.The Commercial Code applies to commercial relations arisingin the process of organization and exercising commercial activ-ity between legal entities being subjects of economic trade inUkraine as well as between these entities and other parties tocommercial activity. It should be noted that some issues areregulated by both the Civil and Commercial Codes of Ukraine,and in some cases the two set of provisions are inconsistent,which inevitably leads to problems. Moreover, the issue hasnot been settled by Ukrainian courts.

A. CONTRACT LAW IN GENERAL

§ 77A:4 Types of contractsThe Civil Code recognizes the principle of the freedom of

contract, which means that a party may freely decide on thetype, the conditions of, and the counterparty to the contract.The legislation of Ukraine directly provides for di�erent typesof contracts, such as sale contacts, loan contracts, leasecontracts, donation contracts, license contracts etc., but at thesame time, it does not prohibit parties from entering into acontract unregulated in the Civil Code, provided that suchcontract complies with general principles of the civil legislationof Ukraine. In the latter case, contracts shall not contradictwith the mandatory provisions of the Ukrainian legislation.

The Civil Code also de�nes the following types of contracts:(i) Public contract is a contract, under which one party—

merchant—has undertaken to sell the goods, perform works,or render services to any seeking his services. The publiccontract shall stipulate the same terms and conditions for allcustomers, except for cases when certain privileges are setforth by law. Moreover, the merchant is not allowed to refusefrom conclusion of the public contract, if it has a possibilityto supply the goods (perform works or render services) to endconsumers.

(ii) Adhesion contract is a contract drafted by one of theparties (often a standard form), and which can be enteredinto only by joining the agreement as a whole. The other

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party is not entitled to suggest its own terms and conditionsof the agreement. The adhesion contract may be amended orterminated upon request of the joining party, if such party isdeprived of rights which it usually possesses, or if the adhe-sion contract excludes or limits liability of another party orstipulates other obviously burdensome conditions for joiningparty.

(iii) Preliminary contract is a contract in which the partiesagree to enter into a future contract under the terms andconditions stipulated in the preliminary contract. The Com-mercial Code provides that future contracts must be con-cluded within one year of the conclusion of the preliminarycontract. Preliminary contracts must be concluded in thesame form required for the future contract. If no require-ments are set forth, preliminary contracts must be concludedin writing. If the party unreasonably refuses to enter intothe future contract, this party is liable for all damages causedby such delay. Obligations of the parties arising from thepreliminary contract shall be terminated if the futurecontract is not concluded within terms set forth by the pre-liminary contract, or neither party sends to the other partyan o�er for its conclusion. Moreover, the Commercial Codestipulates that the preliminary contracts must contain all es-sential conditions of the future agreement.

(i) The Commercial Code de�nes also the followingtypes of contracts: Standard contract is a contractrecommended by certain governmental authoritiesin connection with certain transactions. Notably,upon mutual consent of the parties, they are in po-sition to amend certain or add the provisions of thestandard contract or add its content;

(ii) Template contract is a contract approved by theCabinet of Ministers of Ukraine or by other stateauthorities set forth by law. The parties are not al-lowed to withdraw from the template agreement,but they are in position to clarify its provisions.

Regardless of the contract type, parties to all contractsshould follow the principle of pacta sunt servanda: the contractis binding upon the parties and must be performed by them ingood faith. Failure to perform the contract may result in statu-tory or contractual responsibility.


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§ 77A:5 Material conditions of the contract, generalrequirements on the validity of contracts

Under Ukrainian law, the contract is considered as concludedonly when parties have agreed on all of the material conditionsthereof. If the parties do not agree on all essential terms of thecontract, the contract would be deemed as unconcluded. Thelegal consequences of unconcluded contract are not directlyprovided for by law, but we believe that they may be the sameas for invalid agreements.

Depending on the contract type, Ukrainian law de�nes dif-ferent statutory requirements for the material conditions to beagreed upon. The Commercial Code stipulates that conditionsof the contract shall be regarded as material if they are de�nedas such under the law for the particular type of the contractand if either party insists on agreeing upon the respectiveterms and conditions. At the same time, irrespective of thecontract type, while entering into the contract, the partiesmust agree upon subject-matter of the contract, price as wellas contract term. According to the Civil Code, the followingterms and conditions of the contract shall be regarded asmaterial: subject-matter of the contract; terms de�ned as “ma-terial” by law, or considered as such by either party.

Under the Civil Code, in order to be valid and enforceable,the agreements shall generally comply with the followingrequirements:

(1) the content of the contract shall not contradict with thelegislation of Ukraine, interests of the state and society,as well as with moral standards thereof;

(2) the person entering into the contract shall possess suf-�cient legal capacity. Generally, under Ukrainian law,only individuals of 18 years old possess full legalcapacity. Legal entities acquire legal capacity only afterobtaining of the relevant license or permit. Additionally,legal capacity of the legal entities may be limited bylaws or founding shareholders under the incorporationdocuments;

(3) expression of the parties' will must be free and consis-tent with their will;

(4) the contract shall be concluded in the set form. UnderUkrainian law, the contracts shall be concluded in writ-ing or orally. Written form is required for a vast majorityof contracts; however, if the contract was concludedorally, while the written form is statutorily required, it

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still will be considered valid, unless its invalidity isdirectly stipulated by the law. Some types of contracts(e.g., speci�c forms of securing claims, mortgage, etc.),require a notarization or state registration. Additionally,the Civil Code stipulates that conclusion of the contractmay be con�rmed by the parties' conduct if the law doesnot stipulate mandatory written form for the respectivecontract, or even by the parties' silence if the latter is setforth either by law or a contract;

(5) the contract shall be intended to create the legal conse-quences set out in it.

§ 77A:6 Delay, debtor's liability

According to the Civil Code, the parties may agree on theterm for performing their contractual obligations. Additionally,the term for performance of obligations under certain contractsmay be set forth by Ukrainian law. Under Ukrainian law, ifthe term for the execution of the contract is set out therein, theobligations must be performed within the speci�ed term. Gen-erally, the term for performance is stipulated either by specify-ing a certain date or by determining a de�nite period of time,or by indicating an event or act that should inevitably occur. Ifthe term for the performance of an obligation is not stipulatedin a contract, a creditor is entitled to demand performance atany time. In such cases, a debtor is obliged to perform undersuch a demand within a seven-day period from the date ofreceiving the demand from the creditor. The parties are alsoentitled to perform on or before the time set for their perfo-mance, unless otherwise agreed on or set out in the contract,legislation, follow from the nature of the relevant obligationsor customary business practices.

The failure by the debtor to commence performance or toperform contract obligations within the terms set forth by theagreement, law, or within a seven-day period from the momentof creditor's demand (if the term for the performance of anobligation is not stipulated in a contact) shall constitute adelay.

Following the rule of the freedom of contract, the parties areallowed to stipulate in the agreement the liability for debtor'sdelay (usually the parties agree upon contractual penalties)(please see for details below)). In the absence of the respectivearrangements, the following general rules set forth by Ukrai-nian law apply. In case of delay, a debtor shall be liable for


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damages caused to a creditor and for impossibility of perfor-mance occurred due to delay. Moreover, if a creditor has lostits interest in debtor's performance, a creditor may refuse toaccept performance of the obligation and can claim damages.The debtor is not considered as a party causing a delay if itwas caused by the creditor's delay.

In the event of a delay in performance of a pecuniary obliga-tion, a debtor, at creditor's request, must pay the amount ofdebt as increased by the in�ation index for the whole delay pe-riod and an annual 3% interest on the amount due, unlessotherwise provided by the contract or a law.

Under the Commercial Code, if one of the parties to thecontract is a state company, or if the respective obligations areset forth in the state agreement, or if performance under theagreement is �nanced through the State Budget of Ukraine orstate credit, failure to timely perform under the contract resultsin the application of a penalty at the rate of maximum 0.1% ofthe value of the products, works, services shall be paid for eachday of delay. If delay exists for the period of more than 30days, the debtor shall additionally pay a �ne at the amount of7% of the above value.

Pursuant to the Commercial Code, accruing of penalties fordelay shall be terminated within 6 months starting from thedate when the obligation should have been performed, ifotherwise is not stipulated by law or the contract.

Debtor should not be liable for non-performance or delay inperformance of his/her obligations if s/he proves absence offault in the non-performance of the obligation or in the delay.In particular, the debtor shall not be liable if non-performanceor delay have occurred because of an accident or force majeure.

The Civil Code does not directly de�ne what should beunderstood by “an accident.” However, the Civil Code directlysets forth that the following shall not be regarded as anaccident: non-performance by the debtor's counterparties oftheir obligations, absence on the market of the products neces-sary for performance of the obligations, absence of the neces-sary assets.

As far as force majeure is concerned, Ukrainian law does notprovide for a clear de�nition, except for general indication thatit is extraordinary or imminent circumstance.

§ 77A:7 Contractual penaltyUnder the Civil Code, contractual penalty shall be regarded

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as a type of collateral which must be evidenced in writing.Failure to comply with the written form requirement results innullity of the relevant collateral.

Contractual penalties shall be paid by the debtor to the cred-itor for violation of its obligations. Under the Civil Code penal-ties may be de�ned as monetary payments or other property(movable or immovable). At the same time, according to theCommercial Code, penalties consist only of monetary payments.There is no case law clarifying which Code controls. However,in practice, usually penalties are established in the form ofmonetary payments.

Notably, Ukrainian law distinguishes between a �ne (i.e., apenalty to be calculated in percentage of the amount ofunperformed or unduly performed obligations) and a late pay-ment fee (i.e., a penalty to be calculated in percentage of theamount of unduly performed monetary obligation to be paid foreach day of delay). The form of the contractual penalty shall bespeci�ed in the contract. While claiming contractual penalties,a creditor does not have to prove that non-performance of theobligations resulted in damages. The fact that a debtor delayedthe performance of his obligation is a su�cient reason to claimthe penalty speci�ed by the contract. The penalty amount maybe decreased by the court if it exceeds considerably the causeddamages as well as in other essential circumstances. In practicethe following circumstances may be considered as being ofessential: degree of obligation performance; reasons of non-performance or undue performance of the obligation; insigni�-cance of delay; material position of the parties etc., propertyand other important interests of the parties.

Pursuant to the Civil Code if the agreement stipulates apenalty, it shall be paid in full irrespective of indemni�cationof any damages. However, the agreement may provide for thedebtor's obligation to indemnify only those damages whichhave not been compensated by the penalty or the agreementmay set forth the creditor's right either for damages or penalty.Ukrainian law limits the late payment fee rate by the doublediscount rate of the National Bank of Ukraine e�ective duringthe period for which the penalty is imposed.

Notably, the Commercial Code stipulates a di�erent ap-proach to the compensation of damages and penalties. Underthe Civil Code, if the agreement stipulates contractual penal-ties, damages shall be indemni�ed only to the extent notcovered by the contractual penalties. At the same time, the law


77A-16

or the agreement may provide for cases when application (a)exclusively of contractual penalties is allowed; or (b) of bothfull amount of damages and penalties; or (c) either damages orpenalties upon creditor's choice.

The Commercial Code provides for some speci�c rules withregards to payment of contractual penalties in contracts whereone of the parties to the contract is a state-owned company,namely:

a) for the breach of the contract with respect to the qual-ity of the goods (or services) rendered—�ne amounting to20% of the price of the defective goods (or services);

b) for the delay in performance—a late payment fee in theamount of 0.1% from the value of delayed goods (services) foreach day of delay; plus a �ne in the amount of 7% if thedelay lasts for more than 30 days.According to the Commercial Code, a late payment fee shall

be terminated within six months starting from the date whenthe obligation should have been performed, if otherwise is notstipulated by law or the contract. The amount of the �ne maybe speci�ed by the contract or by the law. The parties mayagree on the reduction of the �ne but not less than amountprovided by law. The court may also reduce the amount of thepenalties provided by the contract if it highly exceeds theamount of damages actually su�ered.

The right of a creditor to claim for penalty does not withdrawthe debtor from his/her obligation to perform the obligationunder the contract.

§ 77A:8 Quality guaranteeUkrainian law stipulates that any goods sold by the seller

must generally meet the standards, conditions, and terms ofthe technical documentation setting quality requirements forsaid goods. In the absence of special quality requirements, theseller is obliged to pass goods suitable for the purpose for whichsuch goods are regularly used. At the request of the purchaser,the seller should con�rm the quality of sold goods by properdocumentation.

Ukrainian law sets forth di�erent requirements of qualityguarantee, depending on end consumers. According to the CivilCode of Ukraine, should the seller sell or deliver defectivegoods, the buyer has the right to choose from one of the follow-ing remedies:

E Price reduction;

§ 77A:8Ukraine


E Removal of defects free of charge;E Indemni�cation of costs incurred by the buyer for removal

of defects.Should defects be material (i.e., defects which are impossible

to remove, which removal is too timely and costly, or which oc-cur repeatedly after their removal), the buyer has the right toclaim for:

E Substitution of the goods;E Termination of the contract and repayment of the paid

amount.If the seller is not a producer of the sold goods, the buyer is

additionally entitled to claim for a removal of defects, changeor substitution of the goods, and compensation of damagescaused directly to the producer of the goods.

The liability of a seller extends only to defects that occurredbefore the goods had been delivered to the buyer or due togrounds existing prior to the above moment. Under a generalrule the burden to prove that defects occurred before the actualtransfer of goods is on the purchaser.

The guarantee period during which the seller guarantees thequality of the goods may be provided either by the law or bythe contract. If the guarantee period is not set forth, generally,the above claims may be submitted in respect of movable prop-erty within a reasonable period, but, in any event, within twoyears, and, with respect to immovable property, within a three-year period. This term starts from the moment of transfer ofgoods, unless the law or the contract provides for longer period.

The Civil Code separately regulates product liability issuesin case of sales to the end consumers—individuals. Particularly,in case the products are of poor quality or falsi�ed, the buyer isentitled at his/her sole discretion:

(i) Removal of the defects, free of charge, or for indemni�-cation of costs incurred by the buyer for removal ofdefects;

(ii) Substitution of the goods;(iii) Price reduction;(iv) revoke acceptance and seek return of any amount paid.The “Law on Protection of Consumers' Rights” (the “Con-

sumer Protection Law”) stipulates that the applicable guaran-tee period shall be set forth by the legislation or contract. Ifthe guarantee period is not de�ned, the consumer-individual isentitled to submit the respective claims within two years (mov-


77A-18

able property), with respect to construction facilities within 10years of the date of their transfer to the end consumer. Theabove guarantee period shall be extended if the products arerepaired. If the products are substituted, the relevant guaran-tee period shall be calculated anew starting from the date ofthe substitution.

According to the Civil Code and the “Law on Protection ofConsumers' Rights,” a consumer (natural person) is entitled onhis/her discretion to bring a product liability claim against:

(i) The seller of the products;(ii) The manufacturer of the products. Notably the de�ni-

tion of “manufacturer” is very broad and comprises: (a)the manufacturer producing the products; (b) a personclaiming to be the product manufacturer by placing itsname, trademark or other identi�cation element onthe product, packaging or in accompanying documents;or (c) an importer of the products; or

(iii) A designated representative o�ce/branch of themanufacturer and/or seller.

Under the Consumer Protection Law, manufacturer is toindemnify all expenses/losses incurred by the seller/manufacturer's representative o�ce/branch in satisfying theproduct liability claims of consumers. Where a product liabilityclaim is brought against a representative o�ce/branch of theseller, the seller is to indemnify all losses/expenses incurredand should similarly request indemni�cation from the manufac-turer for such circumstances arising. However, if the productliability claims relate to the products produced outside the ter-ritory of Ukraine, the latter shall be satis�ed at the expense ofthe seller (importer).

The “Law on Liability for Damages Caused by DefectiveProducts” (the “New Product Liability Law”) has entered intoforce quite recently. However, as of today there is neither caselaw nor any o�cial commentary. Hence, it is hard to predicthow most of its provisions will be applied in practice. Particu-larly, it is unclear how provisions of the New Product LiabilityLaw and the Consumer Protection Law, and the Civil Codewill correlate. At the same time, most probably the New Prod-uct Liability Law will apply only if the defective products causepersonal injury or damage to property as directly de�nedtherein, while other consumers' claims for nonconformingproducts will be addressed according to the Consumer Protec-tion Law and the Civil Code.

§ 77A:8Ukraine


Under the New Product Liability Law, if several persons areliable for damage caused by the defective products (e.g., a pro-ducer and an importer, in case of the imported products, aseller), an injured person is allowed to claim for damages ei-ther to all liable persons jointly or to one of them.

Pursuant to Ukrainian law any provisions limiting the abovelist of persons, to which product liability claims may be submit-ted, may be regarded as restricting consumers' rights and thus,as invalid under the Consumers' Protection Law.

§ 77A:9 Legal defects

According to Ukrainian law, a legal defect occurs when theobject of the contract is burdened by third party's rights or soldby the party who did not have a right to sell the object.

If the item is sold under the sale and purchase agreement bya person who did not have a right to sell it, while the purchaserdid not know and could not have known about that (bona �depurchaser), the proper owner of the item has the right tovindicate the sold item from the purchaser only if the item hadbeen:

1) lost by the owner or the person authorized by the ownerto keep the item;

2) stolen from the owner or from the person authorized bythe owner to keep the item;

3) taken away otherwise from the owner or from theperson authorized by the owner to keep the item againsttheir will.Moreover, the proper owner is also entitled to vindicate all

pro�ts obtained from the time when the bona �de purchaserfound out or should have found out about the legal defects ofthe item.

The item may not be vindicated from the bona �de purchaserwho purchased the goods in the process of execution of thecourt decision. Money and bearer securities may not be claimedfrom the bona �de purchaser.

At the same time, the owner is entitled to demand the itemfrom the person who knew or should have known that itemwas sold by the person who did not have the right to sell it(mala �de purchaser). Additionally the owner of the item isentitled to claim from mala �de purchaser all pro�ts receivedas a result of possessing of the item.

Under Ukrainian law pledged assets may be sold only after


77A-20

obtaining an approval from the pledge holder. Since, unlike theregistration of pledge over immovable property, the registra-tion of a pledge over movables is not compulsory in Ukraine(even though may be done with the respective state register)the purchaser of the movables often takes the risk of purchas-ing the item burdened by third party rights. If the item soldwas previously pledged and such sale was not approved by thepledge holder, such transaction may be challenged in the court.

According to the Civil Code, the agreements may be regardedas invalid in the following cases:

(1) the content of the contract contradicts the legislation ofUkraine, interests of the state and society as well aswith moral standards thereof. Notably, under case law“the legislation of Ukraine” is interpreted quite broadlyand includes laws, legislative acts, as well as any otherregulations adopted pursuant to the Constitution ofUkraine;

(2) the person, entering into the contract, does not possesssu�cient legal capacity;

(3) expression of the parties' will must be free and shallcomply with their will. If the above requirement are notmet, the contract may be invalidated on the basis of thefollowing grounds: as concluded under in�uence ofmistake, fraud, violence or adverse circumstances, basedon bad faith collusion of a representative of the one partywith another party;

(4) the contract shall be concluded in the set form;(5) the contract shall be intended to create the legal conse-

quences set out in it, if a contract is �ctitious orsimulated, it may be declared as invalid.

Separately, the Civil Code stipulates that the contractscontradicting to the public order (i.e., if they are aimed atviolating constitutional rights and freedoms of people andcitizens, damage of the property belonging to the individuals orlegal entities, the state, the Autonomous Republic of Crimea,territorial communities) shall be regarded as null and void.Additionally, the Commercial Code sets forth that the contractsconcluded with the purposes which knowingly con�icting withthe interests of the state and the society may be invalidated bythe court.

Notably, laws of Ukraine, addressing speci�cally certainspheres of commercial activities, may provide for additionalgrounds for the agreements invalidation. For example, the

§ 77A:9Ukraine


“Law on Insurance” directly stipulates that the insurancecontract shall be invalidated, if they are concluded after theinsured risk has already occurred; or if the insurance contractis concluded in respect of the property to be seized under thecourt decision or other relevant e�ective decision.

The Civil Code distinguishes the following types of invalidcontracts:

(a) null and void contracts, which nullity and voidance aredirectly set forth by law and thus, these contracts shallnot be invalidated by court, and

(b) challengeable contracts, which invalidity may be estab-lished by the court upon request of either party.

At the same time, the Commercial Code operates only withthe term invalid contracts.

Invalid contracts do not create any legal consequences, exceptfor ones related to their invalidity. In case of the contract inva-lidity each party thereto is obliged to return to the other partyin kind everything it has received under the contract. If it isimpossible to return the goods in kind, each party shallindemnify value of everything received under the contract. Ifdue to execution of invalid agreement, any damages either ma-terial or moral are caused to any person, they shall beindemni�ed.

Null and void agreements or agreement declared invalid bycourt shall be regarded as such starting from its execution.

Notably, pursuant to the Commercial Code, in case of thecontracts concluded with the purposes, which knowinglycon�icting with the interests of the state and the society, gen-erally everything obtained by each party under the saidcontracts shall be seized in pro�t of the state based on thecourt decision.

§ 77A:10 Adhesion contracts

An adhesion contract is a legally binding agreement betweentwo parties where one party has all the bargaining power anduses such power to write the contract primarily to itsadvantage. The Ukrainian legislation recognizes adhesionagreement as an agreement concluded by the way of accessionto the agreement on the terms already stated therein. A partyjoining such agreement may not propose or insert any changestherein.

Examples of such contracts are the contracts for supply of


77A-22

electricity, gas, water and other utilities. Since normally thereis a monopoly for the supply of such utilities, the consumersmay enter into the contract only on the conditions provided bysupplying enterprises. The prices and conditions for supply ofsuch utilities are, mostly, established by the regulations of theCabinet of Ministers of Ukraine and are subject to control bythe Antimonopoly Committee of Ukraine.

According to the Civil Code adhesion agreement may bechanged or terminated at the request of the party joined theagreement if such party is deprived of its rights it wouldnormally have or excludes or limits liability of the other partyor contains other terms overly burdensome for the party whojoined the agreement. In this case the party to the agreementhas to prove that it would not accept such terms of the agree-ment if it had an opportunity to amend them.

§ 77A:11 Limitation periodsThe general limitation period, as determined in the Civil

Code, is three years. Such limitation period is applicable for alltypes of claims, except for those claims subject to the speci�climitation periods.

According to the Civil Code one year limitation period ap-plies to claims relating to:

a) recovery of contractual penalties;b) refuting unreliable information;c) transfer of rights and obligations of the buyer to the co-

owner in case of a breach of preemptive rights for thepurchase of a part in the object of the joint partial owner-ship;

d) defects of the goods sold;e) termination of a donation agreement;f) transportation of cargo and mail services;g) contesting actions of a testament executor.

Ukrainian law provides for a number of claims in relation towhich a limitation period does not apply. In particular, alimitation period does not apply to:

1) claims relating to the breach of personal non-propertyrights;

2) claims made by a bank depositor for the return of his/her bank deposit;

3) claims for the compensation of damages caused by dis-ability, other types of health deterioration or a death of aperson, except for cases when the above damages werecaused in result of movable property defects;

§ 77A:11Ukraine


4) insurance claims;5) claims of the central government agency responsible for

the state policy in the �eld of state monetary reserves in re-spect of performance of obligations under the “Law on StateMonetary Reserves”;

6) other claims in relation to which the Ukrainian legisla-tion speci�cally excludes the application of a limitationperiod.Notably, with regards to certain claims Ukrainian law

provides for other special limitation periods. For example, theCommercial Code, among others, provides for the followinglimitation periods applicable to claims to be submitted in caseof poor quality of works under the construction contracts:

(1) one year with respect to defects involving non-bearingstructures or two years if it is impossible to identify theabove defects during the ordinary proceedings applicableto acceptance of works;

(2) three years with respect to defects involving bearingstructures or 10 years if it is impossible to identify theabove defects during the ordinary proceedings applicableto acceptance of works;

(3) 30 years for claims relating to compensation of damagesunder the construction agreement, provided the defectsof the contractor resulted in a collapse or breakup of thebuilding.

In cases where a limitation period applies, its term may beextended by the parties to the contract. However, the partiesare directly prohibited from shortening the limitation period.The Civil Code provides that the limitation period starts run-ning from the day, when the person has discovered or couldhave discovered a violation of his/her rights or about a personcommitted such violation. The parties are not allowed to changethe order of calculation of limitation periods.

Once the limitation period expires, a person still can seek fora compulsory enforcement of his/her contractual rights, butsuch claim will be overruled once the opposite party claims foran expiry of a limitation period, unless a court acknowledgesthat reasons for non-claiming within the limitation period werejusti�able.

According to the Civil Code, a person, having performed his/her obligation, is not entitled to demand its return by arguingthat such claim was subject to a limitation period.


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B. COLLATERALIZATION

§ 77A:12 CollateralsIn Ukraine, collateral traditionally refers to secured

transactions. The collateral serves as protection for a lenderagainst a debtor's risk of default: in case of any debtor failingto make a scheduled payment or deliver due performance underthe contract, the creditor may get an indemnity out of thecollateral.

The Civil Code stipulates the following types of collateral:penalties, surety, guarantee, pledge, retention, holding deposit.However, the contract or the law may stipulate other collateral.

The contracts on collateral shall be executed in writing. Fail-ure to comply with the written form requirement will result innullity of the relevant contract. Performance of the main obliga-tion shall be secured if the latter is set forth either by thecontract or the law. Invalid obligations shall not be secured. Ifthe main obligation is declared invalid, it generally results ininvalidity of collateral. At the same time, invalidity of collat-eral does not result in invalidity of the main obligation.

§ 77A:13 PledgeNotably, in practice pledge is one of the most frequently used

security in Ukraine as the creditor (a) can exactly identify thesubject to the pledge as well as estimate its value at the stageof the agreement conclusion so far; (b) has a priority of itsclaims satisfaction except for cases directly set forth by law; (c)generally, almost all actions of the pledger with the subject ofthe pledge shall be agreed upon with the creditor.

The primary sources of law relating to pledges in Ukraineare the Law “On Pledge,” the “Law on Securing Creditors'Claims and Registration of Encumbrances” and the Civil Codeof Ukraine. In general terms, if the pledgor has failed to ful�llhis/her secured obligations, a pledgee has a right to sell thepledged property and use the proceeds towards the repaymentof the secured obligation.

Although any assets can be encumbered by a pledge (exceptassets excluded from circulation, such as arms or drugs) andany monetary claim can be secured by a pledge, the law dif-ferentiates between a pledge of movable property and a pledgeof immovable property (which is also known as a mortgage).

The pledge agreement must be concluded in writing andcontain all material conditions of the pledge agreements as

§ 77A:13Ukraine


provided by the Ukrainian law, i.e., a clear indication of theencumbered assets, the execution term, etc.

Pledges of movable property may be registered with the StateRegistry of Encumbrances over Movable Property. As opposedto pledges over immovable property, registration of a pledgeover movables is not a compulsory requirement to make suchpledge valid and enforceable. However, registration establishespriority of the pledge before other pledges over the sameproperty.

It is also in the discretion of the parties whether to notarizethe pledge over movables. The bene�t of having the pledgeagreements notarized is an opportunity to bene�t from thesimpli�ed enforcement process. The pledgee under a notarizedagreement is able to enforce the pledge without having to referthe dispute to the court on the basis of a writ made by a notary.

The pledge does not deprive the pledgor from using thesubject of a pledge on his/her own discretion unless the contractprovides otherwise. Upon the consent of the parties, the pledgormay establish subsequent pledges with respect to the alreadypledged property. However, the �rst pledgee will have a prior-ity right to demand satisfaction of his interests if the pledgordefaults.

The pledgor is liable for any damages or accidental destruc-tion of the pledged property and, if this property is damaged,should either replace a pledge or renew the destroyed property.

Under Ukrainian law, a pledge should be enforced on thebasis of a court judgment unless the parties have agreedotherwise in the pledge agreement. Upon the issuance of thecourt decision, the sale of the pledged property is generallyperformed by specialized organizations through auctions. If thepayment earned from an auction does not satisfy the interestof the pledgee, s/he is entitled to demand full satisfaction fromthe pledgor.

Ukrainian law provides for the following types of pledge:(i) Mortgage, i.e., pledge of immovable that shall remain

in possession of pledger or the third party that isregulated in details by the “Law on Mortgage” No.898-IV of June 5, 2003. The mortgage shall occur basedon the mortgage agreement to be notarized. Failure tocomply with notarization requirements leads to declar-ing such agreement as null and void. Besides, themortgage agreement shall be registered in the StateRegister of Mortgages. Such registration is crucial for


77A-26

the mortgage holder as it de�nes the priority of itsrights to the subject of mortgage in relations with otherpersons possessing any rights to the subject of mort-gage which are not registered or registered later;

(ii) Pledge of movables, i.e., pledge of movables to betransferred in the possession of the holder of pledge orupon its instructions—in the possession of the thirdperson. The pledge of movable may be registered uponrequest of the pledgor or the holder of pledge in theState Registry of Encumbrances over MovableProperty. Failure to register of pledge does not resultin invalidity thereof as it remains valid for the debtorand creditor, but according to Ukrainian law suchregistration makes the said pledge valid in relationswith the third parties. Besides, such registrationensures the priority of satisfaction of the creditor'srights to the subject of pledge as compared to theunregistered and registered later pledges to the samesubject.

(iii) Pledge of goods in circulation or in process. The subjectof such pledge is raw materials, spare parts, �nishedproducts etc. The sold by the pledger products ceasesto be the subject of the pledge from the moment ofdelivery to the buyer or transfer to carrier or to thepost o�ce for sending to the buyer. At the same time,the acquired by the pledger products shall become thesubject of the pledge from the moment of occurrence ofproperty rights. For such type of the pledge it is crucialto precisely identify the products being subject thereof.

(iv) Pledge of property rights. The pledger is in position toenter into the pledge agreement in respect of its prop-erty rights either valid as of the date of such agree-ment conclusion or which may be accrued in future. Inthe pledge agreement the debtor of the pledger shallbe precisely identi�ed. Besides, the pledger shall notifyits debtor on pledge of the respective rights. If thedebtor of the pledger performs its obligation in advance,everything obtained by the pledger shall become thesubject of the pledge and the pledger shall immediatelynotify the holder of the pledge thereof. Claim at a �xeddate shall be subject of the pledge only until the expiryof the validity term thereof. In case of violation by thedebtor of its obligations, the enforcement of the pledgeof property rights shall be performed by assignment of

§ 77A:13Ukraine


claims by the pledger to the holder of pledge. Besides,the holder of pledge is in position to request throughthe court procedure for assignment of rights from themoment when the right to enforce the pledge occurs.

(v) Pledge of securities. Ukrainian law provides for thefollowing additional requirements to the pledge agree-ment of securities (if otherwise is not set forth in theagreement or law):

(a) the pledge of promissory notes\bills of exchange orother securities transferred by endorsement shall beperformed by endorsement and delivery thereof tothe holder of pledge;

(b) the pledge of securities that shall not be transferredby endorsement shall be performed on the basis ofthe agreement between the holder of the pledgerand the person in the name of which such securitiesare issued.

Upon the parties agreement of securities pledgedmay be transferred on deposit of the notary or bank.The Ukrainian law provides for the certain cases ofwhen the priority of the creditor's rights to thepledged securities shall occur.

§ 77A:14 Other methods of securing claims—SuretyAccording to Ukrainian law the surety shall occur under a

surety agreement only.Please note that surety is also very frequently used security

in Ukraine as it regarded as relatively safe and �exible secu-rity, namely:

(i) Surety may secure performance of obligations in full orin part;

(ii) One or several persons may act as sureties. If personsstand surety in respect of the debtor's obligation jointly, suchco-sureties shall bear joint and several liability, if otherwiseis not set forth by the surety agreement;

(iii) Consent of the debtor is not required for entering intothe surety agreement. At the same time from the practicalstandpoint it is advisable to notify the debtor on conclusionof the surety agreement;

(iv) Ukrainian law stipulates joint and several liability ofthe surety for the obligations of debtor, if subsidiary liabilityof the surety is not set forth;

(v) The surety shall be responsible in the same scope as


77A-28

the debtor incl. payment of the main debt, interests, penal-ties, damages, if otherwise is not set forth by the suretyagreement.Generally, Ukrainian law does not envisage any restrictions

as to persons that are in position to act as sureties i.e. as asurety may act any legal entity notwithstanding the form ofownership and legal form of organization as well as anyindividual.

If the debtor violates its obligations, the creditor is in posi-tion to request the surety to perform the respective obligation.The surety is in position to object to the creditor's claims basedon the reasons that may be used by the debtor. Moreover, thesurety is entitled to raise the said objections even if the debtorrefuses from them or acknowledge its debt.

Notably, according to the recent case law lots of surety agree-ments have been invalidated due to di�erent grounds e.g.absence of the spousal consent (if the surety agreement isconcluded by an individual), increase of surety liability degreein the absence of his/her/its due direct consent etc. In view ofthe above, in order for the surety agreement to be enforceable,the parties shall scrutinize the relevant agreement.

§ 77A:15 Other methods of securing claims—GuaranteePursuant to Ukrainian law the guarantee has the following

peculiarities to be taken into account:(i) shall be issued by special subject i.e. bank, other

�nancial institution, insurance company that shall complywith lots of requirements in the �eld of �nancial servicesprovision;

(ii) shall be valid only during the term for which it isissued. In Ukraine it is not allowed to issue guaranteeswithout term of their validity. The guarantee shall be validstarting from the date of its issuance, if otherwise is notagreed upon.

(iii) the guarantee is independent from the main obliga-tion i.e. (a) guarantee shall not be terminated in case of in-validity, termination and\or change of the main obligation;(b) if the principal transfers its debt to other person, theguarantor shall not be released from the liability as well asthe guarantee is not terminated; (c) contrary to the surety,guarantor is not in position object to the bene�ciary's claimsbased on the reasons that can place the principal that relateto the main obligation;

§ 77A:15Ukraine


(iv) Ukrainian law stipulates irrevocable and revocableguarantees.In case of violation by the debtor, the guarantor shall pay to

the creditor the sum of money pursuant to the conditions of theguarantee. The request of the creditor shall be submitted inwriting together with documents set forth in the guarantee.

The guarantor is in position to refuse to meet the creditor'srequirements if the request or the documents attached theretocontradict to the guarantee conditions or submitted after expiryof the guarantee term.

The obligation of the guarantor is limited by the amount setforth in the guarantee. At that, if the guarantor violates itsobligations, its liability shall not be limited by the said amount,if otherwise is not stipulated in the guarantee.

§ 77A:16 Other methods of securing claims—Advancedeposit

Advance deposit is money or movable property provided bythe debtor to the creditor on the account of payment to be madeto con�rm the main obligation and stand security thereof. If itis not indicated in the agreement that the amount paid by thedebtor shall be regarded as advance deposit, it shall beconsidered just as advance payment.

If the obligation is violated due to fault of the debtor, thecreditor is in position to keep advance deposit. At the sametime, if the obligation is violated due to fault of the creditor,the latter is obliged to return the advance deposit as well asthe amount equal to the amount of advance deposit. However,if the obligation is terminated prior to beginning of its perfor-mance or due to impossibility to perform it, the advance de-posit shall be returned.

§ 77A:17 Other methods of securing claims—Retention

Retention is another speci�c type of security providing forthe right of the creditor to retain the debtor's property untilthe latter performs his/her obligations under the contract.Given the scope of this security interest, the creditor carriesrisks of damage or accidental loss of the property. The creditordoes not obtain the title to the property in question and cannotuse it unless otherwise agreed by the parties.


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III. GOVERNMENT AUTHORIZATIONS

§ 77A:18 In generalThe Constitution of Ukraine, the Civil Code and the Com-

mercial Code provide for the principle of freedom for conduct-ing commercial activities. According to the above principle, anyentrepreneur or any legal entity is entitled to conduct any com-mercial activity, except for activities directly prohibited by law.

However, certain types of commercial activity are subject toan appropriate licensing. Generally, the Law on Licensing ofSome Commercial Activities” provides for a list of certain areaswhich are of a particular importance to the state and thus, aresubject to the licensing, to name but a few:

E production, wholesale and retail sale of veterinary medi-cal products and preparations;

E sale of pesticides and agrochemicals;E medical practice;E veterinary practice;E lotteries and gaming activities;E tour operator activities;E customs brokerage activities, etc.At the same time, the special laws stipulate mandatory

licensing for other activities e.g.:E construction activities;E professional activity on the securities market;E provision of �nancial services;E foreign economic activity;E activity in the �eld of television and broadcasting;E production and trade of alcoholic beverages and tobacco

products;E bank activity;E production, wholesale, retail sale and import of medicines

etc.The validity term of each license allowing to conduct certain

commercial activity varies depending on the type of the activ-ity being licensed, but in any case may not be less than �veyears. Should the applicant apply for the extension of thelicense, the new license is granted in accordance with the pro-cedure established by Ukrainian law. Licenses are nottransferable.

Moreover, in order to provide certain economic activities(e.g., planning of land use) the relevant state permits and ap-provals have to be obtained in addition to the licenses.

§ 77A:18Ukraine


IV. TAXATION

§ 77A:19 Personal income tax (PIT)

Ukrainian tax residents are subject to tax on their worldwideincome, whereas non-residents are taxable only on their incomeoriginating from Ukraine.

A residency test (based on one used in the OECD Model TaxConvention) is used to determine whether a particular individ-ual is Ukrainian tax resident or not for the purpose ofdetermining their permanent place of residence.

Generally, a 15% or 17% �at tax rate applies to a resident'sincome, depending on the amount of income. Certain types ofincome are subject to reduced tax rates (5%) or even taxexempt, whereas prizes and winnings are subject to 30% tax.

Ukrainian source income received by non-residents is subjectto 15 (17)%. Tax bene�ts, however, could be sought in Ukrai-nian double tax treaties.

Special procedures apply to taxation of transactions relatedto immovable and movable property, inheritance of property,securities, donations, etc.

Only Ukrainian residents are entitled to limited deductionsfrom their taxable incomes, such as interest under a loansecured by a mortgage, donations to charities and professionalor higher education fees.

Employers and other business entities paying wages andremunerations to individuals are de�ned as tax agentsresponsible for withholding PIT and social contributions.

The �scal year is from 1 January to 31 December.Tax returns are generally required annually.

§ 77A:20 Corporate income tax (CIT)Ukrainian companies are subject to tax on their worldwide

income. Foreign companies are only taxed on income originat-ing from Ukraine, including income earned through a foreigncompany's permanent establishment in Ukraine.

Ukrainian companies and foreign companies carrying onbusiness in Ukraine through a permanent establishment aresubject to corporate pro�ts tax at the standard 19% rate, whichrate is further to be reduced to 16% from January 1, 2014.Qualifying businesses may bene�t from reduced rates, includ-ing to zero, and simpli�ed taxation (uni�ed tax, �xed agricul-tural tax).


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The �scal year is from 1 January to 31 December. Tax li-abilities are self-assessed by taxpayers and tax is paid andreported on a quarterly basis.

A taxable base is pro�t being the di�erence between incomeand tax costs.

Losses can be carried forward inde�nitely (with some limita-tions), whereas loss carry-back is not allowed.

Tax grouping between separate Ukrainian companies (evenbetween a parent and its subsidiary) is not allowed.

Transfer pricing rules apply to transactions between relatedcompanies (and, arguably, to transactions between Ukrainiancompanies and foreign counterparties). For tax purposes, a fairmarket price is the taxable basis for such transactions ratherthan a contractual price.

Although Ukraine is not an OECD member, its de�nition ofa permanent establishment for tax purposes is based on theOECD Model Tax Convention. In Ukraine, a permanentestablishment of a foreign company is created either throughan agent or through a �xed place of business through which itcarries out all or some of its business activities in Ukraine.Exemptions are available both under the Tax Code and doubletax treaties.

A foreign company and its permanent establishment inUkraine are treated as the separate taxpayers for Ukrainiantax purposes.

Income derived from Ukraine by foreign companies that donot carry out their activities in Ukraine through a permanentestablishment is generally subject to Ukrainian withholdingtax. This includes, for example, dividends, interest, royalties,freight fees, lease fees, capital gains, broker and agency feesand other income.

Payments for goods (works and most services) are not subjectto withholding tax. A Ukrainian company paying to a foreigncompany is obliged to withhold tax, where applicable. Gross-upclauses are not generally welcomed by the Ukrainian taxauthorities.

Generally, 15% withholding tax applies to most Ukraineoriginating income (for example, dividends, interest, royaltiesand lease fees), whereas 6% applies to freight and 0% or 12%rate applies to certain insurance related payments (dependingon the foreign insurer's �nancial reliability).

Withholding tax may be reduced, up to zero in some circum-

§ 77A:20Ukraine


stances, by double tax treaties, but foreign recipients shouldcon�rm their entitlement to tax relief by providing tax resi-dence certi�cates in accordance with the relevant procedures.

Ukraine has developed an extensive network of double taxtreaties with over 65 countries. Most of these closely follow theOECD model. A treaty prevails over Ukrainian law to theextent that it provides for more bene�cial tax treatment.

§ 77A:21 Value added tax (VAT)VAT is a signi�cant contributor to the Ukrainian budget,

and uses the input-output model, very similar to the systemused in the EU, where the State is paid the di�erence betweenVAT collected from buyers and VAT paid to suppliers.

VAT-able transactions generally include the supply of goodsor services in Ukraine (including those supplied for free), andthe import and export of goods, including ancillary services.

The standard tax rate of 20% applies to all taxabletransactions. The rate shall be reduced to 17% from January 1,2014. Some transactions are zero-rated, such as the export ofgoods, including ancillary services.

The taxable base is generally the contractual price for thesupply of goods or services and cannot be less than a fair mar-ket price.

A taxpayer is generally entitled to a VAT refund where itsVAT output exceeds its input but there are a number of limita-tions and pre-requisites involved in obtaining a refund. Thequalifying VAT payers are entitled to the automatic VATrefund.

§ 77A:22 Payroll taxesAn employer is obliged to make social insurance payments in

respect of its employees, which payments varies from 36.76%to 49.7% of payroll, depending on industry sector trauma risklevel.

Employees pay a 3.6% social insurance contribution.

§ 77A:23 Stamp dutyStamp duty is imposed on certain actions, including notariza-

tion of contracts. In most cases, the amounts involved are nom-inal, although there are exceptions.

§ 77A:24 Excise taxExcise duty is levied on a speci�c group of products that are


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generally deemed to be luxury, high-margin and/or monopolyitems which are produced in or imported to Ukraine. Currentlythey include alcohol, tobacco and tobacco products, motorvehicles, oil and oil products. There is no single duty rate ap-plicable to all excisable goods.

§ 77A:25 Land taxEvery landlord is obliged to pay land tax. Lessees of land

leases have to pay land tax as a part of their rent. There is nosingle tax rate of land tax in Ukraine. The particular amountdepends on various factors such as the type of land plot, use,location and value.

§ 77A:26 Real estate taxThe residential premises only are subject to a real estate tax

at minor rates.

V. STRUCTURING OF EXPORT TRANSACTIONS

§ 77A:27 Permanent establishmentThe Tax Code of Ukraine contains the de�nition of a perma-

nent establishment for tax purposes, which is based on theOECD Model Tax Convention. In Ukraine, a permanentestablishment of a foreign company is created either throughan agent or through a �xed place of business through which itcarries out all or some of its business activities in Ukraine.Exemptions are available both under the Tax Code and doubletax treaties.

A foreign company and its permanent establishment inUkraine are treated as the separate taxpayers for Ukrainiantax purposes.

The permanent establishment encompasses a �xed place ofbusiness through which the business of a nonresident withinthe territory of Ukraine is wholly or partly carried on. Thismay include, inter alia, a place of management, a branch, ano�ce, a factory, a workshop, a construction site, a consultingthrough a personnel present in Ukraine longer than 6 months,etc.

Furthermore, where a resident person is acting on behalf ofa nonresident in Ukraine, the nonresident shall also be deemedto have a permanent establishment in Ukraine in respect ofany activities which the resident undertakes for thenonresident. This rule applies not only if a resident person has

§ 77A:27Ukraine


an authority to conclude contracts in the name of a nonresi-dent, but also if a resident stores and maintains goods ormerchandise belonging to a nonresident, or if those goods ormerchandise are dispatched in the name of the nonresidentfrom a warehouse of the resident.

However, the permanent establishment does not occur if acompany:

E uses facilities solely for the purpose of storage, displayor delivery of its own goods or merchandise;

E maintains a stock of own goods or merchandise for thepurpose of their processing or reprocessing by another com-pany;

E maintains a �xed place of business for the purpose ofpurchasing goods or merchandise or for collecting informa-tion; or

E Maintains a �xed place of business for the purpose ofadvertising, supplying information, carrying out scienti�cresearch, or similar activities having a preparatory or auxil-iary character.An enterprise of one contracting state is not deemed to have

a permanent establishment in the other contracting statemerely because it carries out its business in that other statethrough a broker, general commission agent, or any other agentof independent status acting in the ordinary course of itsbusiness. The fact that a company of one contracting state hasa subsidiary that is owned by a company of the other contract-ing state or which carries out business in that other state, doesnot in itself constitute for that company a permanent establish-ment of its parent company.

§ 77A:28 Source rules for principal types of incomeUnder Ukrainian law, the source rules for individuals are

broader than those for corporations. For individuals, anyincome received from activities performed, capital employed orproperty used in Ukraine will have a Ukrainian source.

For companies, income will have a source in Ukraine if theincome arises from activities performed or from property lo-cated in Ukraine, or (in the case of dividends, interest, royal-ties and other passive income) the income is received from aresident of Ukraine.

According to the most double taxation treaties entered intobetween Ukraine and other countries (which are normallybased on the OECD Model Tax Convention), the pro�ts of a


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company of a contracting state are taxable only in that stateunless the company carries out business in the other contract-ing state through a permanent establishment situated therein.If the company carries out business as aforesaid, the pro�ts ofthe company may be taxed by the other contracting state. Thisapplies only to the share which may be attributable to thatpermanent establishment. Professional services, except forspeci�c engineering services, are not treated as having aUkraine source (so are not subject to withholding).

A. REPRESENTATION OF COMPANIES

§ 77A:29 In generalThe Civil Code divides all legal entities into the following

groups: private law legal entities and public law legal entities.According to the Civil Code of Ukraine, the companies,

performing entrepreneurial activities, shall be established onlyas commercial entities (namely: joint-stock companies, limitedliability companies, additional liability companies, full partner-ships, and limited partnerships) and production cooperatives.The most common vehicles for conducting business activities inUkraine are joint stock companies (public and private) andlimited liability companies, both of which are based on theconcept of limiting the liability of the investors founding thecompany. Notably, generally the order of establishment, operat-ing and closing of the above companies are regulated by theCivil Code, the Commercial Code, the Law of Ukraine “OnJoint Stock Companies,” the Law of Ukraine “On CommercialEntities,” the Law of Ukraine “On State Registration of LegalEntities and Individuals—Subjects of Entrepreneurial Activ-ity” etc. It is worth emphasizing that in the near future, theParliament of Ukraine is going to adopt the Law of Ukraine“On Limited Liability and Additional Liability Companies.”

§ 77A:30 Corporate rules of representationLimited liability companies and joint stock companies are

represented by their executive (management) bodies: a colle-giate executive (management) body or an individual director. Achairman of the executive (management) body or an individualdirector is entitled by law to represent the company without apower of attorney. Other members of a collegiate executive(management) body may be vested with the right to representthe company without a power of attorney only if the latter isset forth by their articles of association.

§ 77A:30Ukraine


Each partner in a full partnership is entitled to representthe company unless otherwise provided by the constituentagreement. Only full partners in limited partnerships have theright to act on behalf of the company.

§ 77A:31 Speci�c rules of representationLegal entities may also be represented by commercial prox-

ies or under a power of attorney. The granting of the said rightsto the representatives does not deprive the management oftheir powers to represent a company as speci�ed in thecompany's charter.

§ 77A:32 Speci�c rules of representation—Commercialproxy

Companies may be represented by a commercial proxy. Thescope of the powers of a commercial proxy is set out in theCivil Code. A commercial proxy steadily and independentlyrepresents legal entities and entrepreneurs by assisting themin entering into commercial agreements. Pursuant to the CivilCode, a commercial proxy is entitled to represent several par-ties to the same agreements, however, only upon the parties'consent. The powers of a commercial proxy may be evidencedby the contract concluded between the principal and the com-mercial proxy, or by a power of attorney.

§ 77A:33 Speci�c rules of representation—Power ofattorney

Companies may also be represented by an attorney, whosepowers are speci�ed by the power of attorney. The scope ofcompetence of an attorney as well as requirements to the powerof attorney is governed by the respective provisions of the CivilCode. A power of attorney may be granted for performance ofan individual act or for a series of acts.

§ 77A:34 Representation of noncommercialpartnerships

No speci�c rules of representation apply to noncommercialpartnerships.

B. OTHER CONSIDERATIONS

§ 77A:35 AgencyBoth the Civil Code and the Commercial Code are applied to


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the commercial agency relations. The Civil Code governs thegeneral obligations and contractual matters, e.g., freedom ofcontracts, obligations performance, breach of the contract, gen-eral principles of representation etc. The Commercial Codecontains special provisions on commercial intermediation(agency relations).

The Commercial Code de�nes a commercial intermediation(agency relations) as business activities (entrepreneurship)that envisage services provided by commercial agents to busi-ness entities in the process of their commercial activities byway of intermediation on behalf, for the bene�t and undercontrol of the entity represented. Moreover, a commercial agentshall be a business entity (citizen or legal entity) engaged incommercial mediation in accordance with its competence basedon the agency agreement. Additionally, the Commercial Codespeci�cally provides that entrepreneurs, although acting forthe others' bene�t but on their own behalf, shall not be deemedas commercial agents.

Pursuant to the Commercial Code the agency relationshipsin Ukraine might take place not only on the basis of the agencyagreement but also when the commercial agent enters into theagency agreement for the bene�t of a business entity being notentitled thereto or exceeding authorities provided with furtherapproval of the said entity. As far as the agency agreementsare concerned, the commercial agent is obligated to provideservices to the principal with regard to conclusion of agree-ments or facilitation thereof (provision of actual services).Moreover, the agreement shall specify the sphere, nature andprocedure of mediation services provided by the agent, rightsand obligations of the parties, terms and amounts of reimburse-ment to the commercial agent, agreement duration, sanctionsapplied in case of violation of the agreement etc.

The Ukrainian law requires an agency agreement to beconcluded in writing i.e. by entering into a single document orby exchange of notes, faxes, telegrams etc. or through con�rma-tion of receipt of orders to be ful�lled. Failure to comply with awritten form of the agency agreement does not entail itsinvalidity. Denial by one of the parties of the fact of transac-tion conclusion or contesting of some of its parts shall be provenwith documentary evidence, means of audio/video records andother evidences except for the testimonial evidences. It shall benoted that if the agency agreement was not entered into inwriting, but one of the parties performed an act and the otherparty con�rmed its performance, the said agreement in case of

§ 77A:35Ukraine


a dispute may be found valid by the court. Moreover, it isprovided that if any of the parties demands, the agencycontract may be notarized.

The Commercial Code provides for two kind of the agencyrelationships: monopoly and non-monopoly. Under a monopolyagency agreement the agent is obliged not to act for competi-tors of the principal within the territory and time boundaries,envisaged by a contract. But if the agency contract does notcomprise such requirement, the agent is free to act for competi-tors of the principal provided that the interests of the otherpersons being represented by agents at the same time are notcon�icting the issues the agent is invited to resolve for theprincipal. Moreover, while performing the contract the agentshall adhere to the general principles of the civil law i.e. equity,good faith and reasonability.

Under Ukrainian law the rate of the commission is consid-ered as one of the essential provisions of an agency agreementand thus, to be agreed upon in order for the agency agreementto be regarded as concluded.

The Commercial Code envisages that the agent, unlessotherwise provided for by the agency agreement, does notguarantee to the principal execution by third parties of theobligations stipulated in the commercial agreements concludedthrough the agent's mediation. However, the parties to theagency agreement can envisage that the agent receives ad-ditional remuneration if he undertakes to guarantee executionof the agreement concluded by him for the bene�t of theprincipal. At the same time the Ukrainian legislation in forcerefers guarantee to the �nancial operations that may beconducted in Ukraine only by the authorized �nancial institu-tions e.g. banks, �nancial companies etc.

§ 77A:36 Distributorship agreementsPresently, the Ukrainian legislation in force does not provide

for any speci�c regulations of distribution agreements. Nota-bly, the legislation in di�erent spheres operates with the no-tions “distribution,” “distributor,” “dealer,” “dealer activity”and stipulates mandatory requirements to be obeyed by bothsuppliers and distributors, to name but a few: distribution ofmedicines, motor cars, agricultural vehicles, securities etc. Atthe same time, even in the said spheres Ukrainian law doesnot speci�cally address any requirements to the distributionagreements.


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Notwithstanding the absence of speci�c legislative regula-tions, the distribution contracts may be concluded based on therule of freedom of contract provided for by the Civil Code. Sincedistribution relationships are not speci�cally referred to in theUkrainian legislation in force, according to general provisionsof the Civil Code distribution contracts are regarded as so-called “unnamed contracts.” Pursuant to the Civil Code, theparties are free to enter into contracts that are not directlystipulated by law and stipulating its terms and conditions. Atthe same time, such contracts shall comply with generalprinciples of civil legislation, customary business practices,requirements of reasonableness and equitableness.

In the absence of speci�c regulations, distribution relation-ships are governed mainly by provisions of the Civil Code andthe Commercial Code. Moreover, while concluding distributioncontracts, the parties shall take into account provisions of com-petitive legislation, legislation regarding quality, safety ofgoods and of protection of consumers' rights, legislation in thesphere of intellectual property and advertising as well as othermandatory provisions stipulated in the current Ukrainianlegislation.

Pursuant to the Civil Code and the Commercial Code, agree-ments concluded by and between legal entities shall be in writ-ing, signed by the parties and sealed. Even though notariza-tion is not required, the parties may agree thereon.

§ 77A:37 Trade regulation and foreign trade

Foreign currency control regulationsUkrainian law provides for strict foreign currency control

requirements to be obeyed by the Ukrainian counterparty andproperly incorporated into the agreement. Particularly, importoperations performed based upon delay of supply for the termmore than 180 calendar days since the date of advance pay-ment or issuance of promissory note/bill of exchange requireobtaining the relevant permit by the Ministry of EconomicDevelopment and Trade of Ukraine. If the Ukrainian counter-party violates the said requirements, he is obliged to pay aninterest equal to 0,3% of the value of the non-supplied productsfor each day of delay. The same rules are applied if the productsare �rst exported and only later are paid. Notably, the above180 day period is amended quite often, e.g., as of July 2013,instead of 180-day period, 90-day period shall apply.

Violation of foreign currency regulations can result in ap-

§ 77A:37Ukraine


plication by the Ministry of Economic Development and Tradeof Ukraine of special sanctions (e.g., individual license regimeor even temporary suspension of operations) to be applied bothto the Ukrainian and foreign companies.

Ukrainian law provides for a necessity to obtain a price ex-amination act or approval of the National Bank of Ukraine toperform payment(s) in foreign currency in the following cases:(a) if the total value of the works/services or the IP rights to beprovided/rendered under the foreign economic agreementamounts to more than 100,000 EUR; (b) if the total value ofthe works/services or the IP rights is not set forth in the foreigneconomic agreement, the said price examination act or ap-proval of the NBU will be required after the total amount ofpayments made for the works/services or the IP rights underthe agreement in foreign currency exceeds 100,000 EUR.

Import-export operationsAll imported/exported products crossing the customs border

of Ukraine are subject to the customs and border control car-ried out by the customs authorities in order to ensure that theUkrainian customs rules and other applicable provisions areobserved. Generally, the said requirements are set forth by theCustoms Code of Ukraine.

Before the customs clearance of products entering thecustoms territory of Ukraine/exporting from the customs terri-tory of Ukraine, usually they are subject to the followingcustoms procedures:

(i) Customs non-tari� control, i.e., related to compliancewith mandatory requirements of di�erent controllingauthorities (e.g. certi�cation requirements, licensing,etc.); and

(ii) Tari� regulation, i.e., related to payment of mandatorycustoms duties and charges. Notably, the applicableimport tari�s are set forth by the “Law on CustomsTari�.” Import tari�s applicable to the products originat-ing in the countries, with which Ukraine has concludedthe free trade agreements, shall be de�ned according tothe said agreements. As far as export tari�s are con-cerned, they are stipulated by the special laws adoptedon product-by-product basis, to name but a few: the“Law on Rates of Export Duties for Seeds of CertainTypes of Oil-Plants,” the “Law on Rates of Export Dutiesfor Scrap of Ferrous Metals, Non-ferrous Metals andSemi-�nished Using Them.”


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The list of possible non-tari� authorizations is quite extensiveand the applicable payments related to the productsimportation/exportation di�ers signi�cantly depending on thepeculiarities of such products. Therefore, all applicable non-tari� measures and duties (charges) to importation/exportationof the products shall be veri�ed for each transaction (depend-ing the products imported/exported).

Additionally, the Cabinet of Ministers of Ukraine approveson yearly basis the lists of goods, which export and import aresubject to licensing and/or quotas.

§ 77A:38 Antitrust regulation and merger controlAntimonopoly Committee of Ukraine (AMCU) is the principal

authority responsible for merger control in Ukraine. The Cabi-net of Ministers of Ukraine may approve a transaction thathas been prohibited by the AMCU. The Ukrainian mergercontrol issues are primarily governed by two primary sourcesof legislation: the Law on Protection of Economic Competition,the Law on Antimonopoly Committee of Ukraine, and a numberof regulations of the AMCU.

According to the Ukrainian merger control rules, the follow-ing transactions are considered to give rise to a concentration:

(i) when one (or more) undertaking(s) directly/indirectly,when combined with all of its prior interest, acquirers a 25%and/or 50% threshold of votes in the target undertaking'shighest body;

(ii) when two or more undertakings establish a fullyfunctional independent undertaking (joint venture);

(iii) when one (or more) undertaking(s) directly/indirectlyacquires integral property complex or a structural subdivi-sion of an undertaking (i.e. assets as a going concern);

(iv) the appointment of chairman/deputy chairman in thesupervisory council, the executive (management) board, orany other supervising or executive body of an undertakingwho already occupies one or more such positions in anotherundertaking; or

(v) where a transaction leads to a situation where morethan one half of members of the supervisory council, the ex-ecutive (management) board, or any other supervising or ex-ecutive body of two or more undertakings are occupied bythe same individuals.There are no special rules for foreign-to-foreign transactions.

The Ukrainian merger �ling requirement is applicable to any

§ 77A:38Ukraine


transaction that has the potential to a�ect economic competi-tion in Ukraine, which, in turn, is deemed to be the case if thefollowing �nancial thresholds are met or exceeded in the previ-ous �nancial year:

(i) the aggregate worldwide asset value or sales turnoverfor all parties to the concentration, including their relatedentities, exceeds EUR 12 million;

(ii) the aggregate worldwide asset value or sales turnoverfor each of at least two of the parties to the concentration,including related entities, exceeds EUR 1 million; and

(iii) the asset value or sales turnover in Ukraine of atleast one party to the concentration, including related enti-ties, exceeds EUR 1 million.In Ukraine the seller is also deemed to be a participant in

the transaction. Furthermore, irrespective of the �nancialthresholds described above, the AMCU approval is alsorequired for any concentration, if the market share of any partyor the combined market share of all parties to the concentra-tion on any product market in Ukraine exceeds 35%, and theconcentration takes place on the same or a neighboring prod-uct market.

The general requirement is that the transaction must not beclosed before the AMCU prior approval has been obtained,even if structural changes are only occurred in a foreign state.However, if a competitive procedure takes place (a bid, auction,or tender, etc.), the transaction has to be �led before the bid orwithin 30 days once the winner has been announced.

Generally, the AMCU's review takes 45 days from the dateof the merger �ling (Phase I review). However, in case the par-ticular transaction poses a risk to economic competition or thetransaction is very complicated, the AMCU may open an in-depth investigation that may last up to 3 months (Phase IIreview). It is also worth mentioning that this period can besuspended until the AMC receives any subsequently requestedinformation

Unlawful implementation of the reportable transaction or alate noti�cation may lead to �nes of up to 5% of the grossworldwide income (sales) of the relevant party (usually theacquiring party) for the �scal year preceding the year in whichthe �ne is imposed. The maximum �ne for the provision ofincomplete or false information to the AMCU is 1% of the grossworldwide income (sales) of the relevant party for the �scalyear preceding the year in which the �ne is imposed.


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The Ukrainian competition laws consider the market posi-tion of an undertaking to be “monopoly (dominant)” providedthat the undertaking fails to prove that it, in fact, faces signif-icant competition on the relevant market. There is a presump-tion of dominance if an undertaking has a market share inexcess of 35% of the relevant product market. Moreover, thereis a presumption of collective dominance if three undertakingshave a collective market share of 50% of the relevant productmarket as well as in case �ve undertakings have a collectivemarket share of 70% of the relevant product market. The abuseof a monopoly position is prohibited.

VI. EMPLOYMENT

§ 77A:39 In general

Ukrainian labour law has inherited a signi�cant number ofconcepts and approaches from the Soviet era. Despite numer-ous changes, the Labour Code (of December 10, 1971), which isthe key piece of legislation regulating employment matters,remains highly employee-focused and full of pitfalls. Speci�cstatutes have been adopted since Ukraine became independentto deal with labour safety, remuneration, vacation, collectivebargaining agreements, employment of population and employ-ment of foreign nationals, but the replacement of the LabourCode is necessary to enable Ukrainian labour law to adapt tothe needs of a market economy.

The majority of provisions of the Labour Code and otherUkrainian labour legislation apply equally to Ukrainian andforeign nationals. Thus, foreign employees enjoy the samebene�ts, guarantees, and protections available for Ukrainianemployees under Ukrainian labour laws and the employer'sinternal labour rules, policies and procedures.

§ 77A:40 Employment agreements

The employment relationship in Ukraine is established byan employment agreement between an employer and anemployee. The Labour Code provides that employment agree-ments shall generally be concluded in writing and establishessome speci�c cases when the employment agreement must bein writing.

In general, most agreements are concluded for an inde�niteterm. Even though Ukrainian labour law enables an employerto conclude �xed-term employment agreements with its em-

§ 77A:40Ukraine


ployees, these agreements should be concluded only with thoseemployees whose work by its nature is of a limited duration. Itis also possible to enter into an employment agreement ‘untilthe completion of agreed-upon work’ when it is impossible todetermine the period necessary to complete the limited scopeof agreed-upon work.

Ukrainian labour law also provides for a special form ofemployment agreement, called an ‘employment contract’, thatmay be concluded either for a �xed term or for an inde�nite pe-riod of time. The employment contract, unlike an ordinaryemployment agreement, (i) allows establishing the �xed termemployment relations even where the nature and conditions ofemployment would not ordinarily permit the conclusion of anemployment agreement for a �xed term; (ii) may, importantly,contain reasons for the discharge of an employee in addition tothe limited list of grounds provided in the Labour Code (e.g.,dismissal of the company's CEO at any time for any reason bya decisions of the company's highest governing body); and (iii)may provide for additional rights, obligations and liabilities ofthe parties to the employment contract, as well as conditions ofthe employee remuneration apart from those provided by law.Such additional terms should not diminish the employee rightsguaranteed by law.

The use of employment contracts is limited to cases speci�-cally provided for by the laws of Ukraine, including in certainbranches of the economy, for certain types of companies or forcertain positions (e.g., with company CEOs, teachers, scienti�cresearch employees, paralegals).

Irrespective of the form of an employment agreement, theemployer must issue an internal hiring order to document com-mencement of the employment relationship stating the emplo-yee's position and salary. An employment agreement is deemedto be concluded even if a hiring order was not issued, but anemployee was de facto admitted to work.

§ 77A:41 Employment of foreignersThere exist special procedures for hiring foreign nationals

that must be followed to avoid administrative liability or evendeportation of a foreign national.

In accordance with Ukrainian law, foreigners who intend towork in Ukraine for Ukrainian companies must obtain a workpermit. Only foreign nationals permanently residing inUkraine do not require work permits. After a foreign national


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is issued a work permit, he or she has to apply for a D-typevisa (as a general rule), bearing a special mark ‘Employment’prior to entering Ukraine with an employment purpose.

An application for a work permit and the supporting docu-ments are submitted by the employer to the respective Employ-ment Centre. A decision on the issuance of a work permit shallbe granted within 15 days. A work permit may be issued for aterm of up to one year with a possibility of extension.

After receiving the work permit the employer shall �le withthe Employment Centre a certi�ed copy of the employmentagreement (contract) with the respective foreign employeewithin three working days from the date of its execution. Fail-ure to ful�l this statutory requirement may result in the workpermit's annulment.

Termination of an employment contract with a foreignnational shall result in termination of the work permit. Thus,every time a foreign national changes his or her place ofemployment in Ukraine, he or she must obtain a new workingpermit.

Violation of the work permit regulations may result in li-ability for a company, its executives, and the foreign employee(up to his or her deportation from Ukraine).

§ 77A:42 Minimum salary

The employees of Ukrainian companies must be paid a sal-ary in amount of not less than the statutory minimum salary,currently being UAH 1,147 (approximately, GBP 85). However,it is recommended for the companies to attempt to set the sal-ary amounts for all positions at the average level establishedin the respective location/industry.

§ 77A:43 Working week, overtime, and vacation

The maximum number of working hours of full-time employ-ees cannot exceed 40 hours per week, unless a non-�xed work-ing day (week) is established for certain categories of employ-ees (e.g., CEOs and some other managers).

Ukrainian law establishes, among others, the following work-ing hour regimes: (i) normal business hours, when overtime ispaid at a double rate and employees are entitled to a vacationallowance of 24 calendar days per year; and (ii) non-�xed work-ing day, which may be established for employees whose work-ing day cannot be estimated in advance; such employees are

§ 77A:43Ukraine


entitled to a vacation allowance of 24 calendar days per yearand to an additional vacation of up to seven working days.

The general rule is that overtime is not allowed. The LabourCode provides an exhaustive list of exceptions when an em-ployee may be required to work overtime. The maximum limitof overtime work is 120 hours per year. Overtime work alsoshall not exceed four hours over two consecutive days for thesame employee.

Employers are prohibited from engaging in overtime work,among others, pregnant women, employees under 18 and em-ployees who are also full-time students receiving secondary orprofessional secondary education during term-time.

An employee's consent is required for overtime work if theemployee has a child under 14. A trade union's permission (ifexists) must be obtained for each instance of overtime work. Inthe case of overtime work, employees are entitled to extra re-muneration at a double rate for work performed in excess ofthe daily, weekly or monthly limit. The law prohibits compen-sating overtime work only with additional vacation or leave ofabsence.

§ 77A:44 Global policies

Ukrainian law provides that a number of mandatoryemployment-related regulations can be adopted by Ukrainiancompanies, including a collective bargaining agreement,internal labour rules, labour safety regulations, and some otherdocuments, depending on the speci�cs of a particular company'sbusiness.

All employment-related documentation including the internallabour rules must exist in Ukrainian notwithstanding thecompany's form or ownership.

Ukrainian companies often issue other optional internalregulations (e.g., regarding discrimination, sexual harassment,corruption, personal data protection) in accordance with theirglobal corporate policies. The global policies are not per se en-forceable in Ukraine and must be incorporated into the docu-ment system of a Ukrainian subsidiary as local policies.

§ 77A:45 Data protection

Under Ukrainian law, the main personal data includes aperson's name, nationality, education, family status, religion,health condition, address, and date and place of birth. The


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Labour Code prohibits an employer from requesting informa-tion from candidates on their nationality, political partymembership, origins, place of residence and other documentswhich are not required by law.

Almost all companies operating in Ukraine have been facingproblems with the process of adjusting their business activitiesto the new Ukrainian personal data protection legislation. TheLaw of Ukraine on Personal Data Protection (the “PDP Law”),came into e�ect on January 1, 2011, and was amended severaltimes. This Law sets new rules for collecting, storing, using,processing and transferring personal data.

Liability for violating the PDP Law was increased as of July1, 2012. The companies found in breach of the PDP Law mayface serious penalties (up to GBP 1,300 in �nes for each singleviolation and up to �ve years of imprisonment of the company'sCEO). Therefore, it is absolutely necessary for all entitiesoperating in Ukraine to become compliant with the PDP Law.

The PDP Law prohibits processing personal data related torace, ethnic origin, political, religious and ideological beliefs,political party and trade union membership, criminal prosecu-tion and judgment in a criminal case, as well as data related tohealth and private life, except for, among others, when suchprocessing is required by law in the area of employmentrelationships.

The company controlling personal data is responsible forensuring protection of such data from any illegal processingand access, including by designating an employee to performthese functions.

To assist in proving the absence of guilt in violating thepersonal data protection legislation before the PDP Service'sinspectors or the court, a sound corporate personal data protec-tion program should be developed by every entity doing busi-ness in Ukraine. This program should include developing modelinternal documentation (e.g., policies, regulations, orders, let-ters of consent, personal data protection clauses in the employ-ment agreements (contracts), etc.).

Ukrainian law does not require registration for the cross-border transfer of personal data. If the employer wishes totransfer its employees' personal data abroad, it should obtainthese employees' prior written consent for such transfer. Thepermission should contain, in particular, information on thedata addressee, the scope of the transferred data and thepurpose of its processing. It is advisable for the employer to

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enter into an agreement with a foreign data recipient requiringthe transferred data to be treated as con�dential information.

§ 77A:46 Termination of employment

Termination of an employment agreement at the employer'sinitiative is di�cult and the employee cannot be dismissedwithout cause. The employer may dismiss an employee in thelimited cases provided in the Labour Code (e.g., redundancy,systematic failure to perform the employee's duties, insu�cientquali�cation, etc.). A labour contract may provide for additionalgrounds for an employee dismissal, which is a useful tool inregulating employment relations with the company's CEO.

On the dismissal date, the employer provides the employeewith his or her labour book and dismissal order, and settles allpayments due to this employee.

Employees subject to dismissal on any grounds provided byUkrainian law are entitled to receive compensation for unusedvacation. The employer shall also pay to an employee any ad-ditional compensation or bene�ts that may be speci�ed in awritten employment agreement or contract with this employeeand the collective bargaining agreement (if any).

The law does not prohibit the employer and the employeefrom concluding a settlement agreement. To be enforceable,however, the provisions of this agreement must not worsen theemployee's position as compared to Ukrainian labour law.

VII. COMMERCIAL DISPUTE RESOLUTION

§ 77A:47 In generalThe Ukrainian court system is currently structured so that

the identities of the parties and the subject of the commercialdispute determine the competent court. Generally, civil mat-ters involving individuals are heard in the general courts (“civilcourts”). Legal entities, such as corporations, and individualentrepreneurs bring matters before the commercial courts.Commercial courts also have a jurisdiction over certain typesof cases notwithstanding the parties of the dispute areindividuals or legal entities, such as corporate disputes, bank-ruptcy proceedings, etc. The size of a claim does not determinewhich court has jurisdiction. In addition, the Ukrainian courtsystem includes administrative courts, which exercise jurisdic-tion over matters involving disputes with state authorities,including tax disputes, and public o�cials.


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The hierarchy of the civil courts includes �rst-instance localcourts, courts of appeal, the High Specialised Court of Ukrainein Civil and Criminal Cases and the Supreme Court of Ukraine.The hierarchy of the commercial courts includes �rst-instancecommercial courts, commercial courts of appeal, the High Com-mercial Court of Ukraine, and the Supreme Court of Ukraine.Ukraine currently has separate codes for the proceedings beforecivil and commercial courts: the Civil Procedure Code ofUkraine and the Commercial Procedure Code of Ukraine. Fol-lowing the judicial reform in 2010, the Supreme Court ofUkraine has rather limited powers to review the cases heardby the High Specialised Court of Ukraine in Civil and CriminalCases and the High Commercial Court of Ukraine, subject tothe latter courts granting the leave for appeal to the SupremeCourt of Ukraine.

Civil proceedings are commenced by �ling a statement ofclaim with a �rst-instance court. The statement of claim mustcontain the name of the court, the names of the plainti� anddefendant, their addresses, a description of the claim, a state-ment of facts, the types of evidence supporting the claim, and alist of supporting documents. In certain commercial disputesinvolving legal entities (i.e., in disputes arising out of contractsof carriage), the potential claimant may be required to send aletter of claim to the potential defendant stating the nature,grounds and amount of the claim, and to provide supportingdocuments. The potential defendant has one or two months torespond to the letter. If the potential defendant refuses tosatisfy the claim, the potential plainti� can bring it to the com-mercial court.

Generally, Ukrainian civil procedure does not provide forextensive discovery. Each party is required to produce evidenceto prove its own claims or defences. The plainti� and defendantattach documents to the statement of claim and the statementof defence. At the preliminary hearing, the parties exchangeevidence, and the judge determines what additional evidencemay be required. The parties are not required to exchangedocuments, answer interrogatories, and may not give pretrialtestimonies. Nonetheless, the parties may request the court tocompel production of evidence, which may include summoningwitnesses, documents, objects, and expert examination. Attrial, the court considers witness testimony, documentary andphysical evidence and expert conclusions. Both the parties andthe court question witnesses and experts. Certain profession-als, such as attorneys, notaries, doctors, members of the clergy

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and certain other types of witnesses have a privilege againsttestifying in a court. Unlike in civil proceeding, no witnessesare allowed in commercial proceeding.

Expert evidence could only be provided by specialised expertinstitutions or certi�ed individual experts appointed by thecourt. Expert reports submitted by the parties are not regardedas expert evidence and do not enjoy the same evidentiaryweight as the expert evidence given by the court-appointedexperts. Experts can provide conclusions regarding ultimate is-sues such as capacity or mental state. Although expert conclu-sions are not binding on the court, they have greater weightthan other types of evidence.

There is no formal requirement to preserve documents orphysical evidence pending trial. Upon a party's motion,however, the court can order the other party to preserveevidence. Ukraine's law criminalises obstruction of justice, butas a practical matter, it is seldom proven.

Ukrainian law recognises compensatory damages. Punitivedamages are not available as a rule. A contract between theparties, however, may contain liquidated damages and penaltyclauses. At the same time, the court has wide discretion inreducing the amount of the latter. The losing party also typi-cally compensates the prevailing party for the costs of litiga-tion, in accordance with the European approach. Costs mayinclude the court fee, attorney's fees, expenses paid to wit-nesses and experts and expenses related to expert examination.However, the compensation of the legal costs still remainsrather controversial.

Ukrainian law provides for two stages of appeal: appeal andcassation. Generally, a party can appeal the decision of the�rst-instance court within 10 days of the entry of judgment. Aparty can appeal the appellate court's decision to the cassationcourt within 20 days.

The scope of appellate and cassation review di�ers. Appel-late courts review all evidence anew and can also gather ad-ditional evidence. Typically, appellate courts review the casewithin the bounds of the appellate complaint. However, in caseof obvious procedural or substantive defects, appellate courtscan review the case in its entirety. Cassation courts, bycontrast, only review the record (i.e., materials in the case �le)to determine procedural or substantive law violations. Cassa-tion courts cannot gather additional evidence or determine theweight or credibility of the evidence.


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Decisions of civil �rst-instance courts can be appealed to theappellate courts and then to the High Specialised Court ofUkraine in Civil and Criminal Cases, as a cassation court. De-cisions of commercial �rst-instance courts can be appealed tothe appellate commercial courts, then to the High CommercialCourt of Ukraine, as a cassation court.

Decisions of the High Specialised Court of Ukraine in Civiland Criminal Cases and the High Commercial Court of Ukrainecould be further appealed to the Supreme Court of Ukraine ontwo limited grounds: (i) in the event of inconsistent applicationby the cassation courts of the same substantive rules in similarcircumstances, or (ii) in the event of breach by Ukraine of itsinternational obligations while deciding the court case, asdetermined by an international court whose jurisdiction isrecognised by Ukraine.

Any appeal to the Supreme Court of Ukraine on the abovepoints requires obtaining a leave from the High SpecialisedCourt of Ukraine in Civil and Criminal Cases or the High Com-mercial Court of Ukraine, respectively. Judgments of theSupreme Court of Ukraine rendered in cases relating to incon-sistent application by the cassation courts of the same substan-tive rules in similar circumstances have binding e�ect on thelower courts.

Eventually, if a judgment debtor fails to comply with thejudgment, the judgment creditor can submit a writ of execu-tion to the State Execution Service of Ukraine. The judgmentcreditor must do so within one year from the obtaining of thewrit of execution. Within three days of receiving the writ of ex-ecution, the State Execution Service of Ukraine commences ex-ecution proceedings and provides to the debtor a seven-day pe-riod for a voluntary satisfaction of the judgment. Failing suchvoluntary satisfaction, the State Execution Service of Ukraineattaches the debtor's assets or monetary funds, seizes the objectof the judgment, or garnishes the debtor's income. UnderUkrainian law, the State Execution Service of Ukraine typi-cally has six months to complete the execution. Successfulrecovery depends on the type of assets the judgment creditorseeks and the identity of the debtor.

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INTERNATIONAL CONTRACT MANUAL

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