Digital services may be rendered and consumed remotely, providing resiliency in the direst of times. With this in mind, Ukraine aims to develop an attractive legal framework.
Below, we will provide the information needed to:
● choose the optimal business approach in Ukraine, and
● evaluate the effort required to adapt an existing business to the Ukrainian framework.
I. Ways to run business
1. A foreign entity. Registering a branch is optional. Permanent establishment risks should be considered. Specific limitations may apply, e.g. Ukrainian state authorities may refrain from commissioning services.
2. Incorporating a local company. Creating a local company may have the following benefits:
● Employment. Ukrainian nationals may be employed, further allowing them to apply for an exemption from compulsory military enlistment.
● Range of clients. Services may be rendered to Ukrainian financial institutions and state authorities.
● Diia.City residency. Local entities may apply for a special legal & tax status allowing them to enjoy preferential tax rates, e.g. 18% income tax or a 9% tax on withdrawn capital.
Estimated time: ±1 month (depending on the need for a work permit, office rent, etc.)
3. Individual entrepreneurship. e-Residency allows foreign entrepreneurs to enjoy the status of a Ukrainian private entrepreneur. Such option allows one to remotely acquire the following benefits:
● Tax. 5% tax will be applied if the e-residency will be followed by registration as a private entrepreneur.
● Employment. Private entrepreneurs are entitled to employ staff and withhold taxes with no intermediaries.
Estimated time: ±1 month
Level of effort: Low. Local entity or private entrepreneur status may be easily acquired and foreign entities may operate in Ukraine.
II. Contracts
Applicable law. Parties are free to select the applicable law if a foreign party is involved.
Cases where the use of Ukrainian law is mandatory are limited, e.g. the provision of cloud services to state authorities.
Intellectual property. A Ukrainian intellectual property framework must be considered if works from Ukraine are commissioned, e.g. the transfer of moral rights is prohibited.
Mandatory clauses. Cases requiring certain provisions are limited, e.g. banks may demand the inclusion of a clause requiring the use of a Ukrainian-qualified electronic signature.
Level of effort: Low. As a rule, most EU contracts may work in Ukraine with minor amendments.
III. Document Management
e-Documents. Most documents may be issued, stored, and processed electronically. If a business is conducted via a local entity, the hard copy of documents that must be stored for longer than 10 years must be produced.
e-Signature. Just as eIDAS, the Ukrainian e-signature framework defines three main levels of electronic signature: a simple electronic signature, an advanced electronic signature, and a qualified electronic signature.
Level of effort: Low. In most cases, parties are free to use any type of electronic signature, e.g. DocuSign works. Cooperation with authorities may require qualified electronic signatures.
IV. Media and Ads
The Media & Ads framework prohibits publishing information that denies or justifies the criminal nature of the communist or Nazi regimes, as well as the Russian war against Ukraine. It also forbids denying the existence of the Ukrainian nation, statehood, or humiliating the Ukrainian language.
Level of Effort: Medium. While content monitoring is required, the same requirements are normally found in other jurisdictions as well.
V. Language Requirements
Computer software sold in Ukraine must have a user interface in Ukrainian, English, and other official EU languages. The software installed on goods sold in Ukraine should have a Ukrainian user interface that provides the same information as the foreign-language versions. Websites offering products and goods in Ukraine should have a Ukrainian version as well, alongside a translation of applicable terms.
Level of Effort: Medium. Translation is either required (B2C and distributed devices) or recommended (B2B).
VI. Consumer Protection
The Ukrainian Consumer Protection framework is quite similar to the EU yet is less regulated. The Seller (importer) is liable for a foreign product; terms of services with an undefined term, e.g. subscription-based services, may be changed unilaterally upon prior notice.
Level of Effort: Low. Most EU requirements match.
VII. Personal Data
The Ukrainian Privacy framework is based on Directive 95/46/EC (the GDPR’s predecessor) and will face a GDPR-like overhaul in 2024. No data representative requirements apply. GDPR compliance usually includes compliance with local regulations unless location data is processed. Consent forms and privacy notices may need slight adjustments to meet local requirements.
Level of Effort: Low. The Ukrainian text of privacy-related documents should be in place; the list of rights should be referenced. This aspect is to be revised in 2024.
Published: Newsletter for Google Hubs, №14, June 2023
Authors: Vitalii Meliankov, Vladyslav Ivanov