New law to simplify export of services (IT, consulting, outsoucing) from Ukraine

 

On December 3, 2016 Law of Ukraine “On Amending Certain Legislative Acts of Ukraine Regarding the Removal of Administrative Barriers to the Export of Services” No. 1724-VIII of November 3, 2016 came into force. It will apply starting from January 3, 2016. The purpose of the Law is to remove or reduce the existing administrative barriers, in particular, the paperwork burden, in cross-border economic activity and bookkeeping. Below please find an outline of the introduced changes.

 

Cross-border contracts may be executed in electronic form

 

One of the major progressive steps introduced by the law is the possibility to execute all cross-border contracts in an electronic form instead of the traditional paper-form documents. However, it remains not quite clear yet what is exactly covered by the “electronic form” (e.g., is a simple exchange of emails sufficient to constitute a binding agreement), since the changes do not provide for a definition. Whenever we refer to the provisions of the laws on electronic documents and e-commerce, we see that in order to be binding on the parties, electronic documents must be signed either by a certified electronic signature (a special “key” issued by a licensed Ukrainian provider) of the parties or by another electronic signature (i.e., which is not certified) previously agreed by the parties in writing. The question is how this requirement will technically work with a non-resident counterparty, in particular, how it can procure a certified electronic signature (key) in Ukraine. So far, only Ukrainian resident companies may procure a certified electronic signature in Ukraine.

 

Cross-border contracts for the export of services may be executed in a simplified form, even by exchange of emails

 

Only with regard to the form of cross-border contracts for the export of services (works, objects of IP rights) from Ukraine the new Law elaborates in more detail. In particular, such contracts can be executed also in the form of an exchange of emails, the issuance of an invoice, including an electronic one, as well as the acceptance of a public offer. All these shall constitute a binding agreement. Such abolishment of the existing paperwork burden will undoubtedly essentially simplify and facilitate the work of Ukrainian companies providing services (e.g., IT, outsourcing, legal or other consulting services) to non-resident recipients. They will be able to provide services without the need to execute a written (paper-form) contract. Even a simple electronic invoice sent via email will be a sufficient proof of a contractual relationship and the basis for receipt of remuneration by the Ukrainian company. In addition, documents regarding the export of services, works, objects of IP rights executed in English and provided to Ukrainian banks do not need to be translated into Ukrainian.

 

No hand-over reports on exported services required

 

Importantly, there will be no requirement to execute a hand-over report on services provided by a Ukrainian company under cross-border contracts for the export of services (works, objects of IP rights). This formality, which is unknown in Western countries, was often the cause of confusion and even payment delay. However, the hand-over report remains mandatory for the import of services to Ukraine as well as export and import of goods.

 

The 180-day mandatory payment term will not apply to the export of services

 

The mandatory 180-day term for inbound payments by non-residents under cross-border contracts for the export of services (works, objects of IP rights) shall no longer apply. I.e., the parties will be able to freely set payment settlement terms and schedules in their contractual arrangements. However, the 180-day term will continue to apply to the import of services to Ukraine, if pre-payment by a resident recipient company is a contractual condition, as well as to export and import transactions of goods (currently 120 days).

 

Progressive changes in bookkeeping

 

The changes have also touched upon the existing bookkeeping regulations. In particular, the mandatory written (paper) form of all primary accounting documents is abolished. Thus, the documents may be executed and exist in either an electronic (with all required electronic signatures attached) or traditional paper form (or both). Further, insignificant deficiencies in transaction documents shall not render a transaction ineffective, provided the transaction and its parties can be sufficiently identified.

 

***

 

Undoubtedly, the changes are intended to have a positive effect on the Ukrainian economy, in particular, boost the export of services and inflow of currency. However, the reaction of the conservative Ukrainian governmental agencies, courts and banks, which are used to the traditional paper forms of documents, may be unpredictable. Therefore, administrative and court practice will be of utmost importance for the effectiveness of enforcement.

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Nobles is a full-service corporate law firm that advises public and private companies, banks, financial institutions, private equity firms, funds, investment banks, government entities and private high-net individuals in multiple industrial sectors and practice areas of Ukrainian and international business law. The firm's main practice areas are antitrust & merger control, banking & finance, corporatedistribution and franchising, mergers & acquisitions, employment, insolvency and restructuring, intellectual property, litigation & dispute resolution, real estate & land lawtax.