After a decade-long wait, Ukrainian franchise regulations will become effective on April 21, 2015. The new regulations are a first step toward resolving uncertainty that has plagued Ukrainian franchises since 2004, when amendments to the Civil and Commercial Code of Ukraine introduced franchise-specific legislation.

The 2004 legislation was relatively innocuous: it required franchisors and franchisees to register their franchise agreements (including amendments and terminations) with the local state office that originally registered the Ukranian franchise. Absent registration, franchisors and franchisees could not enforce their franchise agreement against third parties. However, until recently, no regulations provided the nuts and bolts of how to register a franchise agreement.

registerIn the interim, franchise agreements were deemed valid between the parties to the agreement, but invalid vis-à-vis third parties. For example, tax authorities–either considering themselves third parties or simply refusing to acknowledge the unregistered franchise agreement–attempted to reduce tax credits resulting from payments made under franchise agreements. Attempting to mitigate the uncertainty, franchisors and franchisees incurred greater transaction costs by concluding additional agreements, such as equipment, supply and service contracts and license agreements.

But on October 21, 2014, the veil was (at least partially) lifted. The Ministry of Justice published Order No. 1601/5 (the “Order”), setting forth the procedures for registering franchise agreements. Some highlights include:

  • The Order takes effect on April 21, 2015.
  • Registration will be performed by the State Registration Service of Ukraine.
  • Applications may be filed in person, by mail or electronically.
  • Registration is free and decisions should be issued within 5 working days from filing.
  • Documentation confirming the existence of the franchisor’s intellectual property rights must be filed along with the registration. Unfortunately, however, the Order does not clarify what documentation should be filed if a franchisor’s trade secrets are subject to the franchise agreement.

While some uncertainties remain, the Order provides long-absent clarity and protection to franchise relationships in the Ukraine.