TOP 5 legal problems in the Ukrainian IT sector
Updated: Apr 8, 2020
1. Make sure that the developer assigns all possible IP rights to you.
Ukrainian law is very strict as to IP rights assignments. A developer (creator of software) transfers to you only that IP right that is clearly stated in the IP right transfer agreement (or clause). All such wording as “and all other possible IP rights”, “all and any IP rights envisaged by law” and so on just do not work in Ukraine and do not provide you with any single IP right.
E.g. you got a website from a developer with a poor IP assignment clause. You promote this website and invest in it lots of time and money during many years. The day comes and an investor appears willing to buy this website from you. The deal will fall apart as soon as the investor’s lawyers will carry out an audit of your IP rights to this website because they will see that you actually do not have proper rights to this website.
2. Make sure your company does not employ and contract the same persons.
According to the current court practice and the position of the Ukrainian Tax Office, the fact that the same person is both an employee and a contractor for the same company proves that in fact the contractual relations are faked and are nothing else as an attempt to avoid paying salary and social taxes. All taxes will be additionally charged and financial penalties will be imposed in this case.
3. Make sure your contracts with private entrepreneurs (aka ФОП) cannot be acknowledged as labor agreements.
If contracts with developers acting as private entrepreneurs (ФОП) provide for regular identical payments, for definite time of work at a definite place and other characteristics of the labor relations, then the Ukrainian Tax Office will acknowledge this as labor relations. All taxes will be additionally charged and financial penalties will be imposed in this case.
4. Make sure the statement of work you use with your contractors is clear, detailed and precise.
Having a general statement of work does not allow you to determine what exactly the developer did for you and so it is a high risk of losing IP rights on the service/product in the end as well as get financial sanctions from the Tax Office.
E.g. a developer can assert that all these 5 years he worked for you he has been developing this great calculator but the global space satellite control system (that was his real assignment) he created at his spare time on weekends.
At the same time, the Tax Office will say that it is not clear what exactly was done under such a contract and so it cannot be used in business operations. Hence, all taxes will be additionally charged and financial penalties will be imposed.
5. Make sure you are protected from confidential information disclosure and non-compete.
Ukrainian law does not allow forbidding people to work for competitors in its pure form. So, if you really need to be certain that your former employee or contractor will not go to work for your competitor, then a wise legal structure shall be implemented.
Contact Legal Ideas law firm for a free preliminary legal audit of your IT business in order to reveal existing legal issues and to find out how to solve them.