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East and Central Europe Market Intelligence

Legal Country Overviews
These are legal overviews of key CEE countries.

Ukraine

The flag of Overview:
Although Ukraine is not a member of the European Union, franchising in this country applies all methods typical for European countries. An increasing number of entrepreneurs choose franchising as a vehicle for investing into Ukraine market and for operating their own business.

Franchising made its first steps in Ukraine in the middle of the 1990 ’s and franchises continue to expand inspite of the financial crisis.

Many franchise operators in Ukraine have been very profitable in recent years, and Ukrainian franchising systems have grown accordingly. In 2008, the number of franchisors in Ukraine grew from 301 to 380, for a 26% annualized growth rate.

Furthermore, the number of franchising outlets in Ukraine grew from 18,170 up to 33,631 during one year, for an astonishing 85% annualized growth rate. Finally, in that year franchising spread into new areas of business in Ukraine, such as, financial services and banking.

There are franchise systems active in Ukraine which were “imported” from western European countries, Russian Federation and the USA. However, around 58% of the Ukrainian franchising market consists of pure Ukrainian franchising brands and this number continues to grow. Ukrainian franchising concepts usually work best in segments where foreign analogues are not workable in Ukraine or require considerable reworking for Ukrainian conditions.

One of the most popular market segments for franchising is fast food, which includes the lion’s share of Ukrainian franchising schemes. Another market segment where Ukrainian franchising schemes have taken root are in customer service such as cleaning and washing services, repair, tourism, ticket delivery, organization of entertainment, etc.

In addition, Ukrainian franchising businesses have been successful in delivering office supplies, outsourcing services, staff and management training, copy and printing services, translation services, and others.

The final part of the Euro-2012 football championship is to take place in Ukraine. This event will play an important role in the development of franchising in Ukraine. As such, franchise operators predict that franchising schemes for hotel and accommodation services in Ukraine will grow in anticipation of the championship, with franchising of hotel chains in Ukraine within the next year or two. By the year 2012, such hotels will be providing accommodations during the championship and bring profit to franchiseholders.

Ukraine has a good legal background for regulating franchising. In Ukraine, franchising relations are regulated by the Civil Code of Ukraine and the Commercial Code of Ukraine, with special chapters of these acts dedicated to franchising.

Ukrainian legislation does not define terms such as “franchising”, “franchise”, “franchisor”, or “franchisee”. Instead, as a practical matter, franchises are typically set up in the form of a “commercial concession agreement” governed by the Civil and Commercial Codes of Ukraine. A comparative legal study of international franchising practice shows that a commercial concession, as regulated by the Ukrainian legislation, is equal to what is internationally accepted as franchising.

Under a commercial concession agreement, the owner of rights for the production and/or selling of certain goods or provision of services shall transfer the right to use those rights to the user for a defined period in exchange for a defined payment. The Ukrainian commercial concession agreement transfers the same rights as a franchise agreement.

Ukrainian legislation specifically requires that a commercial concession (franchising) agreement be concluded in writing and between business entities (either legal entities or private entrepreneurs). Furthermore, a commercial concession (franchising) agreement in Ukraine is subject to state registration by the same authority that registered the owner (franchisor). Where a franchisor is a foreign entity, the commercial concession (franchising) agreement is subject to registration by the authority that registered the user (franchisee).

Though Ukrainian legislation requires that “pure” commercial concession (franchising) agreements be registered with the state, unfortunately, there is not yet a specific procedure regulating such registration. As a result, it is impossible to register commercial concession (franchising) agreements. However, Ukrainian practice and case law show that a failure to register a commercial concession (franchising) agreement does not automatically invalidate the agreement.

Furthermore, a draft Law of Ukraine proposes to grant the authority to register commercial concession (franchising) agreements to the State Department of Intellectual Property of Ukraine (the authority responsible for registering industrial property objects and license agreements). However, this draft law has not yet been adopted.

Finally, there are several franchising business organisations and associations in Ukraine that, do not belong to the government, but may influence the decision-making processes in governmental structures.

Noerr is an international partnership of attorneys, tax advisors and auditors.
Dr. Mansur Pour Rafsendjani
Olena Pleshan
tel +380 (44) 4953080
Vul. Khreschatyk, 7/11
01001 Kiew, Ukraine

 

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