Entering the Ukrainian market through agency agreements

Avv. Dario Gorji Varnosfaderani
Elizaveta Cherepanova

Ukrainian law allows the conclusion of agency agreements between Ukrainian businesses and foreign counterparties for the development of commercial cooperation. While agency agreements are not as frequently used in domestic Ukrainian practice compared to other contractual forms such as commission or service agreements, they are widely utilized in cross-border transactions. Foreign companies often rely on agency agreements as a means of entering the Ukrainian market without the need to establish a local legal entity or representative office.
Unlike some jurisdictions where agency agreements are governed by a standalone legal act, Ukraine does not have a unified codified law exclusively regulating agency relationships. Instead, agency-type relations are scattered across provisions of the Civil and Commercial Codes. 
An agency agreement is defined as a type of business activity whereby the agent provides services to the principal during the course of the principal’s economic activity, by acting as an intermediary on behalf of, in the interest of, under the control, and at the expense of the principal. 

Possible services that an agent can perform in Ukraine

Because an agent operates on behalf of the principal, it may carry out any activities that are not restricted or subject to special legal requirements under Ukrainian legislation. Before entering into an agency agreement, it is essential to confirm whether the intended business activity involves commercial intermediation that is either prohibited or requires a license in Ukraine.
As a general rule, licenses issued in Ukraine are non-transferable, meaning a licensed entity cannot delegate the performance of its licensed activities to an agent. Activities that require a license include, among others, banking, trading in securities, financial services, manufacturing and selling tobacco or alcohol, telecommunications, and construction. 
Moreover, certain sectors may impose additional requirements on the principal, such as maintaining a legal presence in Ukraine, meeting minimum capital thresholds, or employing certified specialists. 

Territory of Operation

An agency agreement must specify the territory within which the agent is obliged to provide the services set out in the contract. This is important because the principal is usually interested in promoting their product in a specific market or region.
In the absence of such a clause, pursuant to the Commercial Code of Ukraine, part 3, art. 297 the agent is deemed to have the right to act on behalf of and in the interest of the principal throughout the territory of Ukraine.

Agent’s Remuneration

The principal is obligated to provide the agent with the necessary funds to perform the contractual obligations, and to reimburse expenses incurred during the execution of the agreement.
Under the Civil Code of Ukraine, art. 301 the agent is entitled to a fee for intermediary services performed in the interest of the principal, in an amount specified in the agreement. This fee is typically paid once the third party fulfils their obligations under the contract concluded through the agent’s mediation, unless otherwise agreed by the parties.
The agreement may also stipulate additional remuneration if the agent undertakes to guarantee the performance of the third party’s obligations (a structure similar to “star del credere”, as provided by for Italian law).
Typically, the agent submits an invoice to the principal, who then transfers the payment to the agent’s bank account. Under Ukrainian law, agents are allowed to receive payments in foreign currency when contracting with a foreign principal, provided that under the present circumstances payments in foreign currency may be subject to restrictions due to Martial law.

Forms of Agency Relations

Ukrainian legislation does not categorize agency agreements according to the scope of authority (e.g., special, general, or universal), but it does allow for the establishment of either exclusive or non-exclusive agency relationships. In an exclusive agency arrangement, the agent is restricted from representing other parties within the agreed scope of the contract. Conversely, in a non-exclusive arrangement, the agent is permitted to represent additional principals, and the principal retains the right to appoint other agents to carry out similar functions.

Execution of the Agreement

According to the Civil Code of Ukraine, part 1, art. 300 the agent is required to personally perform the actions authorized by the agreement. The agent is not permitted to delegate their powers to others (i.e., sub-agency is not allowed), unless otherwise explicitly provided by the contract.
The agent is also liable for any losses caused by failure to perform or improper performance of their contractual obligations, unless the agreement provides otherwise.

Duration and Termination

The agreement may be terminated by mutual consent, by revocation of authority by the principal, or by the agent’s refusal to continue performance under a contract of indefinite duration. Termination is also possible in the event of liquidation, death, or legal incapacity of either party.
In the event of revocation, the principal must notify the agent of termination at least one month in advance, unless a longer notice period has been contractually agreed.
Dispute Resolution
The agreement should specify the dispute resolution mechanism, including the jurisdiction. The agreement may provide for the place of dispute resolution to be either Ukraine or Italy depending on the circumstances, as Ukraine both countries are parties to the Convention on Mutual Assistance in Civil Matters (1979). 

Legal risks and recommendations for principals

It is crucial for the principal to exercise caution when entering into an agency agreement under Ukrainian law. The Ukrainian legal framework tends to offer stronger protection to the agent than to the principal. This includes, among other things, the agent’s entitlement to remuneration, liability limitations, restrictions on termination, and the right to additional compensation when assuming enhanced obligations. Therefore, careful drafting and legal review of the agency agreement are strongly recommended.