For foreign investors entering the Ukrainian market, intellectual property assets often present a jurisdictional challenge: how to secure the right to use a trademark, invention, or software without inadvertently losing control over its future exploitation. Unlike a full alienation (outright sale) of IP rights, a license agreement under Article 1109 of the Civil Code of Ukraine offers a more flexible, non-exclusive route. Before analyzing the commercial terms, however, an investor must distinguish between three distinct statutory instruments license, sale, and exclusive transfer as confusing them may lead to unintended loss of ownership or the right to sublicense.

Legal framework

A license agreement is an agreement on the transfer of the right to use an intellectual property object, in accordance with Article 1109 of the Civil Code of Ukraine. It is important to distinguish this type of agreement from two other types related to intellectual property objects:

• An agreement on the alienation of property rights through sale and purchase (Article 655 of the Civil Code of Ukraine).
• An agreement on the transfer of exclusive intellectual property rights (Article 1113 of the Civil Code of Ukraine).

In the case of the latter two agreements, a full transfer of exclusive property rights occurs, including the rights of possession, use, and disposal. Such agreements provide for the transfer of not only the right to use the object but also the right to grant permission for its use and to prevent the unlawful use of the object.
In the case of a license agreement, only a non-exclusive property right to use the object is transferred. A license agreement can be considered a type of copyright agreement for the transfer of non-exclusive property rights. 

Types of licenses

Ukrainian legislation provides for three types of licenses. Below is a brief overview of each:

• Exclusive License granted to only one licensee. It prohibits the licensor from using the intellectual property object within the scope limited by the license and also prohibits the licensor from granting further licenses for the use of the object in that specified field to other persons.
• Sole License granted to only one licensee. It prohibits the licensor from issuing licenses to other persons for the use of the intellectual property object within the scope limited by the license but does not prohibit the licensor from using the object in that specified field.
• Non-Exclusive License allows the author (or right holder) of the intellectual property object to use it and to grant licenses to third parties

If the license agreement does not specify the type of license, a non-exclusive license is deemed granted (Part 4, Article 1109 of the Civil Code of Ukraine).

Scope of Use of the Intellectual Property Object

The scope includes specific rights granted under the agreement; methods of use of the object; territory; and term. It is important to pay attention to three key points:

• Territory: If the agreement does not contain terms on the territory, the license is presumed to be valid only within the territory of Ukraine (Part 7, Article 1109 of the Civil Code of Ukraine).
• Term: If the term is not defined in the agreement, the license is considered concluded for the period remaining until the expiration of the exclusive property right to the specified IP object, but not more than five years. If, six months before the expiry of the five-year term, neither party notifies the other in writing of its desire to terminate the agreement, the agreement is automatically extended for an indefinite period. Note: the six-month period may be adjusted by the terms of the agreement.
• Rights and methods of use: If certain rights and methods of use of the IP object are not specified in the agreement, they are deemed not granted to the licensee. Therefore, all rights and methods of use must be carefully and explicitly drafted.

Types of Payments under a License Agreement 

According to Ukrainian legislation, a license agreement may provide for three main types of payments. The choice of a particular type depends on several factors, including the nature of the intellectual property (e.g., a well-known brand vs. a new technology), the industry standards and customs, the level of commercial risk each party is willing to assume, etc. Types of payments under a license agreement:

• Royalty (Periodic Payments);
• Lump-Sum Payment (One-Time Fixed Fee);
• Combined Payment (Initial Fee + Royalty).

A lump-sum payment is a fixed, one-time fee paid by the licensee to the licensor. Its amount is determined as a single sum and is not tied to future sales or production volumes. This option is often preferred by licensors because it provides immediate cash flow and transfers the commercial risk to the licensee.

Royalty is the most common type of payment in Ukrainian license agreements. It refers to periodic payments made by the licensee to the licensor, calculated based on a commercial indicator (e.g., a percentage of revenue, profit, or a fixed amount per unit of product sold). The key characteristic of a royalty is that its amount depends on the actual commercial results of using the intellectual property. 

Tax aspects

Moreover, for taxation purposes, determining the licensor’s status is of critical importance:

• If the recipient of royalty (licensor) is a resident without special status, such income is taxed at the time of payment by a tax agent, applying the dividend taxation rules.
• If the recipient is a non-resident, such person is a taxpayer on personal income derived from sources in Ukraine.

The tax agent is the legal entity or individual that accrues and pays the royalty income. If a double taxation treaty exists between Ukraine and the non-resident's country providing for full or partial exemption from taxation of income of non-residents from Ukrainian sources, then, under the Tax Code of Ukraine, the provisions of the ratified international treaty prevail.

Additionally, a military levy of 1.5% is payable on the receipt of royalties. This is regulated by Section XX, Subsection 10, Paragraph 16-1 of the Tax Code of Ukraine.

de Capoa Law Firm
Dario Gorji Varnosfaderani - Elizaveta Cherepanova