Three successes in IT deregulation give hope for future

Despite all the challenges coming along the way, deregulation remains one of the fastest-moving reforms. A number of laws and Cabinet of Ministers decrees that make life easier for Ukrainian business have already been passed. Moreover, the government has recently adopted an action plan on deregulation for 2015-2016, which contains 130 of the most painful issues for business, with a responsible state body assigned and a time frame for implementation clearly defined.

Within the deregulation action plan, the information technology industry is one of the most viable drivers of Ukraine’s economic growth. The IT industry accounted for more than 2 percent of gross domestic product in 2014. It also showed an annual growth rate of more than 30 percent over the past three years. Adding up to $350 million in market size and around 300,000 employed specialist makes one feel positive that IT has decent chances to save Ukraine’s economy if the IT market is properly regulated.

The Ministry of Economic Development and Trade, the non-governmental organization EasyBusiness and a number of industry experts so far have managed to implement several deregulation initiatives in the IT industry.

Let us dive deeper into each of them.

  • Simplification of obtaining work permits for qualified foreign IT specialists

On the one hand, qualified foreign IT specialists play a vital role in the ability of IT companies to develop high-tech products and use advanced technologies in the production process because of their access to the world best practices and wide knowledge base.

On the other hand, a simple procedure for obtaining work permits for senior management and leading specialists of IT companies provide favorable conditions for foreign investment in the industry. Through the implementation of changes in legislation, a work permit has become more accessible to high qualify IT professionals, both founders and shareholders of the companies, as well as world’s top 100 universities alumni.

A number of simplifications had been carried out: abolition of two certificates necessary to obtain work permit, reduction of time for decision-making by responsible state body from 15 days to seven, reduction of work permit delivery time from 10 to 3 days, abolition of fee for work permit renewal.

  • Prohibition of physical seizure of IT companies servers

This was one of the most painful points for IT business in Ukraine, which could not be solved for years. Developed and incorporated into Law #1580 on deregulation by Juscutum Attorneys Association, this particular initiative solved a problem of police officers abusing powers to extort bribes from IT entrepreneurs.

Small and medium enterprises were the ones suffering the most from such an issue. Adopted amendments state that if police officers need information, which is contained on a USB flash drive, storage disk or server during the case investigation, they must make a copy of the information that the data carriers contain instead of the physical removal of these carriers. Seizure of servers should be made only in case when they contain physical evidence of a crime (fingerprints, traces of burglary, etc.).

In addition, the court in its judgment shall clearly specify which particular elements of the telecommunications infrastructure must be extracted from the business entity.

Despite the fact that the law came into force, there were some cases indicating that police officers continue to seize servers. The most recent cases occurred with companies NIC.UA and SteepHost as a result of misreading or ignorance of the law provisions by the investigator and the judge. Cancellation of obligatory registration of franchising contacts.

  • Franchising contracts are important components of global economic relations

The average proportion of franchising in worldwide retail turnover is 30-35 percent. World practice states that franchising contract itself is a sufficient proof of the agreement between the sides of the contact.

Nonetheless, all franchising contacts in Ukraine should have undergone mandatory state registration in Ukraine; such a norm existed for more than 10 years. Despite the fact that such a registration was obligatory, the government had not established a clear mechanism of registration.

Consequently, companies could not meet legal requirements and continued their business under high-risk conditions.

Compulsory state registration of franchising contracts has been abolished due to adoption of #1580 law on deregulation.

Adequate resolution of this issue reduced the risks associated with the failure of contract sides, and, as a consequence, will increase the share of businesses operating under franchising agreements in Ukraine. The latter allow businesses quickly expand the network of sales agents. The Ukrainian IT industry is integrated into all key global markets and that explains the high demand within the industry for full utilization of franchising agreements.More improvements in regulations affecting the IT market are under way.

At present, a comprehensive law draft on protection of intellectual property rights is under consideration by the Ministry of Economic Development and Trade.

Furthermore, EasyBusiness, on the basis of the Ministry of Economic Development and Trade, initiates a series of roundtables to discuss a possibility to abolish obligation to obtain individual license from the National Bank of Ukraine when investing abroad for the amounts below $20,000.

This initiative is crucial for Ukrainian venture capital funds to freely invest into Ukrainian start-ups incorporated abroad at early stages.

Nick Gaidai is co-founder at EasyBusiness and an adviser to Prime Minister Arseniy Yatsenyuk. Artem Rafaelyan is project Manager at EasyBusiness and an adviser to Economy Minister Aivaras Abromavicius. Dmytro Gadomsky is a partner in IT& media practice at Juscutum Attorneys Association and head of the IT law committee of the Lviv IT Cluster.

Topics: Analysis & opinion, Legal, Legislation & regulation
Scroll to Top
Everything you ever wanted to know about Ukraine's digital industries
Conveniently delivered to your mailbox, every week
  • Latest industry news
  • Information on startups in Ukraine
  • Market data and reports
  • Interviews with key players
  • Upcoming events
  • Recommended services
* we never share your details with third parties.