Legal term for payments in Ukraine

Ukrainian payment terms legislation is based on the provisions of the Civil Code of Ukraine No. 435-IV dated 16 January 2003 (the “Civil Code”), Commercial Code of Ukraine No. 436-IV dated 16 January 2003 (the “Commercial Code”), and the Law of Ukraine ”On Responsibility for Untimely Fulfilment of Money Obligations” No. 543/96-ВР dated 22 November 1996. 

While Ukrainian law sets forth general requirements for payment terms in domestic commercial contracts, it still allows the parties to deviate from them or set them aside in their contracts. One of the few exceptions is a late payment interest cap, which is limited at the double key policy rate established by the National Bank of Ukraine (“NBU Key Policy Rate”), which is currently 16%. 

2. Is there a standard payment term set out in law? If so, what is it?

No standard payment term is established by law. Parties to a contract are free to agree on any payment term, complying with the fundamental principles of Ukrainian contract law, such as good faith, equality and reasonableness.

3. In what circumstances may parties contractually agree to extend payment beyond the standard payment term?

While there are no mandatory statutory provisions applicable to an extension of the payment term, parties to the agreement may mutually agree to amend the term of payments on a case-by-case basis. 

4. May an obligation beyond the standard payment term be evidenced in a PO?

Yes, assuming that the PO is a standard contract or refers to the framework contract.

5. Are there any penalties for breach of payment term in legislation other that a civil claim by the seller?

The debtor may be liable under the contract, but under Ukrainian law there are no explicit provisions that provide for penalties for breach of payment terms. 

6. Is there any special legislation regarding payment obligations for the COVID-19 situation?

Quarantine measures established by the Cabinet of Ministers of Ukraine to prevent the spread of COVID-19 are now explicitly included into the definition of force majeure events under the Law of Ukraine “On Amendments to Certain Legislative Acts of Ukraine Aimed at Preventing the Occurrence and Spread of Coronavirus Disease (COVID-19)” No. 530-IX dated 17 March 2020. This means that debtors under commercial contracts may be released from liability for delayed or late payments if they prove that the breach occurred as a result of a force majeure event due to the quarantine measures.  

7. Any additional comments

In commercial transactions between undertakings, the creditor is entitled to:

  1. Penalty. Which shall be calculated as a percentage from the sum of the overdue amount for each delayed day. The rate of the penalty is agreed upon by the parties to the contract, the legislation sets up limitations on the rate of the penalty agreed by the parties, which shall not exceed the double NBU Key Policy Rate (16%). According to the Commercial Code, if the amount of penalties is not specified by law, the penalty is applied in the amount provided by the contract. If it is otherwise not expressly stated in the contract or stipulated by law, the penalty shall be accrued for six months following the day when the payment had become due. 
  2. Inflation losses and three percent annual interest.  

According to Article 625(1) of the Civil Code:

  • The creditor is entitled to compensation for inflation losses caused by overdue amounts. The rate of inflation will be accrued upon the delayed amount for the entire period of the delay. 
  • The creditor is entitled to three percent annual interest of the delayed sum unless another interest rate is established by the agreement or the law. Three percent annual interest will be accrued upon the delayed amount during the entire period of the delay.

The rate of inflation and three percent annual interest should be paid to the creditor regardless of whether it is stated in the contract. In practice, creditors in Ukraine must claim a penalty (if stated by the contract), the rate of inflation and three percent annual interest against the debtor. Often debtors refuse to pay these amounts voluntary and creditors have to institute lawsuits to collect the payments. 

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