How to Draw up a SaaS Agreement Without Legal Risks
General characteristics of the agreement
Software as a Service is a software distribution model where a vendor hosts their program in the cloud and allows the program to be used without directly installing it on the user's device. The back-end part of the code is not installed or downloaded to the device and the user does not get any access to it, but interacts only with the Front-end or, in other words, the shell.
In addition to direct access to the software, the user receives support at all stages, regular software updates, and so on. This is what distinguishes SaaS from other types of software use rights granting.
SaaS platforms are gaining more and more popularity due to cost savings, capacities, the ability to use software anywhere in the world, just access to the Internet and a computer is enough.
But along with this, the SaaS model of software distribution is not without its drawbacks. First, the user bears the risk of data leakage, since there is no way to independently control and store data. Secondly, the software distributed under the SaaS agreement cannot be adapted for each user and his individual tasks, since the distributed program is used by a large number of people.
Also, the SaaS agreement should provide supporting documents, such as:
- Terms of Use;
- Privacy Policy;
- Service Level Agreement.
The SaaS Agreement must contain the following elements:
- Basic definitions;
- Information about the provided service;
- Terms of Service Acceptable Use and Terms of Service;
- The rights and obligations of the party;
- Responsibility of the parties;
- The term of the agreement - basically the agreement is concluded for 12 months, it can also be terminated before its expiration, or it can be automatically prolonged;
- Regulations on the procedure for resolving disputes;
- Force majeure circumstances.
The SLA must also contain terms that clarify the agreement:
- Cost of services, procedure and methods of payment. Basically, a subscription distribution model is used, where the user pays a monthly fee for using the service, in case of termination of payment, the user access is limited;
- Service security guarantees.
Agreement models
The essence of the agreement - SaaS has a dual character, which can be traced even from the decoding of the abbreviation. Hence, there are 3 main SaaS contractual models:
- A lease agreement for a software and hardware complex is a document that secures the rights and obligations of the parties in the delivery of a software and hardware complex.
The parties to the agreement are the Supplier and the Buyer. The essential terms of such an agreement are the subject (goods, equipment), conditions, terms, payment.
- A license agreement is an agreement according to which the licensor grants permission to use the intellectual property object in the amount stipulated by the agreement to the licensee, who in turn undertakes to pay and perform other actions provided for by the agreement.
The license agreement is fixed-term agreement.
The subject of the agreement is the result of intellectual activity, means of individualization, the rights to use which are granted to the licensee.
The SaaS model does not imply direct ownership of a copy of the program, only use through a browser or other form of presentation is permitted. Speaking about the qualification of the SaaS agreement as licensed, it should be mentioned that the Civil Code does not indicate the direct presence of the program on the user's device, therefore it does not matter for the qualification of such an agreement as licensed and such a model takes place.
In this case, the question of taxation arises, since qualifying the SaaS agreement as licensed, the Tax Code establishes that providing in this way access to software via the Internet is a service, which in turn is subject to VAT.
Only the transfer of rights to the software is not subject to VAT, and, in turn, the services rendered with the help of this software are subject to taxation. In this case, the double classification of the agreement as a license agreement and a service agreement may come to the rescue.
According to the position of the legislator, exemption from VAT is possible if the following conditions are met:
- The first step should be the conclusion of a license agreement;
- And the next step is to transfer the software to the user.
Only in this case can you be exempted from VAT.
The problem is that the fact of “granting the right to use software” and “providing services” are very similar in meaning, which is a possible reason for the retraining of the license agreement into a service agreement.
- Service agreement - under this agreement, the contractor undertakes to provide certain services or perform certain activities, and the customer undertakes to pay for these services.
A SaaS agreement contains many subtleties that must be taken into account when drawing up a agreement based on the characteristics of the service you provide. A4 Law Firm specialists will help you choose the most effective form of the agreement and draw it up, taking into account all the details.
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