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Doing business in Ukraine: turning point for the currency control in Ukraine

February 2019 - Corporate & Commercial. Legal Developments by DLF attorneys-at-law.

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One of the most hotly discussed topics in 2019 is currency control liberalization in Ukraine.The currency control liberalization was one of Ukraine’s priorities under the EU-Ukraine Association Agreement. At the beginning of 2019 the National Bank of Ukraine (hereinafter the “NBU”) approved and promulgated all long-awaited regulations, serving as the basis for a new liberal system of foreign currency control. The new currency control system will be launched on 7 February 2019, the same day as the Law of Ukraine On Currency and Exchange Transactions becomes applicable. The changes are aimed at deregulation, facilitating cross-border transactions with foreign currency and expanding the list of available foreign currency transactions.

With the new system, the NBU is making a transition from the system of total currency control over each transaction to a system of foreign currency supervision. This also reduces the limits of the NBU intervention in the monetary system of Ukraine and what is most important, sets the freedom of foreign exchange transactions. At the same time, the liberalization of the currency control regime will, in effect, be accompanied with tightening of financial monitoring and tax legislation, such as through BEPS and similar measures.

Restrictions which have been abolished:

1)    the requirement for registration of cross-border loans granted by non-residents has been canceled. The procedure for registration, amendment and cancellation of registration of cross-border foreign currency loans obtained by residents will be fully automated. Such procedures shall be initiated by an authorized bank by sending a respective electronic document to the NBU, on the basis of which the NBU will perform the required automated verification.

2)    NBU has lifted the restriction on early repayment of cross-border loans. This will enable businesses to more effectively manage their debt obligations to non-residents.

3)    All types of individual licenses will be cancelled. Residents will be able to transfer foreign currency to foreign accounts, invest in securities or real estate abroad, obtain foreign currency loans and carry out a number of other transactions without applying for individual foreign exchange licenses.

Other key amendments include:

the maximum term established for settlements under export and import contracts has been doubled – up to 365 days (earlier 180 days);

export and import operations under UAH 150,000 (approx. EUR 4,600) shall no longer be subject to currency control. Instead, the NBU, fiscal authorities and other competent bodies will exercise currency supervision over transactions over UAH 150,000 (approx. EUR 4,600) in order to ensure compliance with the currency legislation requirements;

legal entities may now freely use accounts abroad (except for transactions for the transfer of funds from Ukraine to such accounts);

sanctions for failure to meet payment deadlines in the form of suspension of foreign economic activity have been abolished;

non-residents are allowed to open bank accounts in Ukrainian banks (in both UAH and foreign currency), which can be used for a wide range of transactions. Only investment accounts used to be available, which could be used for only a limited range of transactions;

banks are allowed to sell government securities denominated in foreign currencies to their clients for foreign currency;

banks may enter into currency swaps with residents and non-residents;

limit on foreign currency transfers abroad by individuals without opening an account has been increased from UAH 15,000 (approx. EUR 470) to UAH 150,000 (approx. EUR 4,600) per year;

dual control over export operations shall no longer be applied: currency supervision will be exercised only by the bank, having received the information on the respective customs declaration.

The following significant restrictions have been introduced:

cap on dividends repatriation in the amount of EUR 7 million per month for the period until 2017 (inclusive);

cap on payments for shares, other securities, corporate rights, reduction of share capital and exit from Ukrainian companies’ in the amount of EUR 5 million per month;

cap for making investments abroad in the amount of EUR 2 million for legal entities and EUR 50,000 for individuals.

The new currency control is an important step towards more open and investor-friendly foreign exchange market in Ukraine. However, it should be noted that banks, even taking into account the NBU’s liberal approach, can apply more scrutiny when carrying out checks on their clients and request additional supporting documents provided for by their internal regulations.