Current capital control measures in Ukraine

Introduction

Currency control rules in Ukraine are one of the most strict and rigid in the world at present and caused mainly by the political and economic crisis that started in 2013 and continues at present. These restrictions apply both to businesses as well as individuals although the specific rules may vary. For example, currency controls apply for transactions of individuals (both Ukrainian citizens and foreigners) while using Ukrainian bank for private or investment purposes,  or willing to purchase foreign currency without opening a bank account, citizens of Ukraine willing to invest overseas or open bank account abroad etc. Overall, while planning your business or investments in Ukraine, you are well advised to take into consideration effective currency control rules.

All currency control rules and measures can be divided into two groups:

  • General Currency Control regulations, which were introduced without specific term, and
  • Protective Measures, which can be introduced by resolution of the National Bank of Ukraine for the period of up to 6 months in order to stabilize Ukrainian currency Hryvna and Ukrainian economy as a whole.

This article provides overview of currency control rules and protective measures effective in Ukraine to help you structure your business matters in the most appropriate way.

Overview


Despite the fact that Ukrainian economy is traditionally very tied to US Dollar, under Ukrainian law all the settlements in Ukraine can be performed in national currency Hryvna. Other currencies are allowed only in specific cases, explicitly stipulated by Ukrainian legislation. In most cases foreign currency is allowed  when one of the parties is non-resident (for example settlements under foreign economic agreement or in case of settlements for foreign investment in Ukraine). Such transactions as purchase of foreign currency, payments overseas in foreign currency, investments by residents abroad, opening accounts by residents overseas are under tight control of servicing bank and in certain cases even the National Bank of Ukraine.

Due to economic crisis in Ukraine, since 2013 National Bank of Ukraine has toughened currency controls in Ukraine and implemented number of temporary currency control restrictions, aimed to stabilize Ukrainian economy. These changes has significantly affected Ukrainian businesses and a large number of foreign investments are shut off leading to a depressed local business environment. Individuals and existing businesses did not want to make further investments and many are actively exploring ways to relocate to other countries. US Dollars cash deals became widespread, especially in real-estate sector. Starting from May, 2016 the National Bank of Ukraine has declared gradual elimination of such temporary currency control measures and most of them has already been eased or cancelled.

Finally, in 2018 Ukrainian government has adopted a long-awaited Law of Ukraine “On Currency and Currency Transactions” (effective starting from 7th of February 2019), where a new core principle of performing currency transactions was implemented: what is not prohibited, it is allowed. The currency reform introduced significant changes and simplifications in the currency market of Ukraine, including significant simplification of currency transactions, cross-border loans, cancellation of big number of currency control restrictions and limitations as well as significant simplification of cross-border payments and investment in and out of Ukraine.

Nevertheless, by now some restrictions and limitations are still effective (see below). Therefore, while doing business in Ukraine or planning settlements with Ukrainian counter-party, structure the payments or even whole model of relations has to be built with consideration for currency legislation of Ukraine.

Below you will find information on Ukrainian currency control rules and protective measures, implemented by the National Bank of Ukraine for stabilization of national currency and Ukrainian economy as a whole.

General Currency Control Rules


Ukrainian banking legislation and foreign currency controls are one of the most rigid in the world.

The general currency controls include:

  1. payments (settlements) within territory of Ukraine have to be made in Hryvna (UAH). Settlements in foreign currency within territory of Ukraine are not allowed (except for: a) transfers to relatives, or b) settlements for foreign investment in Ukraine; or c) repatriation of investment/investment income from Ukraine)
  2. financial monitoring for transactions which exceed UAH 150,000 equivalent;
  3. bank’s controls over purchase of foreign currency and foreign currency transactions above UAH 150,000:
    • currency at inter-bank currency market for the amount exceeding UAH 150,000 equivalent may be purchased strictly under the procedure and under the grounds, envisaged by the NBU regulation. Residents of Ukraine are allowed to purchase foreign currency when they have obligations to non-residents. Exception is purchase of cash currency by individuals within daily limits – up to UAH 150,000 equivalent per day. Non-residents of Ukraine (both individuals and legal entities) may purchase foreign currency within the remaining balance on their regular (not investment) bank account without need to provide any supportive documents. However, for purchase of foreign currency for return of foreign investments and/or return of investments income, the foreign investor (non resident of Ukraine) will need to provide the servicing bank with  documents evidencing that he made investment in past in accordance with Ukrainian investment law (including documents evidencing payment for the investment);
    • for sending or receiving funds from overseas for the amount exceeding UAH 150,000 equivalent the servicing bank will require supportive documents evidencing the nature of the transaction
  4. obligatory customs declaration in case of import or export of foreign currency in the amount exceeding EUR 10,000 equivalent; resident individuals may export foreign currency exceeding EUR 10,000 equivalent if they provide supportive documents evidencing that the amount was previously withdrawn from their own bank account or received as a result of currency exchange. These supportive documents need to be issued not earlier than 90 before they are submitted

Protective Measures & Special Rules


In addition to General Currency Control Rules as described above,  the National Bank of Ukraine (the NBU) is allowed to inctroduce protective measures and special rules for some currency transactions to control outflow of foreign currency from Ukraine and stabilize national currency Hryvna (UAH). Key effective protective measures include:

  • limitations on the purchase of foreign currency by private individuals:
    • purchase of foreign currency in cash – up to equivalent of UAH 150,000 per day (within one bank institution). Exception is when an individual purchases currency to repay retail loan in foreign currency.
  • obligatory sale of 30 % of receivables in foreign currency (refers to foreign currency of 1st Group of Classifier of Foreign Currencies or Russian ruble) from overseas of legal entities, private entrepreneurs, foreign representative offices (other than official representative offices), joint ventures  (with certain exceptions) on their accounts in Ukraine; obligatory sale of 30 % of receivables in foreign currency on business     accounts of residents, opened overseas. Exception from this rule are the following:
    • if payment is made for foreign investment in Ukraine
    • if recipient is Ukrainian state or payment is state guaranteed
    • if loan is given for paying debts of resident under foreign economic agreement directly by paying such loan funds to non-resident-exporter, on condition that such loan is given by foreign bank or by export-credit agency
    • funds under duly registered international technical programs
    • funds received as guarantee payment from non-resident for participation in auction / competitive tendering
    • funds received as charity
    • funds received as deposits of foreign banks in Ukraine
    • funds received by agents for further transfer to recipients
    • some others as prescribed by NBU regulation # 5 as of 2nd of February, 2019
  • bank’s controls over export and import transactions exceeding UAH 150,000 equivalent, namely:
      • residents have to receive payment for export of goods in accordance with foreign economic agreement but not later than 360 days upon export of such goods;
      • in cases when goods delivery is made upon prepayment by resident for such goods, the goods have to be delivered in accordance with foreign economic agreement but not later than 360 days upon the prepayment;
      • terms specified above can be extended subject to approval (conclusion) of the Ministry of Economic Development and Trade of Ukraine)
  • the following transactions are subject to limits imposed by the National Bank of Ukraine:
      • Up to EUR 50,000 equivalent per year – for individuals-residents of Ukraine – for sending funds out of Ukraine OR accounts of non resident legal entities opened with Ukrainian banks (except investment bank accounts) with the following purposes:
        1. depositing funds on their own account outside Ukraine;
        2. granting loan to non-resident of Ukraine in foreign currency;
        3. investment overseas (e.g. buying foreign securities, real estate abroad etc)
        4. making payments under life insurance agreements.
      • Up to EUR 2,000,000 per year – for a legal entity OR private entrepreneur – for sending funds out of Ukraine / transferring funds to non resident legal entities opened with Ukrainian bank (except for investment accounts)  – as part of their business  activity (with some exceptions).  Exceptions (when the above limit does not apply) include current foreign currency transactions of legal entities / private entrepreneurs (such as buying goods/services from non residents), repayment of loan to non residents, payment of investment profit or return of investment to foreign investors, others as defined by Regulation of NBU # 5 dated 02.01.2019.
    • residents are not allowed to grant loans to non residents in UAH (as an exception, banks and non-banking financial institutions are allowed to grant retail loans in UAH to non residents)
  • a number of limitations related to repatriation of foreign investments:
    1. repatriation of dividends. Non residents of Ukraine are allowed to repatriate dividends received from participation in Ukrainian legal entities for up to 2018 and in amount not exceeding EUR 7,000,000 per month. This limit does not apply if dividends are transferred to investment account of such non resident, opened with Ukrainian bank (not overseas account or regular account with one of Ukrainian banks).
    2. limit for repatriation of corporate investment. Non residents of Ukraine are allowed to repatriate income from sale of shares in a Ukrainian company / as a result of withdrawal from Ukrainian company in the amount up to EUR 5,000,000 per month. This limit does not apply if the above income is transferred to investment account of such non resident, opened with Ukrainian bank (not overseas account or regular account with one of Ukrainian banks).
    3. repatriation of income from securities. Non residents of Ukraine are allowed to repatriate income from sale of Ukrainian securities in the amount up to EUR 5,000,000 per month. This limit does not apply if:
      1. the above income received from sale of debt/listing securities by a non-resident at a stock exchange OR sale of the state bonds; OR
      2. the above income is transferred to investment account of such non resident, opened with Ukrainian bank (not overseas account or regular account with one of Ukrainian banks).
  • cash withdrawals from automatic bank machines (ATM) on the territory of Ukraine are allowed only in Hryvnas (UAH)
  • prohibition of purchase of foreign currency at the cost of funds, which were received as a loan (exception is when an individual purchases currency to repay retail loan in foreign currency)
  • prohibition of purchase of foreign currency in order to deposit it in a Ukrainian bank or overseas bank institution. Exception include:
    • when a private individual purchases foreign currency in the amount not exceeding UAH 150,000 equivalent OR in order to deposit it overseas); or
    • legal entity / private entrepreneur deposits funds overseas for maintaining its overseas presence (representative office) Or execution of obligations under foreign economic agreement
  • prohibition for residents of Ukraine to send funds to their own accounts opened in country, which falls under one of the following criteria:
    • in countries, which recognized as offshore countries by resolution of Cabinet of Ministers of Ukraine; or
    • countries, recognized as occupant countries (e.g. Russia); or
    • as such that do not fulfill internationally adopted recommendations of financial monitoring
  • prohibition for residents of Ukraine to make investment overseas in case investment object or seller are registered / have location in country which falls under one of the above-mentioned criteria
  • prohibition for residents of Ukraine to grant loans to non residents which have place of residence or registration in country which falls under one of the above-mentioned criteria

The NBU protective measures are normally implemented for period of 6 months with the purpose of financial stabilization of bank system of Ukraine. Such protective measures may be extended for the following 6 months in cases specified in law.

Summary


Under Ukrainian law all the settlements in Ukraine can be performed in national currency Hryvna. Settlements in other currencies are allowed only in specific cases, explicitly stipulated by Ukrainian legislation. Servicing banks are authorized to perform controls over foreign currency transactions and check the legitimacy of grounds before performing them unless such transaction is for “minor amount” – less than UAH 150,000 equivalent.

Due to economic crisis in Ukraine, since 2013 National Bank of Ukraine has introduced number of currency control restrictions and extra measures to stabilize Ukrainian economy. Starting from May, 2016 the National Bank of Ukraine has declared gradual elimination of such temporary currency control measures and finally, starting from 7th of February 2019 the new Law of Ukraine “On Currency and Currency Transactions” came into effect and introduced significant changes and simplifications in the currency market of Ukraine.

Nevertheless, by now some of restrictions and limitations are still effective (as described above). Therefore, it is important to take Ukrainian currency controls while doing business in Ukraine and adopt mode of settlements respectively.

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