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
  • Anti-crisis Temporary Currency Restrictions, which were introduced from 2013 each time for 3-4 months with subsequent prolongation in order to stabilize Ukrainian currency Hryvna and Ukrainian economy as a whole. On the 16th of December, 2016 the National Bank of Ukraine extended temporary anti-crisis currency control rules and in accordance with Regulation of the NBU # 410 dated December 13, 2016 most of such anti-crisis restrictions will remain in force till the moment of financial stabilization of bank system of Ukraine.

This article provides overview of currency control rules and restrictions 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). 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. Some of such transactions require prior individual license (special permission) of 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 some of them has already been eased or cancelled. Nevertheless, by now many of them are still effective (see below Temporary Currency Control Measures).

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 the rigid constraints imposed by foreign currency legislation of Ukraine.

Below you will find information on Ukrainian regulations currency rules and temporary 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. bank’s controls over export and import transactions, namely:
    • residents have to receive payment for export of goods/services in accordance with foreign economic agreement but not later than 180 days upon export of such goods/services  (note that due to temporary currency controls measures – see section below, now this 180 term was shortened to 120 days)
    • in cases when goods delivery is made upon payment by resident for such goods/services, the goods/services have to be delivered in accordance with foreign economic agreement but not later than 120 days upon payment (note that due to temporary currency controls measures – see section below, now this 180 term was shortened to 120 days)
    • Prolongation of the above-mentioned terms is subject to approval by Ministry of Economic Development and Trade of Ukraine.
  2. bank’s controls over purchase of foreign currency:
    • currency at inter-bank currency market may be purchased strictly under the procedure and under grounds, envisaged by the NBU regulation. As a rule, residents of Ukraine are allowed to purchase foreign currency when they have obligations to non-residents or they have to repay foreign currency loans to residents. Exception is purchase of cash currency by individuals in currency exchange points and at bank’s divisions within daily limits, temporary implemented by the NBU (see information on daily limits of purchase of foreign currency within one bank division in section Temporary Currency Controls below). Non-residents of Ukraine may purchase foreign currency if they have previously sold the same amount in Ukraine and did not use UAH, purchase of foreign currency for return of foreign investments, return of investments income, or other lawful incomes from territory of Ukraine (for example salary etc). See section below on temporary NBU restrictions on purchase of foreign currency under specific transactions. 
  3. the following transactions require prior individual license of the National Bank of Ukraine:
    • granting loans to non-residents of Ukraine in foreign currency
    • settlements in foreign currency within territory of Ukraine
    • investment of residents overseas, including buying foreign securities, real estate abroad etc
    • depositing funds by residents overseas; the exceptions are:
      • depositing money by individuals for the term of their temporary stay overseas;
      • depositing on correspondent account by banks;
      • depositing funds overseas by investors under production share agreements, including representative offices of such foreign investors;
      • depositing funds overseas by diplomatic, consulate or other state representative offices overseas as well as representative offices of Ukrainian companies which do not conduct business activity
    • payment overseas in foreign currency or exporting of in foreign currency. The exceptions are:
      • settlements for goods, works or services, intellectual property rights and other property rights with non-residents. However individual license is still required for payment for currency assets or payments under life insurance agreements.
      • payment of foreign investments profits overseas or interests under loan agreements
      • return of foreign investments
      • transfers by investor (or representative office of foreign investor) overseas to other investors under production share agreement
    • payment to Ukraine or importing of national currency UAH. As an exception, UAH, which was previously exported from Ukraine or sent overseas, may be imported /sent to Ukraine without individual license.
  4. obligatory customs declaration in case of import or export of foreign currency in the amount exceeding EUR 10,000 equivalent; foreign individuals may export of foreign currency exceeding EUR 10,000 equivalent if they provide proof that such amount was previously imported to Ukraine

Temporary Currency Control Measures


In addition to General Currency Control Rules as described above, since end of 2013 the National Bank of Ukraine (the NBU) has introduced number of temporary currency controls measures to control outflow of foreign currency from Ukraine and stabilize national currency Hryvna (UAH). Key temporary restrictions include:

  • limitations on withdrawal of cash from bank accounts and for the purchase of foreign currency by private individuals:
    • cash withdrawal from bank accounts in foreign currency is allowed only up to the equivalent of UAH 250,000 (roughly $9,300 based on current exchange rate) per day (note that withdrawals in UAH are not limited)
    • purchase of foreign currency in cash – up to equivalent of UAH 150,000 per day (within one bank institution).
  • individuals (residents and not residents) may receive within Ukraine only UAH from third persons (however individuals may receive foreign currency from overseas), exceptions from this rule include:
    • receivables from close relatives
    • receivables in accordance with court decision
    • receivables under foreign securities
    • inherited funds or funds received as gift
    • in case of purchase or exchange of foreign currency (if it is allowed in specific case)
    • funds from sale of treasury bonds or internal state debt bonds
  • obligatory sale of 50 % 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 50 % of receivables in foreign currency on accounts of residents, opened overseas under individual license of the National Bank of Ukraine. 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 with  privatization of state property
    • funds received as charity
    • funds received as deposits of foreign banks in Ukraine
    • received as guarantee payment of proposal of auction within public purchasing
    • funds received by agents for further transfer to recipients
    • exchange of foreign currency on accounts of residents, opened overseas under individual license
    • some others as prescribed by NBU regulation # 410 as of 14th of December, 2016
  • shortened period for settlements under the foreign economic agreements, namely:
    • residents have to receive payment for export of goods/services in accordance with foreign economic agreement but not later than 120 days upon export of such goods/services
    • in cases when goods delivery is made upon payment by resident for such goods/services, the goods/services have to be delivered in accordance with foreign economic agreement but not later than 120 days upon payment
    • prolongation of the above-mentioned terms is subject to approval by Ministry of Economic Development and Trade of Ukraine.
  • ban on early repayment of loans from non-residents in foreign currency including payments under amendments to the loan agreements aimed at shortening the loan repayment period, with the following exceptions:
    • if early repayment is made under subordinated loan, previously obtained by bank, with the purpose of increase of bank’s share capital at the cost of returned subordinated loan
    • in case early repayment of loan is made at the cost of new longer term loan agreement with non-resident
    • in case early repayment is made by other debtor than a bank, due to restructuring of loan in foreign currency of 1st Group of Classifier of Foreign Currencies through obtaining by the creditor equity in debtor’s share capital
    • a loan made available by an international financial institution such as the EBRD and IFC;
    • a loan granted by a foreign lender to the extent it is secured by of a guarantee or a standby letter of credit issued by a Ukrainian or non-resident bank backed by an international financial institution;
    • loans extended by foreign bank lenders rated at least A3/A- by one of the major rating agencies  – Fitch Rating and/or Standard & Poor’s and/or Moody’s;
    • loans funded by means of the placement of debt securities outside Ukraine.
  • prohibition of netting under export foreign economic agreements if:
  • detailed examination by the National Bank of Ukraine of all the foreign currency purchases at inter-bank currency market for more than USD 50,000 equivalent
  • purchase of currency and foreign currency transfers overseas are made not earlier than on the second working day from application for purchase and subject to the National Bank of Ukraine confirmation
  • ban on purchase foreign currency at the cost of funds received as loan
  • prohibition to pledge property rights for deposit in foreign currency to ensure UAH loan obligation
  • advance payments for import of goods if total value of such foreign economic agreement exceeds USD 50,000 has to be confirmed by the NBU and made not earlier than on the third banking day upon application (exception is payment under documentary letter of credit)
  • advance payments for import of goods if total value of such foreign economic agreement exceeds USD 1,000,000 has to be made through documentary letter of credit, confirmed by the bank rated not lower than investment class under Fitch Ratings, Standard & Poor’s, Moody’s or other leading world rating company. This requirement does not apply when import is financed by foreign export-credit agency, registered in the country which has official rating not lower than “A” category, confirmed by leading rating company (Fitch Ratings, Standard&Poor’s, Moody’s)
  • temporary ban on payments and purchase of foreign currency if such transaction or purchase requires individual license of the NBU. Exceptions are:
    • depositing funds by legal entities overseas on their accounts in foreign banks
    • fulfillment by resident-guarantor ensured obligation under loan agreement with international financial organization or with participation of export-credit agency
    • payment in foreign currency of participatory fees by legal entities-residents to legal entities-non-residents
    • other payments, made by legal entities under individual license NBU, providing that such transactions do not exceed USD 50,000 per month (or equivalent in other foreign currency)
  • a number of restrictions to repatriate foreign investments, including ban on purchase and transfer foreign currency overseas in order to:
    1. pay the dividends to non-residents (as an exception, dividends for 2014-2016 may be repatriated subject to certain conditions and schedule as defined by NBU regulation # 410 as of 13th of December, 2016).
    2. pay the selling price to a foreign investor for shares or participatory interest in Ukrainian companies more than USD 5 million per month (in case foreign investor sells shares/participatory interest in a Ukrainian company to a Ukrainian resident);
    3. pay to a non-resident as a result of decrease of charter capital of a Ukrainian company’s or withdrawal of a non-resident from a Ukrainian company more than USD 5 million per month;
    4. pay the selling price to a foreign investor for the securities issued by Ukrainian companies more than USD 5 million per month (except for the sale of debt/listing securities by a non-resident at a stock exchange and sale of the state bonds);
  • banks are allowed to return deposits in UAH to their clients, which were deposited in foreign currency (at bank’s discretion)

Since 2013 the NBU temporary measures have been normally implemented for period of 3-6 months with subsequent prolongation. On the 16th of December, 2016 the National Bank of Ukraine extended most temporary anti-crisis currency control rules till the moment of financial stabilization of bank system of Ukraine (exceptions are obligatory 50 % receivables sale rule and decreased period for settlements under foreign economic agreements, which are valid until June 16, 2017).

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.

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 some of them has already been eased or cancelled. Nevertheless, by now many of them 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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