This is the pressing question given the new Resolution of the National Bank of Ukraine (NBU) “On the Procedure of Receipt of Foreign Currency into the Current Accounts of Individuals within Ukraine” #365 of 16 September 2013 (hereinafter – the Resolution)

First of all, we would like to remind you that the Instruction “On opening, using and closing accounts in national and foreign currency,” approved by NBU Resolution #492 of 12 November 2003, allows Ukrainian legal entities to pay salaries to non-resident employees (working in Ukraine based on labor agreements (contracts)) from their foreign their [foreign] currency accounts (this payment can be effected in cash or via transfers to bank accounts opened by these employees with Ukrainian banks). Thus, historically foreign nationals employed by Ukrainian entities could be paid and receive their salaries locally in foreign currency.

The new Resolution, however, deprives non-residents of the right to receive their salary in foreign currency, by cancelling the possibility for banks of crediting the salaries received locally into the individual’s foreign currency bank accounts held in Ukraine.

Hence, according to the Resolution, the salary amount an employer pays to a non-resident employee in a foreign currency is subject to obligatory sale by the authorized bank on the Ukrainian interbank currency market. The bank must then credit the UAH equivalent of that salary to the individual’s [UAH] current account.

Given that non-resident employees usually need/prefer to have foreign currency at their disposal to transfer funds abroad, the UAH equivalent received after the bank sells the foreign currency will need to be again converted back into foreign currency. This will inevitably lead to significant losses given bank commission fees and the different exchange rates that will apply during the two-way conversion.

So what should employers and foreigners do, if the future practical implementation of the Resolution and possible official clarifications in this respect will not be for their benefit?

Below we briefly outline several alternatives that companies and/or foreigners working in Ukraine may consider:

• salary can be paid to non-resident employees in UAH (foreigners will be able to subsequently purchase foreign currency and transfer it abroad if they need to, incurring currency exchange losses that are half of what they would be were salary initially paid in a foreign currency)

• salary can be paid to non-resident employees partially in Ukraine (in UAH) and partially from abroad (in a foreign currency) based on labor agreements concluded with both the Ukrainian company and the foreign home office (potential tax risks related to the deductibility of costs for the salary and intercompany cost recharge as well as reverse-charge VAT need to be considered here)

• the entire salary for work the individual performs according to a secondment agreement can be paid from abroad (this possibility, however, does not work for certain categories of foreign employees, e.g. those who need to be directly employed)

• salary can be paid to non-resident employees in foreign currency in cash (non-resident employees will be able to credit the cash they receive into their foreign currency bank accounts at Ukrainian banks, however, this option might be inconvenient, as it is not possible for non-residents to authorize third party to credit cash to their accounts but rather have to do it personally).

We will be pleased to assist you in analyzing your options and selecting the most suitable. We will also keep track of these issues and changes in legislation and keep you updated.