KYIV - On 22 December 2010, the National Bank of Ukraine (the "NBU") adopted Resolution No. 572 "On Regulation of Certain Issues Relating to Currency Operations" (the "Regulation"), which will come into effect on 22 March 2011.

The Regulation was adopted to fulfill the requirements of Law of Ukraine No.2155-VI, "On Introduction of Amendments into Certain Laws on Lending and Stimulation of Foreign Investment", dated 27 April 2010 (the "Law"), which came into effect on 15 May 2010 and introduced a number of important changes into the Ukrainian currency control regime and the procedure for making foreign investments in Ukraine.

The following is a brief summary of the major changes introduced by the Regulation.

1. Rules for Making and Repatriation of Foreign Investment Updated

The Regulation introduces several important changes into NBU Regulation No.280 "On Foreign Investment in Ukraine", dated 10 August 2005 (the "Foreign Investment Regulation"), which is the principal NBU regulation governing the procedure for making investments in monetary form into Ukraine and divestment from Ukraine.

In particular, the Regulation changes the following major rules of the Foreign Investment Regulation:

- the Regulation removes the term "portfolio investment" and unifies the rules for making and returning of all types of foreign investments in monetary (cash) form;

- a foreign investor is no longer restricted to making investments only from its investment account in UAH. Instead, the Foreign Investment Regulation now permits fund transfers directly from a foreign or investment account of a foreign investor into the current account of a Ukrainian resident opened with a Ukrainian bank. Similarly, it now permits the return of foreign investments directly to the foreign account of a foreign investor;

- a foreign investor can make investments either in foreign currency of the 1st group of the national Currency Classifier (hard currencies such as USD or EUR) or, if the payment is made on the territory of Ukraine, in such foreign currency or UAH;

- a foreign investor can open an investment account and make investment deposits in UAH or in a foreign currency of the 1st group of the Currency Classifier;

- the payment of foreign currency at the return of foreign investments and/or profits thereon is to be carried out by Ukrainian banks on the basis of the documents required for the purchase of foreign currency for such operation and indicated in a separate NBU resolution governing the trade of the foreign currencies.

2. Rules for Foreign Exchange Trade Updated

The Regulation introduces several important changes to NBU Regulation No.281 "On Trading in Foreign Currencies", dated 10 August 2005 (the "FX Trade Regulation"), which is the principal NBU regulation governing the purchase of foreign currency on the inter-bank FX market in Ukraine. 

- The return of dividends to foreign investors is significantly simplified. The FX Trade Regulation now provides for a separate set of documents which include, in addition to the currency purchase application, only confirmation of the ownership title of the investor to the corporate rights (shares) and copies of the issuer's decision on distribution of dividends to the foreign investor.

- If the term of acquisition of ownership title to the object of investment and its remittance by the foreign investors exceeds 5 calendar years, then the foreign investor may opt not to provide the investment agreement and evidence of its implementation (i.e., the bank confirmation of transfer of foreign currency in Ukraine) but rather provide evidence confirming acquisition of ownership title to the object of investment (for example, excerpt from the securities account with the securities custodian).

It remains to be seen how the new regulations will be applied in practice and if the updated rules simplify investment processes in Ukraine as intended.  Careful legal planning and professional preparation of documents during any stage of the investment process should make compliance with the new Ukrainian FX rules a formality.

CONTACTS: Ihor Olekhov, partner; +380 44 590 0101 ; ihor.olekhov@bakermckenzie.com; Oleksandr Svyryd, associate 380 44 590 0101 oleksandr.svyryd@bakermckenzie.com;
Baker & McKenzie - CIS, Limited: Renaissance Business Center; 24 Vorovskoho St.; Kyiv 01054, Ukraine; www.bakermckenzie.com

NOTE:  Baker & McKenzie is a member of the U.S.-Ukraine Business Council (USUBC), Washington, D.C., www.usubc.org.