As part of the continuing liberalisation of the capital market regulations, the National Bank of Ukraine (the “NBU”) has issued Resolution No. 41 dated 25 May 2017 (“Resolution 41”) and Resolution No. 44 dated 30 May 2017 (“Resolution 44”). Both resolutions lift some of the foreign currency exchange restrictions previously introduced by the NBU. The amendments apply as of 12 June 2017, except for some as specified below.

One of the most important steps the NBU has taken is to remove a restriction on foreign investments repatriation (other than dividends). This decision has been long-awaited by the business community and is a sure sign of the improvement of the overall situation in Ukraine and the investment climate in particular. It is expected to facilitate the operations of companies engaged in foreign trade and the implementation of projects that have been on hold due to the restrictions.

FOREIGN INVESTMENTS REPATRIATION IS ALLOWED SUBJECT TO A LIMIT OF USD 5 MLN PER MONTH

The NBU has lifted prohibitions on the purchase and transfer abroad of foreign currency in the following situations:

1. payment of a purchase price to a non-resident following the non-resident’s sale of a participatory interest in a Ukrainian company and/or securities (shares); and
2. payment to a non-resident following a decrease in the charter capital of a Ukrainian company or the exit of the non-resident from a Ukrainian company;

provided that such purchase/transfer of foreign currency is done:

1. by a resident (purchaser of shares/participatory interest; a company whose charter capital decreases; a company from which a non-resident exits; an agent of any of them) or a non-resident investor;
2. subject to a limit of USD 5 million (or equivalent in other currency based on the NBU exchange rate on the date of a relevant transaction) per month; and
3. through one authorised bank only (changing the authorised bank is subject to certain conditions).

The NBU may issue further clarifications on the procedures to be followed by the banks servicing the above transactions to ensure strict compliance with the conditions in order to prevent capital outflow via shadow schemes.

MAXIMUM TERM FOR THE RETURN OF FOREIGN CURRENCY PROCEEDS INCREASED TO 180 DAYS

Resolution 41 increases the maximum term for the return of foreign currency proceeds under export contracts after the supply of goods/services outside of Ukraine from 120 to 180 days. The same 180-day term will apply to the supply of goods/services after an advance payment abroad is made by residents under import contracts. This enters into force on 26 May 2017.

EARLY REPAYMENT OF CROSS-BORDER LOANS GUARANTEED BY IFIS IS PERMITTED

Another exception is introduced to the prohibition on early repayment of cross-border loans. The prohibition will also not apply to cross-border loan transactions involving guarantees of international financial organisations securing payments of a servicing bank under a transaction or of a foreign bank under a guarantee/counter-guarantee or a standby letter of credit issued by a foreign bank in relation to a cross-border loan.

LENDER’S UBO DISCLOSURE IS REQUIRED FOR THE REGISTRATION OF CROSS-BORDER LOANS

The NBU has established an additional requirement for the registration of cross-border loans to residents of Ukraine (other than authorised banks). Registration will be possible only after disclosure of information about the ultimate beneficiaries of a non-resident lender (based on official and public sources). A servicing bank will need to verify that the disclosed persons are indeed beneficiaries and not agents, nominal holders or intermediaries.

LIFTING THE LIMITATION ON CORRESPONDENT ACCOUNTS IN FOREIGN BANKS

The NBU has simplified Ukrainian banks’ correspondent relations with foreign banks. The amendment cancels the prohibition on authorised Ukrainian banks opening correspondent accounts in foreign currencies of the 1st group of the Classification of Foreign Currencies and Investment Metals (the “Classification”) (EUR, USD, PLN, CNY, etc.) in foreign banks whose national currencies belong to the 2nd group (RUB, BYR, etc.) and 3rd group (AFN, BMD, etc.) of the Classification.

OTHER FX RESTRICTIONS LIFTED

The NBU has liberalised some of the anti-crisis restrictions related to foreign currency transactions. Namely:

1. The bank’s clients are now allowed to purchase foreign currency irrespective of the amount of foreign currency funds in their accounts. Previously, if there was more than USD 100,000 in a client’s accounts, the client was prohibited from purchasing additional foreign currency. This amendment enters into force on 31 May 2017.
2. The limitation on the amount of foreign currency an individual can transfer abroad is now removed. Before the amendment, transfers abroad by individuals for non-trade operations could not exceed UAH 150,000 per month. This amendment enters into force on 12 June 2017.
3. Banks are permitted to exchange foreign currency of one group of the Classification for foreign currency of another group. Previously, it was possible to exchange one foreign currency with another only within the same group of the Classification. The amendment enters into force on 31 May 2017.

Legislation:

Resolution of the NBU “On Introducing Amendments to Certain Resolutions of the National Bank of Ukraine” No. 41 dated 25 May 2017

Resolution of the NBU “On Introducing Amendments to Certain Resolutions of the National Bank of Ukraine” No. 44 dated 30 May 2017

Amendments to:

Resolution of the NBU “On Regulating the Situation in the Monetary and Foreign Currency Markets of Ukraine” No. 410 dated 13 December 2016

Regulation on the Opening and Operating of Correspondent Accounts of Resident and Non-Resident Banks Denominated in Foreign Currency and Correspondent Accounts of Non-Resident Banks Denominated in Ukrainian Hryvnyas, as adopted by Resolution of the NBU No. 118 dated 26 March 1998

Regulation on the Procedure for Residents to Obtain FX Credits/Loans from Non-Residents and the Disbursement of FX Loans to Non-Residents, as adopted by Resolution of the NBU No. 270 dated 17 June 2004

Regulation on the Procedure and Requirements of FX Trade, as adopted by Resolution of the NBU No. 281 dated 10 August 2005

Author:

Vitaliy Radchenko, Partner, vitaliy.radchenko@cms-cmno.com

Anna Pogrebna, Partner, anna.pogrebna@cms-rrh.com