Ukraine: Capital Controls

On 3 September 2015, the National Bank of Ukraine (the “NBU”) issued Regulation No. 581 “On Regulating the Situation in the Monetary and Foreign Currency Markets of Ukraine” (“Regulation No. 581”). Regulation No. 581 extends most restrictions previously imposed by Regulation No. 354 dated 3 June 2015 (“Regulation No. 354”) and will remain in effect until 4 December 2015. Regulation No. 581 aims to ensure the stability of the Ukrainian national currency by limiting foreign currency cash outflow.

• 90-day maximum term of payment under export and import transactions;
• requirement for the mandatory sale of 75% of foreign currency proceeds from abroad received by legal entities, representative offices and businesses (subject to certain exceptions);
• prohibition on Ukrainian residents making early payments under cross-border loan agreements (subject to certain exceptions); and
• prohibition on purchasing and transferring foreign currency under the following transactions:
  • repatriation of funds received by foreign investors as a result of sales of securities issued by Ukrainian entities (with an exception for debt securities sold on the Ukrainian stock exchange);
  • repatriation of funds received by foreign investors as a result of: (a) sales of corporate rights in Ukrainian entities (other than shares); (b) reduction of charter capital; or (c) exit of foreign investors from companies;
  • repatriation of dividends to be paid to foreign investors; and
  • transactions authorised by individual NBU licences, although this is subject to certain exceptions. In particular, this prohibition does not apply to the following transactions: (a) legal entities depositing foreign currency funds into bank accounts abroad; (b) payment by a guarantor (surety) under a guarantee (suretyship) securing obligations under a loan granted by an international financial institution or export-import agency; (c) transfer of foreign currency by legal entities in an amount not exceeding USD 50,000 (or the equivalent of this amount in other currencies) per calendar month.

The following restrictions continue to apply but are slightly liberalised by Regulation No. 581:

• Prohibition on Ukrainian banks discontinuing control over their clients’ export operations on the basis of documents confirming a set-off between the parties.

However, Regulation No. 581 now allows banks to discontinue control in the following cases: (a) the parties’ liabilities are expressed in currencies other than the first group of currency classifications (i.e. ‘hard currencies’, such as US dollar, euro and pound sterling) and Russian rouble and (b) the total value of the parties’ liabilities does not exceed USD 500,000 under one contract.

• Prohibition on assignment of foreign currency loans as follows: (a) replacement of a lender and/or a borrower under cross-border loan agreements; and (b) assignment of loans by Ukrainian lenders to non-resident lenders under foreign currency loan agreements entered into between residents (subject to certain exceptions). You may find our analysis of this restriction in our recent law-now article.

In addition, Regulation No. 581 provides for one more exemption from the above restriction. It does not apply if the original borrower is replaced as a result of reorganisation (accession of the original borrower to its legal successor (new borrower)) or liquidation.

• Requirement to submit certain additional documents to the NBU (in addition to the standard package of documents) in the event of the transfer /purchase of foreign currency in an amount exceeding USD 50,000.

Among those additional documents previously a Statement of the State Fiscal Service of Ukraine confirming the absence of tax indebtedness or other fiscal liabilities (the “Statement”) was required for import transactions. Under Regulation No. 581 the Statement is no longer required.

Regulation No. 581 imposes the following new restriction:

• Ukrainian banks are prohibited from purchasing foreign currency as per a client’s request under import operations if: (i) the imported goods were cleared by Ukrainian customs authorities before 1 January 2014 and (ii) a debtor/creditor under a foreign economic contract was replaced. This restriction does not apply to the operations of residents for the import of certain types of essential goods (such as oil, natural gas etc.).

Legislation: Regulation of the National Bank of Ukraine “On Regulating the Situation in the Monetary and Foreign Currency Markets of Ukraine” No. 581 dated 3 September 2015.