Currency control regulations toughened
Tax & Legal Alert
24 September 2014
In August-September 2014 the National Bank of Ukraine (“the NBU”) issued a series of decrees that significantly change the rules regarding foreign exchange transactions. The most substantial changes were introduced by National Bank of Ukraine Decree No. 591 of 22 September 2014.
Effective until 2 December 2014 inclusive:
- The following foreign currency transactions are banned:
- payments in relation to import transactions that do not envisage the import of goods onto Ukrainian territory. The relevant Decree of the NBU does not specify whether the ban applies to payments for services rendered by non-residents. However, some banks refuse to handle payments in relation to transactions that involve the import of services, alluding to the definition of goods given in the Law of Ukraine “On foreign economic activities” (which encompasses services as well). The NBU is expected to provide clarification on this issue in the near future
- payments made under import contracts over 180 days after the respective goods are imported into Ukraine and cleared by customs
- payments to foreign investors following the sale of equity rights (except shares in joint stock companies), or following the over-the-counter sale of securities issued by Ukrainian organizations (with the exception of Ukrainian government bonds)
- payment of dividends to foreign investors (except for refunds of dividends on exchange-traded securities)
- foreign currency transactions conducted under individual licenses from the NBU (except for the placement by legal entities of funds into accounts held outside Ukraine under individual licenses from the NBU).
- The amount of cash denominated in a foreign currency that a banking institution may sell to an individual per business day is restricted to the equivalent of UAH 3,000 (until 23 September a UAH 15,000 restriction applied). The only exception is the purchase of foreign currency by individual residents for the purposes of fulfilling their foreign currency obligations under loan agreements concluded with lending banks. The amount of foreign currency banks may sell to these individuals is limited to the amount of their foreign currency obligations. This exception applies only if the bank exercises control over the intended use of the purchased foreign currency.
- It is no longer necessary to convert foreign currency remitted from abroad to individuals without opening an account (retail money transfer) into UAH. These measures are expected to foster an increase in inflow of foreign currency into Ukraine in non-trading operations.
Effective until 21 November 2014:
- the maximum deadline for the settlement of import and export transactions has been extended to 90 calendar days
- 75% of foreign currency earnings are subject to mandatory exchange (until 23 September 100% of foreign currency earnings were subject to mandatory exchange)
- foreign currency transaction control is toughened, in particular:
- the NBU is tightening control over the operations of banks; it may suspend risk-bearing transactions and demand the submission of documents supporting the transactions concerned
- banks are not allowed to discontinue supervision over their clients’ export operations on the grounds of documents confirming the discharge of obligations through the offset of similar claims
- banks are obliged to exchange foreign currency income for the equivalent amount in UAH without receiving the relevant instruction from the client on the business day following the date on which that income is credited to a separate analytical account of balance sheet account 2603 “Clearing accounts of business entities”, and must file a detailed application with the NBU for the total amount of mandatory exchange of foreign currency planned for the following business day.
These restrictions are brought into effect by NBU Decree No. 515 of 20 August 2014 (as amended by NBU Decree No. 534 of 28 August 2014, NBU Decree No. 557 of 9 September 2014 and NBU Decree No. 591 of 22 September 2014) and NBU Decree No. 540 of 29 August 2014 (as amended by NBU Decree No. 591 of 22 September 2014).