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Currency Regulation

In 1992, Ukraine introduced as its temporary currency the karbovanets (commonly referred to as the "coupon"), which resulted in Ukraineeffectively ceasing to be a member of the rouble zone of the former Soviet Union. It was anticipated that after several announcements a new currency, the "hryvnia" will finally be introduced in 1997.

In March 1993, the Cabinet of Ministers of Ukraine published three decrees concerning currency regulation in Ukraine:

(i) Decree No. 1593, "On the System of Currency Regulations and Currency Control";
(ii) Decree No. 1693, "On Provisional Procedures for the Use of Foreign Currency Earnings"; and
(iii) Decree No. 1793, "On the Procedure for Settling Accounts in Foreign Currency" (together the "Currency Decrees"). Decree No. 1793 has since been replaced by the Law of Ukraine "On the Procedure for Settling Accounts in Foreign Currency", adopted in November 1994.

In addition, the National Bank of Ukraine ("NBU") has issued several instructions and regulations which address a number of the issues covered in the Currency Decrees. A new draft law on currency regulation is currently being debated by Parliament and is expected to be adopted with the introduction of the new national currency, the hryvnia.

The Currency Decrees are structured around the general principle that Ukrainian currency is the only lawful form of payment on the territory ofUkraine which may be accepted without limitation for the settlement of debts and obligations. Accordingly, Article 5 (4)(d) of the Decree provides that an individual license must be obtained from the National Bank of Ukraine in order to use foreign currency on the territory of Ukraine as a means of payment.

As a general exception to the foregoing principle, Article 7 of the Decree No. 15-93 provides that all commercial transactions between a resident and non-resident in the sphere of `trade turnover' (torhovelniy oborot) must be carried out in foreign convertible currency and only through authorized banking institutions (banks registered on the territory of Ukraine). As such, a non-resident wishing to carry out commercial transactions within the scope of `trade turnover' in local currency on theterritory of Ukraine would need to apply for an individual license from the National Bank of Ukraine.

The Currency Decrees provide that individual licenses have to be obtained from the NBU for the carrying out, inter alia, of the following operations:

(i) hard currency transactions on the territory of Ukraine between residents (as of August 1, 1995 such licenses are no longer available for cash transactions);
(ii) use of hard currency on the territory of Ukraine as a form of security;
(iii) opening by a resident of bank accounts abroad;
(iv) making of investments abroad by a resident or, except in the event of inheritance, the acquisition of shares or an ownership interest by a resident in a non-Ukrainian legal entity;
(v) obtaining or granting of loans in hard currency by a resident if the amount of the loan is in excess of minimum levels established by the NBU;
(vi) making hard currency payments from Ukraine abroad (with the exception of instances listed in the following paragraph).

Individual licenses are not required, inter alia, for the following transactions:

(i) payments abroad in hard currency which are carried out by residents in order to fulfil obligations in such currency before non-residents in connection with payment for goods, services, works, intellectual property rights and other property rights;
(ii) payments abroad in hard currency made in the form of interest payments on loans and profits from foreign investments;
(iii) transfer, upon the termination of investment activities, of hard currency from Ukraine which had been previously invested in Ukraine.

The National Bank of Ukraine approved Regulation №572 “Amending issues regarding the execution of certain foreign currency operations” dated Dec. 22, 2010, which amends currency control regulations of Ukraine. The Regulation came into force on Mar. 22, 2011.

This Regulation contains several positive changes concerning the procedure for executing or repatriating foreign investment:

1. To repatriate income received from the sale of securities on stock exchanges, an original statement and copy from the exchange register where the deals were concluded will be accepted instead of a paper sale-purchase agreement;
2. The assessment of the market value of securities will not be requested for all listed securities (1st & 2nd level) or in the case of a repurchase by an issuer of its own mutual fund investment certificates and bond buy-backs by an issuer under the terms of the Prospectus;
3. If the period between the dates of the execution of an investment and the application for a purchase of foreign currency exceeds 5 calendar years, instead of the agreement that confirms the execution of such foreign investment, it is permissible to submit a statement from the securities account of the non-resident-investor with the Custodian or a statement from the shareholders’ register with the Registrar, the Articles of Association of the company whose stake is owned by the foreign investor, and so on;
4. A foreign investment may now be executed in foreign currency from the account of the foreign investor from abroad into the account of a resident in Ukraine without using the account of the non-resident-investor or via the investment account of the non-resident-investor either in Ukrainian or in foreign currency;
5. A statement from the Ukrainian Tax Administration confirming profit tax liabilities is no longer required;
6. The procedure for repatriating dividends has been simplified. The only documents now required are: an application to purchase foreign currency, documents proving the ownership right of the investors to the securities, a copy of the issuer’s resolution on the payment of dividends;
7. The requirement to keep Ukrainian currency on a special analytical account for 5 calendar days before undertaking a FOREX operation has been removed;
8. In the case of a transfer of foreign currency that has not been bought on the inter-bank currency market and not borrowed, with the goal of investment/income from the repatriation of an investment, the same list of documents is required as for purchasing foreign currency, except for the application to purchase foreign currency.

Along with these positive changes and facilitating the procedure for executing or repatriating a foreign investment, the Regulation adopts the requirement for monitoring by authorized Ukrainian banks of all foreign investor transactions in local currency, notably the need to submit all confirmational documents within 3 working days after the local currency has been credited to a special transit account with further transfer onto the foreign investor’s investment account. Otherwise, the money will be returned to the sender.