On September 14, 2016, the National Bank of Ukraine (the NBU) issued Resolution No. 386 extending temporary currency restrictions that had been effective for more than two years. A brief overview of the main currency control requirements for the next three months, subject to some of them being eased in late July and late August 2016, is provided below.
Key Changes for Businesses:
- The maximum allowable period for settlements under export and import transactions has been increased from 90 to 120 calendar days.
- In respect of the effective prohibition of early repayment of foreign currency loans to non-residents, one more significant exception has been introduced: along with a permission to change an interest payment period for such loans within 180 days, it is also allowed to reduce the loan repayment period where such reduction is carried out for the purpose of debt restructuring by setting off claims for the principal loan amount as an additional contribution of a non-resident creditor to the authorized capital of a resident debtor during the authorized capital increase (conversion). It is noteworthy that this only concerns the set-off of counterclaims. However, the NBU, for example, gave no consideration to the contribution of a loan claim as an in-kind contribution.
- Back in mid-August 2016, the NBU canceled a requirement for mandatory examination of foreign economic contracts price by the State Information and Analysis Center for Monitoring of External Commodity Markets (Derzhzovnishinform SE). Presently, the NBU independently continues monitoring the currency transactions carried out by non-residents and may block any transaction the NBU believes to be risky, non-compliant with the law or posing a real or potential threat of legalization of proceeds from crime.
The following restrictions will remain in force until December 15, 2016:
- 65% of foreign currency earnings shall be subject to mandatory sale.
- Dividends shall be allowed to be paid only for the period of 2014 to 2015. The total amount of such payments during one calendar month shall still not exceed the greater of USD 1 mln or 10% of the total amount of payable dividends. If 10% of the total dividends exceed USD 5 mln, the monthly payment limit will be USD 5 mln. Payment of dividends for preceding periods or in larger amounts is still prohibited.
- It is prohibited to purchase and transfer foreign currency for the purposes of returning abroad the funds received from the sale of Ukrainian issuers’ securities, corporate rights in Ukrainian entities, and funds received from Ukrainian entities’ capital reduction or as a result of withdrawal from their participants.
- It is prohibited to purchase and transfer foreign currency under individual NBU licenses if the sum of payment under such licenses exceeds USD 50,000.00 per month, with a few exceptions whose list, however, has not changed.
- It is prohibited to purchase foreign currency at the instruction of a resident client (other than an individual) who has foreign currency funds held in current and deposit accounts in an amount exceeding USD 25,000.00 or an equivalent thereof in any other currency. The limit amount does not include some funds whose list has been expanded only with foreign currency purchased to repay such resident client’s indebtedness under loans (borrowings) from non-resident lenders.
The above changes entered into effect on September 15 and will remain in effect until December 15, 2016.
Judging from our clients’ recent requests, the major market expectations concern possibilities for converting debts owed to non-resident lenders into Ukrainian companies’ capital, clarification of the criteria to guide the NBU in its blocking of payments to non-residents, and the ultimate lifting of restrictions for payment of dividends and performance of other investment transactions. Our experience shows that it is often possible to find a legally reasonable, although not always obvious, way to achieve the desired economic effect even amid the currently existing restrictions. We continue to closely monitor the situation in the currency market and will inform you about all major changes.