Business needs to ease currency restrictions for paying dividends to non-residents and paying for services

15/ 03/ 2024

These are the conclusions of the EBAs survey among member companies, which was conducted to determine the priority needs of the business community in mitigating the temporary currency restrictions imposed by the National Bank of Ukraine and the Government in connection with the introduction of martial law throughout Ukraine from February 24, 2022. The presentation was held on March 15 at the meeting of the Currency Regulation and Financial Services Committee with the participation of Yuriy Heletiy, Deputy Governor of the National Bank of Ukraine. Businesses identified the most urgent needs for potential easing of restrictions as payment for services, payment of dividends to non-residents, and increase of limits on transactions using hryvnia corporate payment cards outside Ukraine. PRESENTATION Payment for services The greatest demand from businesses for easing the restrictions is in the area of payment for services that are currently prohibited (the so-called non-critical imports, such as marketing services, advertising, business consulting, education, etc.) For 88% of survey participants, this need is relevant, including 64% who consider it extremely relevant. For the majority, this need can be met if the limit is set at UAH 100-500 thousand per month (37%) and UAH 500 thousand - 1 million per month (31%). Therefore, the business community proposes to expand the possibilities of paying for other services abroad or to cancel the list of critical imports for services altogether (similar to goods) Payment of dividends to non-residents 71% of the EBA companies surveyed say that the need to pay dividends to non-residents is urgent. In particular, this item is extremely important for 43%. At the same time, 47% of those companies for which this issue is relevant say that their need to pay dividends can be satisfied if a quarterly limit on such transactions is set at EUR 500 thousand. At the same time, a limit of more than EUR 2 million would be satisfactory for 29% of companies. Some EBA companies consider it appropriate to allow gradual payment of dividends - for example, in 2024 - dividends for 2022, in 2025 - for 2023, in 2026 - for the pre-war years, etc. Such payments could be limited, for example, to 50% of the annual net profit. But the start of dividend payments, even if only for wartime, would be a good signal to foreign investors. It is important to consider the possibility of cross-border transfers for groups of companies whose non-residents are issuers of Eurobonds. Increasing limits on transactions using hryvnia corporate payment cards outside Ukraine 68% of companies need to increase the limits on transactions using hryvnia corporate payment cards outside Ukraine. At the same time, 44% of them consider this issue relevant but not critical. For the majority of companies (65%), a limit of UAH 100-500 thousand per month would be sufficient, and for 17% - up to UAH 100 thousand per month. At the same time, some companies note that it would be advisable to increase the allowed amount of P2P transfers in foreign currency for individuals (from foreign currency cards in Ukrainian banks to cards in foreign banks). According to the EBA experts, the increase in the limit will not put pressure on the foreign exchange market (given the existing restrictions on the purchase of foreign currency). At the same time, an increase in the limit on transfers will encourage individuals to reduce the volume of cash transactions with foreign currency, which will improve the situation with the transparency of cash flows. Repayment of loans to non-residents For half of the companies that took part in the survey, the issue of loan repayment is relevant. Of these, 26% estimate this need to be more than EUR 2 million per quarter. The same number of companies estimate the need to repay loans to non-residents for less than EUR 100 thousand, and 24% - for EUR 100-500 thousand per quarter. At the same time, companies emphasize the need to provide an opportunity to pay interest on loans from non-residents that were received before February 24, 2022. This includes current interest and interest that has already been accumulated for two years. Payment of royalties For 50% of the EBA companies surveyed, the need to make royalty payments is relevant, in particular, for 29% - very relevant. Half of those who need to pay royalties need a limit of UAH 100-500 thousand per month, 30% - up to UAH 100 thousand per month, and 20% - more than UAH 2 million per month. Payment for accommodation services and/or payment under rental agreements for housing abroad by Ukrainian citizens who are tax residents of Ukraine Relevant but not critical for 29% of the surveyed companies, very relevant for 10%. For the majority of companies that stated this need (53%), a limit of up to UAH 100 thousand per month would be sufficient, while 47% estimated the need for UAH 100-500 thousand per month. Payment for imported goods delivered before February 23, 2021 Extremely relevant for 13% of respondents, relevant but not critical for 21% of surveyed companies. We are talking about one-time payments in volume, the most popular limit amounts are up to EUR 100 thousand (38%), EUR 100-500 thousand (25%), and more than EUR 2 million (16%) among those for whom this need is relevant. This issue is relevant for making payments not only for goods but also for services provided before 02/23/2022. Transferring funds to the account of a non-resident legal entity represented by a representative office in Ukraine Not relevant for the majority of companies, namely 75%. It is extremely relevant for 11% of the surveyed companies, relevant but not critical for another 13% of respondents. At the same time, a limit of up to EUR 100 thousand per quarter would be satisfactory for half of these companies. Payment of fines for violation of export contracts For 78% of the EBA companies surveyed, payment of fines for violation of export contracts is not relevant. It is relevant, but not critical, for 17% of companies, and very relevant for 3%. For the majority, a limit of up to UAH 100 thousand per month would be sufficient. Svitlana Mykhailovska. Deputy Director of the European Business Association. The easing of the taxation system in 2022-2023 is a positive step for future investments in Ukraine, which the state is actively trying to attract to rebuild the country. However, it is now extremely important for the real business sector to be able to fulfill its current obligations to non-residents on loans received before the introduction of martial law caused by the full-scale invasion. This factor undoubtedly affects the sustainability and operations of companies during martial law, as well as their international credit rating. This will cumulatively affect the cost of capital when attracting new investments to kick-start Ukraine′s economic recovery. The easing of currency restrictions does stimulate an increase in the inflow of new loans to Ukraine. After all, the fulfillment of loan obligations by resident borrowers to foreign investors contributes to the improvement of Ukraine′s investment attractiveness and allows it to attract more funds for the implementation of recovery projects. In addition to the questions included in the survey questionnaire, companies emphasize the need for the following measures in the direction of currency liberalization: Extend the period for returning export earnings, which has recently been further restricted, particularly for grain crops. It is also necessary to exempt from penalties for late return of foreign currency earnings for 2023 due to the blockade of Ukraines borders. To lift the ban on interest repayment on commodity loans under import contracts. Allow payment for the work of foreign or outsourced personnel abroad. Expand opportunities for financing the activities of Ukrainian business representative offices abroad, within the limit of UAH 100,000-500,000 per month. To lift restrictions on the purchase of foreign currency if there are own funds (export earnings) on the foreign currency account, or to increase the limit of own foreign currency balances on the accounts of a legal entity from the equivalent of UAH 400,000 to at least UAH 1 million to ensure the possibility of purchasing foreign currency for imports. Allow Ukrainian companies to purchase shares in other Ukrainian companies from non-resident owners. Allow investments abroad within the limits. Diversification of Ukrainian business and registration of representative offices for market development requires the contribution of authorized capital. Even for minimum needs, it is 200-300 thousand euros per year. Viktoriia Burdeina. Coordinator of the EBA Currency Regulation and Financial Services Committee. The EBA is in active dialogue with the National Bank on currency liberalization, and together with companies we formulated the first package of proposals to ease temporary currency restrictions in March 2022. In 2022 and 2023, the regulator accepted many business proposals in full or in part. At the same time, the issues of allowing cross-border currency transfers to pay off Eurobond obligations, in particular to the guarantor companies whose parent companies are located in a foreign jurisdiction, remain extremely relevant for business. Vadym Romaniuk. Head of Banking and Finance Practice at PwC Legal in Ukraine. According to the survey results, we can observe a fairly high correlation between the current needs of business and the NBU′s plans set out in the Currency Liberalization Strategy. First, the most urgent business need is a significant expansion or, at best, complete abolition of the list of critical imports, which corresponds to the first stage of the Strategy. Secondly, the NBU′s plans to allow the payment of new dividends at first are also generally understood by the business community. We hope that soon the NBU will be able to state that there are appropriate macroeconomic preconditions for the implementation of the nearest plans for currency liberalization. For reference: The survey was conducted in January-February 2024 among EBA member companies. A total of 72 companies took part in the survey.

These are the conclusions of the EBA’s survey among member companies, which was conducted to determine the priority needs of the business community in mitigating the temporary currency restrictions imposed by the National Bank of Ukraine and the Government in connection with the introduction of martial law throughout Ukraine from February 24, 2022.

The presentation was held on March 15 at the meeting of the Currency Regulation and Financial Services Committee with the participation of Yuriy Heletiy, Deputy Governor of the National Bank of Ukraine.

Businesses identified the most urgent needs for potential easing of restrictions as payment for services, payment of dividends to non-residents, and increase of limits on transactions using hryvnia corporate payment cards outside Ukraine.

PRESENTATION

Payment for services

The greatest demand from businesses for easing the restrictions is in the area of payment for services that are currently prohibited (the so-called “non-critical” imports, such as marketing services, advertising, business consulting, education, etc.)

For 88% of survey participants, this need is relevant, including 64% who consider it extremely relevant. For the majority, this need can be met if the limit is set at UAH 100-500 thousand per month (37%) and UAH 500 thousand – 1 million per month (31%).

Therefore, the business community proposes to expand the possibilities of paying for other services abroad or to cancel the list of critical imports for services altogether (similar to goods)

Payment of dividends to non-residents

71% of the EBA companies surveyed say that the need to pay dividends to non-residents is urgent. In particular, this item is extremely important for 43%.

At the same time, 47% of those companies for which this issue is relevant say that their need to pay dividends can be satisfied if a quarterly limit on such transactions is set at EUR 500 thousand. At the same time, a limit of more than EUR 2 million would be satisfactory for 29% of companies.

Some EBA companies consider it appropriate to allow gradual payment of dividends – for example, in 2024 – dividends for 2022, in 2025 – for 2023, in 2026 – for the pre-war years, etc. Such payments could be limited, for example, to 50% of the annual net profit. But the start of dividend payments, even if only for wartime, would be a good signal to foreign investors.

It is important to consider the possibility of cross-border transfers for groups of companies whose non-residents are issuers of Eurobonds.

Increasing limits on transactions using hryvnia corporate payment cards outside Ukraine

68% of companies need to increase the limits on transactions using hryvnia corporate payment cards outside Ukraine. At the same time, 44% of them consider this issue relevant but not critical. For the majority of companies (65%), a limit of UAH 100-500 thousand per month would be sufficient, and for 17% – up to UAH 100 thousand per month.

At the same time, some companies note that it would be advisable to increase the allowed amount of P2P transfers in foreign currency for individuals (from foreign currency cards in Ukrainian banks to cards in foreign banks). According to the EBA experts, the increase in the limit will not put pressure on the foreign exchange market (given the existing restrictions on the purchase of foreign currency). At the same time, an increase in the limit on transfers will encourage individuals to reduce the volume of cash transactions with foreign currency, which will improve the situation with the transparency of cash flows.

Repayment of loans to non-residents

For half of the companies that took part in the survey, the issue of loan repayment is relevant. Of these, 26% estimate this need to be more than EUR 2 million per quarter. The same number of companies estimate the need to repay loans to non-residents for less than EUR 100 thousand, and 24% – for EUR 100-500 thousand per quarter.

At the same time, companies emphasize the need to provide an opportunity to pay interest on loans from non-residents that were received before February 24, 2022. This includes current interest and interest that has already been accumulated for two years.

Payment of royalties

For 50% of the EBA companies surveyed, the need to make royalty payments is relevant, in particular, for 29% – very relevant. Half of those who need to pay royalties need a limit of UAH 100-500 thousand per month, 30% – up to UAH 100 thousand per month, and 20% – more than UAH 2 million per month.

Payment for accommodation services and/or payment under rental agreements for housing abroad by Ukrainian citizens who are tax residents of Ukraine

Relevant but not critical for 29% of the surveyed companies, very relevant for 10%. For the majority of companies that stated this need (53%), a limit of up to UAH 100 thousand per month would be sufficient, while 47% estimated the need for UAH 100-500 thousand per month.

Payment for imported goods delivered before February 23, 2021

Extremely relevant for 13% of respondents, relevant but not critical for 21% of surveyed companies. We are talking about one-time payments in volume, the most popular limit amounts are up to EUR 100 thousand (38%), EUR 100-500 thousand (25%), and more than EUR 2 million (16%) among those for whom this need is relevant.

This issue is relevant for making payments not only for goods but also for services provided before 02/23/2022.

Transferring funds to the account of a non-resident legal entity represented by a representative office in Ukraine

Not relevant for the majority of companies, namely 75%. It is extremely relevant for 11% of the surveyed companies, relevant but not critical for another 13% of respondents. At the same time, a limit of up to EUR 100 thousand per quarter would be satisfactory for half of these companies.

Payment of fines for violation of export contracts

For 78% of the EBA companies surveyed, payment of fines for violation of export contracts is not relevant. It is relevant, but not critical, for 17% of companies, and very relevant for 3%. For the majority, a limit of up to UAH 100 thousand per month would be sufficient.

Svitlana Mykhailovska Deputy Director of the European Business Association

The easing of the taxation system in 2022-2023 is a positive step for future investments in Ukraine, which the state is actively trying to attract to rebuild the country. However, it is now extremely important for the real business sector to be able to fulfill its current obligations to non-residents on loans received before the introduction of martial law caused by the full-scale invasion. This factor undoubtedly affects the sustainability and operations of companies during martial law, as well as their international credit rating. This will cumulatively affect the cost of capital when attracting new investments to kick-start Ukraine′s economic recovery. The easing of currency restrictions does stimulate an increase in the inflow of new loans to Ukraine. After all, the fulfillment of loan obligations by resident borrowers to foreign investors contributes to the improvement of Ukraine′s investment attractiveness and allows it to attract more funds for the implementation of recovery projects.

In addition to the questions included in the survey questionnaire, companies emphasize the need for the following measures in the direction of currency liberalization:

Extend the period for returning export earnings, which has recently been further restricted, particularly for grain crops. It is also necessary to exempt from penalties for late return of foreign currency earnings for 2023 due to the blockade of Ukraine’s borders.
To lift the ban on interest repayment on commodity loans under import contracts.
Allow payment for the work of foreign or outsourced personnel abroad.
Expand opportunities for financing the activities of Ukrainian business representative offices abroad, within the limit of UAH 100,000-500,000 per month.
To lift restrictions on the purchase of foreign currency if there are own funds (export earnings) on the foreign currency account, or to increase the limit of own foreign currency balances on the accounts of a legal entity from the equivalent of UAH 400,000 to at least UAH 1 million to ensure the possibility of purchasing foreign currency for imports.
Allow Ukrainian companies to purchase shares in other Ukrainian companies from non-resident owners.
Allow investments abroad within the limits. Diversification of Ukrainian business and registration of representative offices for market development requires the contribution of authorized capital. Even for minimum needs, it is 200-300 thousand euros per year.

Viktoriia Burdeina Coordinator of the EBA Currency Regulation and Financial Services Committee

The EBA is in active dialogue with the National Bank on currency liberalization, and together with companies we formulated the first package of proposals to ease temporary currency restrictions in March 2022. In 2022 and 2023, the regulator accepted many business proposals in full or in part. At the same time, the issues of allowing cross-border currency transfers to pay off Eurobond obligations, in particular to the guarantor companies whose parent companies are located in a foreign jurisdiction, remain extremely relevant for business.

Vadym Romaniuk Head of Banking and Finance Practice at PwC Legal in Ukraine

According to the survey results, we can observe a fairly high correlation between the current needs of business and the NBU′s plans set out in the Currency Liberalization Strategy. First, the most urgent business need is a significant expansion or, at best, complete abolition of the list of "critical" imports, which corresponds to the first stage of the Strategy. Secondly, the NBU′s plans to allow the payment of "new" dividends at first are also generally understood by the business community. We hope that soon the NBU will be able to state that there are appropriate macroeconomic preconditions for the implementation of the nearest plans for currency liberalization.

For reference:

The survey was conducted in January-February 2024 among EBA member companies. A total of 72 companies took part in the survey.