How Can Non-resident Founders Finance Their Legal Entities in Ukraine? Legal Aspects

17/ 11/ 2021

Pavlo Kotenko. Legal Advisor, Accountor Ukraine It is quite common for a non-resident founder to raise their own additional funds to ensure proper operation of their Ukrainian subsidiary. However, there is a number of issues that can stand in the founder’s way. Legal Advisors of Accountor Ukraine are ready to introduce you to the case and explain all the main aspects. First of all, the non-resident founder has to choose the way (method) of how to finance the subsidiary. To make the right choice, one has to consider the deadlines, the ways of how the funds may be returned and taxation-related issues. The main ways of how non-resident founders can send funds for their subsidiaries in Ukraine are: Repayable financial assistance; Non-repayable financial assistance Increasing the subsidiary’s authorized share capital by making additional contributions. Let us take a closer look at each of these methods. 1) Repayable Financial Assistance Repayable financial assistance can be provided based on a relevant contract. In this case, the repayable financial assistance contract must provide for the return of funds received from the non-resident party within a time period specified in the agreement, but not more than 365 days (this time period may be doubled if a relevant supplementary agreement is signed. It should be noted that the laws of Ukraine do not limit the number of such supplementary agreements). As under the repayable financial assistance contract the resident is a debtor who must pay back funds originating from Ukraine to the non-resident party (i.e, the financial assistance is paid back from profits received in Ukraine), such contracts must be registered in the Comprehensive Information System (named “KIS”) of the National Bank of Ukraine (hereinafter - the NBU) through the servicing bank. Accountor Ukraine recommends that companies agree with their servicing bank upon the terms of the draft repayable financial assistance contract. In turn, the bank must notify the NBU within no more than five working days from the date when the company contacted them (but not later than the day when the first foreign exchange transaction is done through this bank under the terms of the contract). Besides, being subject to financial monitoring, the bank may also request to provide an Explanation Letter to the contract about this transaction, documents proving the origin of funds, as well as any other data pertaining to the contract and to the transaction. 2) Non-repayable Financial Assistance Non-repayable financial assistance can be made under a contract that is not subject to registration with the NBU. Before signing, we recommend that you pre-agree on contract terms with the servicing bank to avoid possible delays in the receipt of funds because of additional questions from your bank’s financial monitoring department. The bank may require some additional information, as in the case of repayable financial assistance contracts. 3) Increasing the Company’s Authorized Share Capital by Making Additional Contributions This way of financing a subsidiary can be effective if additional funds are not needed on a regular basis, or if the subsidiary’s financial obligations to the non-resident founder are reduced by means of offsetting mutual obligations. According to Art. 18 of the Law On Limited Liability and Additional Liability Companies, in order to increase the authorized share capital by making additional contributions, the General Meeting must make a joint documented Decision concerning the total amount by which the company’s authorized share capital is to be increased, the ratio of this amount to each member’s share in the authorized capital and the expected total amount of the authorized share capital. This Decision must be notarized. A company’s authorized share capital can be increased only after all shareholders have made their contributions in full. Additional contributions may be made in cash or in kind with a certain monetary equivalent, as stated in the Decision of the general meeting. If you need a hand with preparing the required documents / notifications, or if you need any advice on how to prepare the required contracts, or if you have any other questions, the Legal Advisors of Accountor Ukraine will be happy to help. Contact us!

Pavlo Kotenko

Legal Advisor, Accountor Ukraine

It is quite common for a non-resident founder to raise their own additional funds to ensure proper operation of their Ukrainian subsidiary. However, there is a number of issues that can stand in the founder’s way. Legal Advisors of Accountor Ukraine are ready to introduce you to the case and explain all the main aspects.

First of all, the non-resident founder has to choose the way (method) of how to finance the subsidiary. To make the right choice, one has to consider the deadlines, the ways of how the funds may be returned and taxation-related issues.

The main ways of how non-resident founders can send funds for their subsidiaries in Ukraine are:

Repayable financial assistance;
Non-repayable financial assistance
Increasing the subsidiary’s authorized share capital by making additional contributions.

Let us take a closer look at each of these methods.

1) Repayable Financial Assistance

Repayable financial assistance can be provided based on a relevant contract. In this case, the repayable financial assistance contract must provide for the return of funds received from the non-resident party within a time period specified in the agreement, but not more than 365 days (this time period may be doubled if a relevant supplementary agreement is signed. It should be noted that the laws of Ukraine do not limit the number of such supplementary agreements).

As under the repayable financial assistance contract the resident is a debtor who must pay back funds originating from Ukraine to the non-resident party (i.e, the financial assistance is paid back from profits received in Ukraine), such contracts must be registered in the Comprehensive Information System (named “KIS”) of the National Bank of Ukraine (hereinafter – the NBU) through the servicing bank.

Accountor Ukraine recommends that companies agree with their servicing bank upon the terms of the draft repayable financial assistance contract. In turn, the bank must notify the NBU within no more than five working days from the date when the company contacted them (but not later than the day when the first foreign exchange transaction is done through this bank under the terms of the contract). Besides, being subject to financial monitoring, the bank may also request to provide an Explanation Letter to the contract about this transaction, documents proving the origin of funds, as well as any other data pertaining to the contract and to the transaction.

2) Non-repayable Financial Assistance

Non-repayable financial assistance can be made under a contract that is not subject to registration with the NBU. Before signing, we recommend that you pre-agree on contract terms with the servicing bank to avoid possible delays in the receipt of funds because of additional questions from your bank’s financial monitoring department. The bank may require some additional information, as in the case of repayable financial assistance contracts.

3) Increasing the Company’s Authorized Share Capital by Making Additional Contributions

This way of financing a subsidiary can be effective if additional funds are not needed on a regular basis, or if the subsidiary’s financial obligations to the non-resident founder are reduced by means of offsetting mutual obligations.

According to Art. 18 of the Law “On Limited Liability and Additional Liability Companies”, in order to increase the authorized share capital by making additional contributions, the General Meeting must make a joint documented Decision concerning the total amount by which the company’s authorized share capital is to be increased, the ratio of this amount to each member’s share in the authorized capital and the expected total amount of the authorized share capital. This Decision must be notarized.

A company’s authorized share capital can be increased only after all shareholders have made their contributions in full. Additional contributions may be made in cash or in kind with a certain monetary equivalent, as stated in the Decision of the general meeting.

If you need a hand with preparing the required documents / notifications, or if you need any advice on how to prepare the required contracts, or if you have any other questions, the Legal Advisors of Accountor Ukraine will be happy to help. Contact us!