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Ukrainian offshore

28/ 02/ 2019
  Olexandr Bondarchuk. Managing partner of LA «Absolut» Steadily following the European path of development, Ukraine is confidently approaching conditionally free movement of capital. On February 7, 2019, the Law of Ukraine On Currency and Currency Transactions came into force on currency regulation and currency transactions. In addition, the National Bank of Ukraine has finally approved the new system of currency regulation, having published a roadmap of currency liberalization on its website. Currency loyalty. The Regulator has published on the website only 10 positions, 2 of which are technical. National Bank of Ukraine decrees provide for significant easing of working conditions in the Ukrainian foreign exchange market, which, in turn, will simplify business in Ukraine and make our country more attractive to foreign investors. In addition, the actions of some of the provisions - temporary, because these restrictions may be canceled by the regulator on the basis of growth rates of macroeconomic indicators. So far, the requirement to sell part of the currency earnings that the regulator already promises to cancel in the future remains in force. Of particular interest is the statement by the regulator dated December 28, 2018 about the opening of the Ukrainian banking market for non-resident legal entities. This innovation was originally provided for in the “Law on Currency”, more precisely in Article 4 “Guarantees of the freedom to carry out foreign exchange transactions”, and announced by the National Bank of Ukraine at the stage of discussion with the public). Non-resident paradise. In the near future, non-resident legal entities will be able to open full-fledged corporate/savings accounts, as well as escrow accounts in Ukrainian banks. Moreover, Article 4 of the “Law on Currency” in relation to the conduct of foreign exchange operations by non-residents guarantees equal rights with residents of Ukraine, and foreign exchange operations will take place without restrictions in accordance with the legislation of Ukraine. The exceptions are cases stipulated by the laws of Ukraine in ensuring national security, preventing and countering the legalization (laundering) of criminal proceeds, financing of terrorism or financing the proliferation of weapons of mass destruction, fulfilling Ukraine’s obligations under international agreements protection. Based on the text of Article 3 of the National Bank of Ukraine Resolution No. 5 “On Approval of the Regulation on Protection Measures and Determination of the Procedure for Performing Certain Operations in Foreign Currency”, non-resident legal entities are exempted from the mandatory sale of foreign currency to the corporate account from abroad, and in the case of settlements under contracts with legal entities and individuals-entrepreneurs resident of Ukraine within Ukraine, as well as in the case of transfer of funds within Ukraine to accounts opened in banks I conduct joint activities without establishing a legal entity. Article 10 (paragraphs 127 and 128) specifies the conditions, procedure and peculiarities of conducting operations on the current accounts of non-resident legal entities. The list of allowed transactions is quite large, which allows for financial settlements through a corporate account in a Ukrainian bank for many activities. Therefore, the possibility of opening accounts for non-resident legal entities looks quite attractive. But whether this service will be successful for non-resident legal entities is a rather ambiguous question. Risk Factor. According to the National Bank of Ukraine Resolution No. 5 “On Approving the Provision on Protection Measures and Determining the Procedure for Performing Certain Operations in Foreign Currency” funds received by the bank for crediting to the account of a nonresident legal entity will be credited to the bank’s distribution account the requirements of the legislation of Ukraine. Funds will be credited to the account of a non-resident legal entity only if all necessary supporting documents are submitted to the bank. The Bank has the legal right to hold funds on the distribution account for 3 days and, in the absence of grounds for crediting, undertakes to return the funds to the sender. Also, a potential non-resident client should carefully study and weigh all the risks associated with Resolution No. 8 “On the approval of the Regulation on the procedure for authorized institutions to analyze and verify documents (information) on foreign exchange transactions”. In this document, almost nothing has changed – currency control remains tough and demanding of the operations. In addition, the NBU gives complete discretion to banks, which can, at their own discretion, set additional risk indicators, as well as independently assign states and territories to high-risk countries. All ongoing operations on the account of a non-resident legal entity are likely to be at high risk and studied more closely than similar transactions of residents. Prospects for liberalization. Do not underestimate the risks of the unstable economic and political situation in Ukraine, as well as in the countrys banking sector. Currency liberalization can easily be canceled – returning old or introducing new restrictions of the regulator, partially or fully paralyzing the means of a non-resident legal entity in Ukraine. Definitely, it can be assumed that legal entities registered in countries included in the list of offshore zones by a resolution of the Cabinet of Ministers are unlikely to be considered by banks as potential customers. So, apparently, Ukraine is unlikely to become a “banking paradise” for offshore companies and professional financial intermediary companies. In any case, the word is now in Ukrainian banks. Are they ready to maintain corporate accounts of non-resident legal entities and take increased risks associated with fines and the prospect of losing a banking license, and if so, under what conditions. Currency effect In. Summing up, I would like to note that we should not overestimate the effect of monetary liberalization. The “Law on Currency” keeps pace with the adoption and introduction of amendments to the Tax Code in order to implement the BEPS plan, for which part of the business is completely unprepared. The implementation of the BEPS plan can completely offset the positive effect of currency liberalization. Liberalization came to Ukraine very late and, built up over the years before the business model, allowing to circumvent currency restrictions, now require serious reorganization and restructuring of the model. International business is undergoing another round of transformations caused by the widespread struggle against the erosion of the taxable base and the withdrawal of funds from taxation. Therefore, if your business is not yet ready for innovations, to which implementation of the BEPS plan in Ukraine and the world will lead, contact the professionals, and do not postpone the solution of the issue for an indefinite period. There is very little time left, and an untimely decision can lead to loss of business and capital.

Olexandr Bondarchuk

Managing partner of LA «Absolut»

Steadily following the European path of development, Ukraine is confidently approaching conditionally free movement of capital.

On February 7, 2019, the Law of Ukraine “On Currency and Currency Transactions” came into force on currency regulation and currency transactions. In addition, the National Bank of Ukraine has finally approved the new system of currency regulation, having published a roadmap of currency liberalization on its website.

Currency loyalty

The Regulator has published on the website only 10 positions, 2 of which are technical. National Bank of Ukraine decrees provide for significant easing of working conditions in the Ukrainian foreign exchange market, which, in turn, will simplify business in Ukraine and make our country more attractive to foreign investors. In addition, the actions of some of the provisions – temporary, because these restrictions may be canceled by the regulator on the basis of growth rates of macroeconomic indicators.

So far, the requirement to sell part of the currency earnings that the regulator already promises to cancel in the future remains in force.

Of particular interest is the statement by the regulator dated December 28, 2018 about the opening of the Ukrainian banking market for non-resident legal entities.

This innovation was originally provided for in the “Law on Currency”, more precisely in Article 4 “Guarantees of the freedom to carry out foreign exchange transactions”, and announced by the National Bank of Ukraine at the stage of discussion with the public).

Non-resident paradise

In the near future, non-resident legal entities will be able to open full-fledged corporate/savings accounts, as well as escrow accounts in Ukrainian banks.

Moreover, Article 4 of the “Law on Currency” in relation to the conduct of foreign exchange operations by non-residents guarantees equal rights with residents of Ukraine, and foreign exchange operations will take place without restrictions in accordance with the legislation of Ukraine.

The exceptions are cases stipulated by the laws of Ukraine in ensuring national security, preventing and countering the legalization (laundering) of criminal proceeds, financing of terrorism or financing the proliferation of weapons of mass destruction, fulfilling Ukraine’s obligations under international agreements protection.

Based on the text of Article 3 of the National Bank of Ukraine Resolution No. 5 “On Approval of the Regulation on Protection Measures and Determination of the Procedure for Performing Certain Operations in Foreign Currency”, non-resident legal entities are exempted from the mandatory sale of foreign currency to the corporate account from abroad, and in the case of settlements under contracts with legal entities and individuals-entrepreneurs resident of Ukraine within Ukraine, as well as in the case of transfer of funds within Ukraine to accounts opened in banks I conduct joint activities without establishing a legal entity.

Article 10 (paragraphs 127 and 128) specifies the conditions, procedure and peculiarities of conducting operations on the current accounts of non-resident legal entities.

The list of allowed transactions is quite large, which allows for financial settlements through a corporate account in a Ukrainian bank for many activities.

Therefore, the possibility of opening accounts for non-resident legal entities looks quite attractive. But whether this service will be successful for non-resident legal entities is a rather ambiguous question.

Risk Factor

According to the National Bank of Ukraine Resolution No. 5 “On Approving the Provision on Protection Measures and Determining the Procedure for Performing Certain Operations in Foreign Currency” funds received by the bank for crediting to the account of a nonresident legal entity will be credited to the bank’s distribution account the requirements of the legislation of Ukraine.

Funds will be credited to the account of a non-resident legal entity only if all necessary supporting documents are submitted to the bank. The Bank has the legal right to hold funds on the distribution account for 3 days and, in the absence of grounds for crediting, undertakes to return the funds to the sender.

Also, a potential non-resident client should carefully study and weigh all the risks associated with Resolution No. 8 “On the approval of the Regulation on the procedure for authorized institutions to analyze and verify documents (information) on foreign exchange transactions”.

In this document, almost nothing has changed – currency control remains tough and demanding of the operations.

In addition, the NBU gives complete discretion to banks, which can, at their own discretion, set additional risk indicators, as well as independently assign states and territories to high-risk countries.

All ongoing operations on the account of a non-resident legal entity are likely to be at high risk and studied more closely than similar transactions of residents.

Prospects for liberalization

Do not underestimate the risks of the unstable economic and political situation in Ukraine, as well as in the country’s banking sector.

Currency liberalization can easily be canceled – returning old or introducing new restrictions of the regulator, partially or fully paralyzing the means of a non-resident legal entity in Ukraine.

Definitely, it can be assumed that legal entities registered in countries included in the list of offshore zones by a resolution of the Cabinet of Ministers are unlikely to be considered by banks as potential customers.

So, apparently, Ukraine is unlikely to become a “banking paradise” for offshore companies and professional financial intermediary companies.

In any case, the word is now in Ukrainian banks. Are they ready to maintain corporate accounts of non-resident legal entities and take increased risks associated with fines and the prospect of losing a banking license, and if so, under what conditions.

Currency effect In

Summing up, I would like to note that we should not overestimate the effect of monetary liberalization.

The “Law on Currency” keeps pace with the adoption and introduction of amendments to the Tax Code in order to implement the BEPS plan, for which part of the business is completely unprepared. The implementation of the BEPS plan can completely offset the positive effect of currency liberalization.

Liberalization came to Ukraine very late and, built up over the years before the business model, allowing to circumvent currency restrictions, now require serious reorganization and restructuring of the model.

International business is undergoing another round of transformations caused by the widespread struggle against the erosion of the taxable base and the withdrawal of funds from taxation.

Therefore, if your business is not yet ready for innovations, to which implementation of the BEPS plan in Ukraine and the world will lead, contact the professionals, and do not postpone the solution of the issue for an indefinite period.

There is very little time left, and an untimely decision can lead to loss of business and capital.

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