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Currency Control Reform in Ukrainr is approaching Finish Line

29/ 01/ 2019
  In implementation of the new Law of Ukraine “On Currency and Currency Transactions” (“FX Law”), the National Bank of Ukraine (“NBU”) introduced new currency control rules (“New FX Rules”) taking effect on 7 February 2019. The New FX Rules will remove or significantly ease over 20 currency control restrictions. The 5 most important changes are: Cancellation of the NBU individual licensing requirement: The NBU replaced the individual licensing system with an e-limits system providing for an annual limit of EUR2 million (or equivalent) that Ukrainian companies may transfer abroad or to foreign residents’ current accounts in Ukraine in the course of their business operations. FX transactions in excess of the above limit will not be allowed, unless they fall under applicable exemptions (for example, repatriation of investments, transactions with international financial institutions (IFIs) and transactions under cross-border loan agreements and related surety agreements). Cancellation of the NBU registration of cross-border FX loan agreements: Instead of the mandatory registration with the NBU, the new rules provide for a simple notification procedure. As a result, execution process on cross-border financing transactions will become easier and faster. Cancellation of the mandatory maximum interest rate limitation: The New FX Rules cancelled the mandatory maximum interest rate limitation for cross-border FX loans (which was, effectively, a cap for all payments under such loans). Removal of this limitation should provide more flexibility to foreign lenders’ when arranging funding for Ukrainian borrowers. At the same time, the New FX Rules still contain a safeguard against the risk of excessive capital outflow due to non-market interest rates under cross-border FX loans. The NBU authorised Ukrainian banks processing cross-border payments to verify a market level of proposed interest rates and other payments under cross-border FX loan agreements. The banks will use various economic criteria for that purpose (for example, LIBOR, discount rate of relevant central bank of a foreign lender’s jurisdiction of incorporation, assessment of the country and a borrower’s related risks). Cancellation of the ban on prepayment under cross-border FX loans: New FX Rules allowed Ukrainian borrowers to prepay cross-border FX loans resulting in better (1) debt management by Ukrainian borrowers and (2) protection of foreign creditors in a default scenario. The 180-day rule changed to 365-day rule: Ukrainian exporters will now have 365 days (from the date of the goods customs clearance) to receive FX proceeds under export contracts. The NBU’s roadmap for currency control reform intends to allow a free movement of capital in and out of Ukraine. The NBU has now made the most important step towards the reform’s finish line. Additional notes For further information on the topic please contact Glib Bondar, Senior Partner, or by telephone +380 44 591-3355 or via e-mail. AVELLUM AVELLUM is a leading Ukrainian full service law firm with a key focus on Finance, Corporate, Dispute Resolution, Tax, Real Estate, and Antitrust. Tier 1 within Finance and Corporate: IFLR1000 2019 — 2014 Band 1 within Corporate/M&A and Banking & Finance: Chambers Global 2018 — 2015 Tier 1 within Banking & Finance, Capital Markets, Corporate/M&A, Competition, Private Client, Real Estate and Construction, and Tax: The Legal500 2018 Recommended in “Enabling business growth” nomination: FT Innovative Lawyers 2018

In implementation of the new Law of Ukraine “On Currency and Currency Transactions” (“FX Law”), the National Bank of Ukraine (“NBU”) introduced new currency control rules (“New FX Rules”) taking effect on 7 February 2019. The New FX Rules will remove or significantly ease over 20 currency control restrictions. The 5 most important changes are:

  1. Cancellation of the NBU individual licensing requirement: The NBU replaced the individual licensing system with an e-limits system providing for an annual limit of EUR2 million (or equivalent) that Ukrainian companies may transfer abroad or to foreign residents’ current accounts in Ukraine in the course of their business operations. FX transactions in excess of the above limit will not be allowed, unless they fall under applicable exemptions (for example, repatriation of investments, transactions with international financial institutions (IFIs) and transactions under cross-border loan agreements and related surety agreements).
  2. Cancellation of the NBU registration of cross-border FX loan agreements: Instead of the mandatory registration with the NBU, the new rules provide for a simple notification procedure. As a result, execution process on cross-border financing transactions will become easier and faster.
  3. Cancellation of the mandatory maximum interest rate limitation: The New FX Rules cancelled the mandatory maximum interest rate limitation for cross-border FX loans (which was, effectively, a cap for all payments under such loans). Removal of this limitation should provide more flexibility to foreign lenders’ when arranging funding for Ukrainian borrowers. At the same time, the New FX Rules still contain a safeguard against the risk of excessive capital outflow due to non-market interest rates under cross-border FX loans. The NBU authorised Ukrainian banks processing cross-border payments to verify a market level of proposed interest rates and other payments under cross-border FX loan agreements. The banks will use various economic criteria for that purpose (for example, LIBOR, discount rate of relevant central bank of a foreign lender’s jurisdiction of incorporation, assessment of the country and a borrower’s related risks).
  4. Cancellation of the ban on prepayment under cross-border FX loans: New FX Rules allowed Ukrainian borrowers to prepay cross-border FX loans resulting in better (1) debt management by Ukrainian borrowers and (2) protection of foreign creditors in a default scenario.
  5. The 180-day rule changed to 365-day rule: Ukrainian exporters will now have 365 days (from the date of the goods customs clearance) to receive FX proceeds under export contracts.

The NBU’s roadmap for currency control reform intends to allow a free movement of capital in and out of Ukraine. The NBU has now made the most important step towards the reform’s finish line.

Additional notes

For further information on the topic please contact Glib Bondar, Senior Partner, or by telephone +380 44 591-3355 or via e-mail.

AVELLUM

AVELLUM is a leading Ukrainian full service law firm with a key focus on Finance, Corporate, Dispute Resolution, Tax, Real Estate, and Antitrust.

Tier 1 within Finance and Corporate: IFLR1000 2019 — 2014
Band 1 within Corporate/M&A and Banking & Finance: Chambers Global 2018 — 2015
Tier 1 within Banking & Finance, Capital Markets, Corporate/M&A, Competition, Private Client, Real Estate and Construction, and Tax: The Legal500 2018
Recommended in “Enabling business growth” nomination: FT Innovative Lawyers 2018

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