UKRAINE: EUROPEAN EMERGING TIGER

DOING BUSINESS IN UKRAINE

Edition 1

WHY UKRAINE

BACKGROUND

INTRODUCTION

GOVERNMENT STRUCTURE

MACROECONOMIC SITUATION

FINANCIAL AND BANKING SYSTEM

CURRENCY OPERATIONS AND CURRENCY CONTROL

INVESTMENT CLIMATE

TAX SYSTEM

POSESSION OF LAND IN UKRAINE

BUSINESS CLIMATE

Edition 2

Currency operations and currency control

Official exchange rate of hryvna

The Ukrainian hryvna is the only currency that may be used for domestic transactions between residents, except for certain cases when settlements in foreign currency are allowed subject to special permit (license) from the National Bank of Ukraine.

Hryvna is not convertible outside of Ukraine.

System of currency regulation
Foreign currency can be purchased for the following main purposes:
· Payment to overseas suppliers of goods (works, services).
· Payments of dividends, interest, royalties abroad.
· Repayment of loans which are registered in NBU.
· Purchasing of securities which are denominated in hard currency.


The main legal act governing issues of currency, its regulation and control is the Decree of the Cabinet of Ministers of Ukraine on the System of Currency Regulation and Currency Control.

To perform the currency operations the license is needed.

Ukraine's main currency control tool is special licensing which is done by the National Bank of Ukraine. The NBU issues licenses to Ukrainian business entities and entrepreneurs and requires them to declare foreign currency values kept abroad. There are two types of licenses (permits): common and individual licenses.

Common licenses

Common licenses are issued to banks and other financial institutions for performance of all currency transactions (except those which require an individual license). A bank that has obtained a common license for currency transactions is obliged to act as a currency control agent in terms of the Decree, and is responsible for controlling its own clients' currency transactions.

Individual license


Individual licenses are issued for: remittance of foreign cash abroad by Ukrainian companies; foreign investments; deposit of funds with foreign banks; settlements made in a foreign currency in Ukraine; etc.

License-free transactions

License-free transactions include: payments in foreign currency for export/import of goods (work, services); return of foreign investments previously brought to Ukraine; payment of interest and dividends; etc.

No restrictions have been established for foreign entities which bring foreign currency into Ukraine with a purpose of investment.

The rules for taking currency out of the country

Currently, the limit for taking foreign currency cash out of Ukraine is USD 3,000 (approximately EUR 2,394) for residents and USD 1,000 (approximately EUR 798) for nonresidents; taking foreign currency cash out of Ukraine in amounts above this limit up to USD 6,000 (approximately EUR 4,788) is allowed upon written declaration; taking foreign currency cash out of Ukraine in amounts above this limit requires an individual NBU license.

Foreign nationals are allowed to carry out foreign currency in the amount previously brought into Ukraine, which has to be confirmed by the entry customs declaration.

Important moments which have to be taken into account while processing currency operations in Ukraine.

1. Pension Fund tax
While buying foreign currency in cash or non-cash form 1,3 % of the amount has to be paid to the Pension Fund as a tax.

2. Payments (90-Day Rule)
Foreign currency proceeds receivable by a Ukrainian company from its foreign counterparts must be credited to such company's local bank account not later than 90 days period after the day of export of goods (work, services). The same 90-day deadline applies when the Ukrainian company makes a prepayment for import of goods (work, services). In fact, the imported goods (work, services) are to be brought into the territory of Ukraine no later than the 90 days period after the day of advance payment. Failure to comply with these terms results in a penalty of 0.3 percent of non-returned foreign cash proceeds or the cost of non-received goods (work, services) for each day of delay.

3. Cash Transactions and Limitations
Generally, transactions between legal entities are to be performed in a non-monetary form (through banks). However, cash transactions between legal entities are possible, if the total amount of cash transacted per day does not exceed UAH 10,000. This restriction does not apply to cash transactions between individuals. Ukrainian currency regulations also regulate the handling of ready cash by legal entities. Ukrainian companies must keep only a limited amount of cash in the cash desk In case no such limit was established for any reason, all cash from the enterprise's cashier's office must be deposited in the respective bank.

Anti-money laundering legislation
· Ukraine has implemented anti laundering legislation according to the Financial Action Task Force (FATF) recommendations.
· Account operating procedures require formal identification of the account holder, which is identified by banks. NBU must obtain information to determine the business reputation of prospective bank owners.
· Financial institutions must record and report to SDFM any transaction exceeding UAH 80,000, and also if the transaction has one of the suspicious activity indicators, which are described in the law. Transactions which are suspected in links with terrorist activity must be reported regardless of the amount of money involved in the operation.

In general, the currency legislation in Ukraine is directed on the limitation of the currency flow-out. So, the 90 days rule is aimed on this. Moreover, there are additional limitations. For example, if payment for the services of one contractor is not higher then USD 50 ths then there are no restrictions anticipated, if it is more then USD 50 ths, it is necessary to receive the conclusion of the Trade Chamber of Ukraine, that this sum is an equivalent of the market price of the services. It is rather easy to do that, but to avoid the hidden dangers we recommend you to address to the consulting company or hire experienced specialist which is familiar with all the nuances of the currency regulations and control.

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