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Foreign Exchange Stumbling Blocks for Foreign Investors


Galyna Melnyk, lawyer at Ilyashev & Partners Law Firm
Source: Jurist&Zakon

Investment attractiveness of a country is measured, among other things, with consideration for simplicity and comprehensibility for a foreign investor of local legislative rules for making an investment, receiving profits from it, its alienation, or their repatriation abroad. Unfortunately, Ukraine has quite rigid and intricate exchange controls imposing significant exchange restrictions onto foreign investors. Further we will consider the key currency limitations which the foreign investors have to face at all stages of their investment activities in Ukraine. In particular, let’s concentrate at the investments made by a foreign investor in the form of investment of monetary assets.

Making foreign investments to Ukraine

The term “foreign investment” has a wide connotation in the Ukrainian laws (in the Law “On the foreign investment regime” and the Resolution of the Board of the National Bank of Ukraine “On settlement of the matters of making foreign investments to Ukraine” No. 280 as of August 10, 2005 (hereinafter the “Resolution No. 280”)).

One may say about availability of making a foreign investment to Ukraine if a non-resident purchases any property in Ukraine, including the fixed assets (for example, real estate), intangible assets (for example, trademarks), corporate rights and securities (for example, participation shares and shares of Ukrainian companies), proprietary rights (for example, the rights of claim towards the residents of Ukraine) etc.

The Resolution No. 280 allows to make foreign investments to Ukraine only in Ukrainian hryvnias or in a foreign currency included into group one of the foreign currency Classifier (US dollars, Euros, pounds sterling, Swiss franks, and others, mentioned in paragraph one of the Classifier of foreign currencies and bank metals, approved by Resolution of the Board of the National Bank of Ukraine No. 34 as of February 04, 1998).

It needs to be noted that the Resolution No. 280 (the paragraph 2.1.) established an exhaustive list of ways of making foreign investments. Among the most topical and widely applied options are the following variants of settlements resorted to by foreign investors in the process of purchasing investments objects in Ukraine:
via an investment account: a foreign investor has the right to open a foreign investment account in Ukraine and transfer foreign currency to such account from abroad (with the aim of further use of such monetary assets for making settlements in Ukraine in hryvnias or in a foreign currency). Foreign currency amounts credited to the investment accounts may be sold to make settlements with residents in Ukraine for investment facilities in hryvnias or to make settlements with other foreign investors via their hryvnia investment accounts in Ukraine; or a foreign investor may make settlements with the residents using a foreign currency at its investment account;
direct transfer from abroad: a foreign investor may make settlements with a resident of Ukraine for investment objects via transfer of foreign currency amounts from abroad to the foreign currency account of the resident of Ukraine in a Ukrainians bank.

It needs to be noted that Ukrainian foreign currency legislation does not directly stipulate for such an option as making settlements between non-residents abroad in relation to the investment objects located in Ukraine.

Correctness and legitimacy of such settlements is evidenced only by indirect reference in the Resolution of the Board of the National Bank of Ukraine No. 281 as of August 10, 2005 which regulates the purchase of foreign currency (hereinafter – the Resolution No. 281; see further in the section about repatriation of the foreign investment and profits from such investment).

An important risk factor for a foreign investor is an NBU’s practice (which has shaped itself throughout two recent years) to introduce temporary currency restrictions with period of validity constituting several months upon further prolongation of such limitations with slight liberalization. In particular, until recently the NBU required from the residents to sell 75% of their foreign currency revenues, including transfers from the foreign investor (for example, contributions to the charter capital, loans from the parent company etc.).

As of the present moment the requirement on sale of foreign currency revenues applies to the major part of loans (in the amount of 65%), but is not applied to transfers of the foreign currency amounts made for the purpose of making foreign investments to Ukraine (for example, foreign currency contributions into charter capitals of Ukrainian subsidiary companies of non-residents are not subject to obligatory sale any more). Corresponding provisions stipulated by paragraph 2 of the Resolution of the Board of the National Bank of Ukraine “On regulation of the situation at the monetary and foreign currency market of Ukraine” No. 386 as of September 14, 2016 (hereinafter the “Resolution No. 386”).

As early as the stage of making an investment each foreign investor should give a thought to how and when he is going to withdraw the profits gained, as well as how will it terminate its investment activities (with consideration for specific limitations regarding the purchase of foreign currency for these purposes).

The main problem here is as follows:

Firstly, the aforementioned temporary limitations of the NBU may substantially complicate, and even eliminate the possibility of repatriation of investments/profits wihtin a certain time period (at the same time it is almost impossible to predict introduction of the new or cancellation of the current limitations), and

Secondly, the Resolution No. 281 establishes an exhaustive list of instances and terms when and under what circumstances a resident of Ukraine may purchase foreign currency for making settlements with a non-resident investor (for example, to settle dividends or the cost of a participation share in the charter capital in case of non-resident’s withdrawal from a Ukrainian company, to purchase corporate rights of a Ukrainian company from non-resident owner etc).

In certain cases registration of a foreign investment may simplify the purchase of foreign currency, but on practice such registration is not always possible if, for example, real monetary sums were not transferred to Ukraine (when purchase of assets was performed between non-residents, etc).

The question of foreign currency regulation related to transfer of a foreign investment (its termination) and corresponding profits abroad shall be described further.

Repatriation (termination) of the investment and transfer of income from investments

Transfer abroad of foreign investments, as well as of profits, incomes, other monetary assets received by a foreign investor from his investments in Ukraine is permitted to be made only in foreign currency of the group one of the foreign currency Classifier (paragraph 3.2 of the Decision No. 280).

The ways of recovery of investments and corresponding profits are regulated by paragraph 3.1 of the Decision No. 280. Among the most wide-spread and popular ways are as follows:

via investment account of a foreign investor in Ukraine: to such account the residents (from their current accounts) and other foreign investors (from their investment accounts) have the right to transfer as Ukrainian hryvnias, as well as foreign currency; an investor, in his turn, has the right to purchase foreign currency and transfer it to his account abroad;
directly to the investor’s account abroad: the residents may purchase foreign currency (or use the available foreign currency) directly to the foreign investor’s account at the foreign bank.

It is worth noticing that settlements through entering monetary sums in cash to the bank with the aim of crediting them to the account of a foreign investor are of an extralegal nature. The Decision No. 280 does not stipulate for the foreign investor’s possibility to sell the investment object to another non-resident with making settlements abroad.

But such a possibility anyway exists because the said method of settlement is mentioned in the Decision No. 281 (Section 2, chapter 3, paragraph 2“a”, sub-paragraph 9) which, among other documents required to be submitted for making the purchase of foreign currency for repatriation of the investment and corresponding profits/incomes, notes the need to submit “an agreement on transfer of the foreign investment object entered by and between the non-residents which stipulates for making settlements outside Ukraine with documentary proof of such settlement (submitted subject to acquisition by foreign investors of the title to the investment object according to the aforesaid manner)”

To purchase a foreign currency (with the purpose of transferring monetary assets abroad) for Ukrainian hryvnias a resident of Ukraine or a foreign investor must submit a package of documents (stipulated by the Decision No. 281 Section 2, chapter 3, paragraph 2) to the servicing bank. In addition to other documents the package must contain an information note issued by Ukrainian bank confirming actual transfer of investments (in monetary form) to Ukraine. Such information note shall not be required if the investor has carried out the state registration of the investment or if the investor had acquired the title to the investment object more than five calendar years ago.

In this respect if the investment object was acquired without transfer of monetary assets to Ukraine it will be possible to purchase foreign currency for repatriation of investments/profits from such investment only after expiration of five years following the moment of making such investment or it will be required to register the foreign investment which, as mentioned above, may practically cause a number of problems (if the monetary assets under a certain investment transaction were not transferred to Ukraine).

The Decision No. 386 establishes certain temporary currency restrictions for return of the investment and profits/incomes from such investment. In particular, the following methods of purchase and transfer of foreign currency are forbidden at the moment:
– return to a foreign country of the monetary assets received by foreign investors under the transactions on sale of corporate rights of legal entities which were not officially registered by shares;
– decrease of the charter capitals of legal entities;
– withdrawal of foreign investors from economic entities;
– settlement of the cost of securities issued by Ukrainian issuers (except for sale of certain debt securities);
– return to a foreign country of the dividends by a foreign investor (except for dividends for 2014 and 2015 upon compliance with certain provisions, in particular limitations under the sums of dividends disbursed).

The mentioned limitations shall be valid till December 15, 2016 inclusive but, considering for repeated prolongations in the past, they will likely be extended, in one form or another, in the future.


In conclusion it must be noted that foreign investors in Ukraine meet a great number of currency limitations which are not always justifiable and considerably decreases investment attractiveness of our country at the international market. In this respect the NBU’s intentions (which it pronounces from time to time) to seriously reform Ukrainian currency laws and regulations towards their liberalization seem quite topical and well-timed.

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