Date of publication: 25 February 2019
Oleh Kulyk, Lawyer
Further to entry into force of the Law of Ukraine On Currency and Currency Transactions and the NBU resolutions adopted in accordance with this Law, more than twenty easements started being applied to ordinary citizens and businesses.
These are, in particular, represented by the free use of accounts of legal entities abroad, the extension of the term of payments under export and import transactions, the cancellation of individual licenses for foreign exchange transactions etc.
Although some of the “former” instruments of the National Bank’s influence on the market are in place, steps towards currency liberalization cannot but be welcomed. Let’s look at some of the easements for businesses that the new currency regulation system is offering.
NBU’s individual licenses for making foreign currency transfers are a thing of the past. However, the amount of such transactions is limited. Instead of individual licenses, an automated information system “E-limits” has been introduced.
The essence of the system is that restrictions on making investments/transfers of monetary assets abroad are set for resident natural and legal persons, as well as for entrepreneurs. For the first category of subjects, the limit is EUR 50 thousand per year. For entrepreneurs and legal entities, the limit amounts to EUR 2 million a year.
In the “E-limits” system, banks will submit a request to the NBU for conducting a currency transaction. If the annual limit is not exhausted, the National Bank will sanction the transaction. And only after receiving a positive response from the regulator, the bank, not later than the next business day, will be allowed to conduct a currency transaction for the client.
The amendment that will certainly be positively assessed by the business is the double increase, from 180 to 365 days, of the term of transfer to Ukraine of foreign exchange earnings under the foreign economic contracts. Such a term gives more freedom to Ukrainian entrepreneurs in foreign markets and improves their competitive position. Moreover, the sanction in the form of termination of foreign economic activities for non-compliance with the terms of payments is abolished.
Obviously, the National Bank is at a certain risk here: a longer term will allow to longer delay the return of revenue, which means that some business representatives will be able to use it during the fluctuation of the exchange rate.
At the same time, the limit on the mandatory sale of foreign exchange earnings by exporters remains unchanged, it is 50%. Also, the NBU has kept the dividend return limit to foreign investors, EUR 7 million a month, intact.
The new system of foreign currency regulation simplifies the process of attracting credits and loans from abroad, which will accelerate the inflow of capital into Ukraine. For example, now a Ukrainian company has the right to not register external borrowings at the NBU.
Previously, this procedure was very time consuming. Now, it is required to inform the regulator only after receiving a loan abroad and the regulator needs this information for statistical purposes only.
In the future, the National Bank intends to introduce a regime of free movement of capital, but it is cautious in taking the first steps in this direction. And such meticulousness is clear: the NBU is seeking to avoid the sudden and uncontrolled outflow of short-term capital, which, in turn, can lead to exerting pressure onto the foreign currency exchange rate and destabilization of the foreign exchange market.
In addition, the mandatory conditions for the gradual introduction of the free movement of capital is the adoption of the draft law on “split” (stipulates for the division of powers of the National Commission for Regulation of Financial Services Markets between the NBU and the National Securities and Stock Market Commission) and the draft law on the “Action Plan BEPS” (implementation of the steps of the action plan regarding the dilution of the tax base and avoidance of taxation).
Therefore, the launch of new stages of currency liberalization should be expected after the relevant changes to the legislation are enacted. Although the next phase of easement, as promised by the NBU, is not far off. In particular, the reduction of requirements towards the mandatory sale of foreign exchange earnings to 30%.