On June 21, 2018, the Verkhovna Rada of Ukraine adopted the Law of Ukraine “On Currency and Currency Operations,” which is aimed at liberalizing the Ukrainian currency control sphere. The adoption of this law has been highly publicized by the government. Emphasis has been placed on the purpose of law being to almost completely eliminate bureaucratic impediments in this sphere and give business the opportunity to use foreign currency freely for a long period.
But is that really the case, and what innovations does the law actually bring?
Despite the declared liberal principles for the implementation of currency operations in paragraph 2 (which allegedly includes the right to conclude agreements and implement them in foreign currency), the law still stipulates the hryvnia as the only possible lawful currency for use on the territory of Ukraine.
Settlements in foreign currency are accepted only in the following cases:
1) transactions for the implementation of foreign investments and refunding revenues to a foreign investor (including dividends), and other income obtained on legal grounds as a result of implementing foreign investments;
2) transactions by banks providing banking and other financial services based on a respective license;
3) transactions to provide certain financial services by non-banking financial institutions and postal communication operators that have obtained a license from the National Bank of Ukraine for currency operations;
4) Transactions for a prospectus, the payment of monetary income and refunding of bonds, treasury bonds of Ukraine nominated in foreign currency, if so provided by the prospectus for the securities (its prospectus).
5) Transactions on the purchase of government securities nominated in foreign currency, if the initiator or receiver in such a currency transaction is a bank;
6) Other transactions defined by the Customs Code of Ukraine and (or) regulatory legal acts of the National Bank of Ukraine.
An interesting feature of the new regulations is that the law does not require that individual licenses be obtained for the transaction. Theoretically, in other words, it will be possible to freely carry out all transactions not stipulated in the exceptions in foreign currency, without the need to apply to the National Bank of Ukraine for a license.
Another significant innovation is that individuals and legal entities will be able to open an account with a foreign bank. Today, this requires an individual license from National Bank of Ukraine. On the one hand, this will streamline transactions for companies that dynamically maintain exchange payments thought accounts outside the country. In such case, on the other hand, it is unclear how the National Bank of Ukraine and banks are going to implement currency controls and financial monitoring. Unfortunately, the law provides no answer to this question.
Among the most significant changes in the system of currency regulation, it should be pointed out that there will be a change of approach to the establishment of the terms for the return of profits for export-import transactions. From now on, the National Bank of Ukraine besides establishing exceptions and respective terms for specific goods and transactions, can also establish a transaction size boundary minimum, above which term restrictions on export-import transactions could be applied.
This should eliminate the need for confirmation of goods/services delivery for small transactions and purchases made abroad. It should be mentioned that current requirements make a variety of services payments more difficult, particularly, in the sphere of the internet, since all payments required the signing of formal agreement and the periodic signing of certificates of acceptance and transfer.
Moreover, the law itself does not contain rules in this regard, leaving the details of regulation to the discretion of the NBU. Which terms the NBU will set, and whether it will take advantage of the opportunity to liberalize the norms provided by the law, remains in question.
In fact, before the adoption of such regulations by the NBU, which will flesh out the interpretation of the law, it is hard to predict how the new legislation will influence businesses – apart from the fact that they will gain the right to open an account abroad.