Convertibility and Profits Repatriation

The Ukrainian currency is at present not fully convertible, although significant measures have been undertaken recently in order to progress towards that goal. Currencies are traded at auctions held by the UICEX. In addition currencies may now be traded at the informal interbank currency market.

Currently, the U.S. dollar, euro, and the Russian rouble are being traded on the UICEX daily. Prior to November 1994, foreign currency could be obtained only for importing certain essential goods. At present, the rules have been substantially relaxed and a Ukrainian legal entity may convert local currency into a foreign currency in the event it has entered into a foreign economic contract or provides other justification for the foreign currency. Repatriation of foreign currency dividends or invested capital to a foreign investor would serve as a valid justification for obtaining foreign currency. The entity would be required to carry out the conversion through its commercial bank: the commercial bank receives a conversion request from its client, reviews the basis on which the entity is requesting foreign currency and participates in the UICEX auction to purchase the currency on behalf of its client.

The main purpose of foreign exchange control in Ukraine is to prevent illegal capital flow and 'dollarization' of the domestic economy. Operations with foreign currency are regulated by the Decree of the Cabinet of Ministers "On the System of Currency Regulation and Currency Control" and a number of rules issued by the National Bank of Ukraine (NBU).

Currency control is founded on the following basic rules:

• Payments under foreign trade contracts between a non-resident and a resident entity should be effected only in foreign currency unless a non-resident has an investment account in Ukrainian currency;
• In case of payments by Ukrainian business entities for services rendered by non-residents for amounts exceeding EUR 100,000 (annually) it is required a confirmation from the Foreign Markets Monitoring Centre (FMMC) that the fee for the services does not exceed market prices;
• Ukrainian companies generally must receive payments for exported goods or services within 90 from the date of customs clearance of goods or date of services delivery. In compliance with this rule goods/services purchased from abroad have to be actually delivered to Ukrainian counterpart within 90 calendar days from prepayment. Failure to do so without authorization from the NBU may result in a fine of 0.3% of the customs value of goods (services) paid for each day of delay;
• Salaries must be paid only in the national currency, but expatriate employees can be paid in hard currency;
• Foreign loans must be registered by the National Bank before they are received. The maximum allowable interest rates for foreign fixed rate loans in hard currency is 9.8% p.a. for loans up for 1 year; 10% p.a. for loans for 1-3 years and 11% p.a. for loans over 3 years. For loans with floating interest rates, the maximum allowable interest rate is three months USD LIBOR plus 7.5%;
• In most cases payments in foreign currency between residents are not allowed in Ukraine (or a specific license is required);

Ukrainian entities are required to obtain a license from the NBU for different operations with foreign currency, including:

• Opening bank accounts with foreign banks;
• Establishment of a subsidiary company in another country and transferring capital to fund its operations;
• Purchase of foreign securities or Ukrainian securities from non-residents.

The individual license from the NBU generally is not required in case of transferring foreign currency for investment medium from running account of a resident or from investment account of foreign investor to investor's account in a foreign bank.

Repatriation of foreign currency dividends or invested capital

Foreign investors are guaranteed the right to repatriate their legally obtained profits or other funds from their investments in Ukraine. For such purpose investors are permitted to convert local currency into foreign currency. After the payment of applicable taxes, a foreign investor may effect the conversion through the Ukrainian Inter-bank Currency Exchange (UICEX). An investor requests his commercial bank to participate in the UICEX auction; the bank receives a conversion request from its client, reviews the basis of the request and participates in the auction to purchase the currency on behalf of its client.

Ukraine has numerous mutual treaties concerning trade, the avoidance of double taxation, and mutual guarantees of investments. As of May 1, 2016, Ukraine has 67 double tax treaties in effect including the double tax treaty with Cuba and the new double tax treaty with Cyprus as well as treaties with Ireland and the UK. Tax residents are allowed to credit foreign taxes paid on income received abroad provided there is a double tax treaty in place.