In early May 2024, the National Bank of Ukraine (NBU) announced a new wave of foreign currency liberalization measures, the most extensive since the commencement of full-scale invasion on 24 February 2024. The new package of amendments, introduced by the NBU Resolution No.56 dated 3 May 2024 (Resolution No.56), which entered into force on 4 May 2024, provides for the following liberalization measures.
1. PERMISSION FOR PARTIAL SERVICING OF LOANS OBTAINED BEFORE 20 JUNE 2023
Easing of restrictions on servicing “old” external loans obtained before 20 August 2023 is one of the most expected measures from the NBU. Pursuant to Resolution No.56, Ukrainian borrowers are now allowed to pay interest on the above-mentioned loans subject to the following conditions:
- For the purpose of paying interest payments that were overdue as of 01 May 2024, under a single loan agreement, the transfer of funds may be made in an amount not exceeding EUR 1,000,000 (or the equivalent of this amount in another foreign currency) per calendar quarter (this limit will not apply to scheduled interest payments falling due after 30 April 2024)
- The debt under the relevant loan agreement must not have been overdue as of 24 February 2022
- The funds for such interest payments were not sourced from loans obtained from residents of Ukraine
- The early repayment of interest is not permitted, as well as the postponement of maturity dates for outstanding interest payments to dates after 24 February 2022
The above-mentioned easing measures are aimed at minimizing the risk of defaults among Ukrainian borrowers and improving the environment for attracting new capital.
2. SIMPLIFIED CONDITIONS FOR REPAYMENT OF LOANS OBTAINED AFTER 20 JUNE 2023
The NBU has lifted some restrictions on the ability to purchase foreign currency funds for servicing loans from non-residents obtained after 20 June 2023. Henceforth, borrowers in Ukraine have the opportunity to freely acquire foreign currency funds for the purpose of paying interest, regardless of the term of use of such external loan. Regarding the principal amount, the requirement to repay it solely from their own foreign currency reserves applies only to short-term loans with a term of use not exceeding one year.
3. LIFTING RESTRICTIONS ON IMPORT OPERATIONS
Resolution No.56 enables the free purchase and transfer of foreign currency funds for the purpose of paying for imports of any goods, works, services, etc. Prior to these amendments, residents of Ukraine were only able to pay for goods included in the list approved by the Resolution of the Cabinet of Ministers of Ukraine dated 24 February 2022 No.153 “On Certain Issues Regarding Import”. Consequently, the respective resolution of the Cabinet of Ministers of Ukraine is anticipated to be annulled in this regard.
4. PERMISSION TO REPATRIATE DIVIDENDS
Since the commencement of the full-scale invasion, foreign investors have been unable to repatriate dividends earned in Ukraine on corporate rights of Ukrainian companies to their foreign bank accounts. However, the NBU has now allowed the transfer of funds abroad for the purpose of disbursing dividends based on operational results from 1 January 2024. This relaxation does not extend to the distribution of profits accumulated in prior periods and/or reserve capital.
In addition, the repatriation of dividends is possible only under the following conditions:
- The transfer of foreign currency for the payment of dividends shall be made directly to the accounts of foreign investors abroad, including through the Depository System of Ukraine
- During a calendar month, the amount of repatriated dividends cannot exceed EUR 1,000,000 (or the equivalent of this amount in another foreign currency)
This easing will come into effect on 13 May 2024.
5. LIFTING RESTRICTIONS ON FUNDS TRANSFERS FOR LEASING/RENT
Resolution No.56 enables legal entities and individual entrepreneurs to transfer funds abroad to make payments under leasing/rent agreements without any additional restrictions regarding the subject and the execution date. Prior to these amendments cross-border transfers were permitted solely for the purpose of paying for the leasing/rent of vehicles.
6. PERMISSION TO TRANSFER FUNDS TO THE PARENT COMPANIES
The NBU has allowed representative offices of foreign airlines and international payment systems to make transfers in favor of their parent companies in an amount not exceeding the equivalent of EUR 5,000,000 during a calendar month.
Thus, the package of easing measures introduced by the NBU is a signal indicating positive trends in the financial system of Ukraine. These amendments aim to enhance the business environment and attract foreign capital to the Ukrainian economy. However, a significant number of the currency restrictions still continues to be in force, and therefore, foreign currency transactions will continue to undergo meticulous scrutiny to ensure alignment with prevailing regulations.