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Legal Alert: Ukrainian central bank loosens capital controls further

On May 5, 2016, the National Bank of Ukraine (NBU) approved new rules that relax several currency exchange restrictions as the economy seems to show further signs of recovery and stability.

As one may remember, Ukrainian central bank have introduced severe temporary capital controls during 2014-2015 to counter a significant outflow of hard currency from Ukraine and further in reaction to substantial and rapid devaluation of Ukrainian national currency - hryvnia (UAH). The restrictions included such measures as the mandatory conversion of foreign currency proceeds into UAH, limitations or prohibitions of outbound cross-border payments, limitations of currency amounts that can be purchased by public, limitations for cash withdrawals and others. The restrictions have been regularly extended ever since, each time for another three months.

In late 2015, the central bank started to somehow loosen the controls. It should be mentioned that earlier in April the regulator already exempted foreign currency loan amounts granted to a Ukrainian importer by a non-resident bank institution or an export credit agency to finance the importer's payment obligations under a cross-border contract from the mandatory conversion into UAH, provided that such amounts are credited directly to an account of the non-resident counterparts (i.e. foreign exporter).

With the newly announced changes, foreign investors may transfer hard currency to their investment bank accounts in Ukraine and the existing requirement for mandatory conversion of 75% of such amounts into Ukrainian currency shall not apply.

Secondly, importers will now wait less time to make a payment in hard currency abroad to their suppliers. The period for the purchase of currency by Ukrainian banks to effect the payment abroad has been reduced from four to three business days after the filing of a respective request.

Finally, it shall be possible to purchase currency in order to fulfill a importer’s payment obligations under a supply contract for imported goods that customs clearance was completed before January 1, 2015.

The new changes will become effective starting from May 11, 2016 and will remain in force at least till June 8 when the NBU is scheduled to review all the temporary restrictions again.

According to press releases of the National Bank, it could be expected that the other restrictions are abolished in the nearest future as well and, foremost, the controversial ban of the repatriation of dividends by resident companies to non-resident shareholders is anticipated to be lifted in the first place.

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