This content is from: Local Insights

Inward investments and exchange controls

On November 24 2009, the law On Amending Some Laws of Ukraine to Overcome the Negative Consequences of the Financial Crisis 1533-VI, dated June 23 2009 (the Anti-Recession Law), took effect, pursuant to which regulatory barriers are created for foreign trade, financing and foreign investment into Ukraine.

The Anti-Recession Law makes the state registration of all foreign investments into Ukraine mandatory. Previously, foreign investments were not required to be registered, although registered investments did enjoy special guarantees and privileges. The Anti-Recession Law also requires foreign investors that make investments into Ukraine in monetary form to invest only through special investment accounts opened with Ukrainian banks.

In general, the registration of foreign investments must be carried out under the procedure previously established by the Ukrainian Cabinet of Ministers. However, the Anti-Recession Law expressly requires that the state registration of foreign investments made in the form of "currency valuables" (meaning in monetary form, using securities, gold or other "bank metals") must instead follow a special procedure to be established by the National Bank of Ukraine (NBU). There is no such procedure yet.

Ukrainian legislation does not expressly provide any consequences for a failure to comply with this new NBU registration requirement. However, it can be argued that investments made with "currency valuables" are no longer lawful in Ukraine, so long as the new registration requirement cannot be complied with, because no such registration procedure exists. At the very least, this inability to make the required registration may result in difficulties for the later repatriation of such foreign investments.

The Anti-Recession Law also requires that all payment of loans in foreign currency must be made in cashless (electronic) form, and it temporarily: (i) prohibits Ukrainian borrowers from prepaying and accelerating the performance of their obligations under loan agreements with non-resident lenders (which also applies to outstanding loan agreements), and (ii) prohibits the amending of such loan agreements to provide for early repayment and acceleration of performance (including amendments that reduce the time for performance by the borrower). The NBU is also prohibited until January 1 2011 from registering any such amendments to loan agreements.

Finally, the so-called 180-Day Rule has also been amended to reduce the relevant period to 90 days. As revised, it provides that (i) the receipt of payments by Ukrainian exporters for the advanced delivery abroad of "goods" (defined to include works, services and intellectual property rights) in advance of their payment, and (ii) the receipt of such goods from abroad by Ukrainian importers based on payments in advance of delivery, must occur within 90 days from the corresponding advance delivery or advance payment. This may only be extended by a special decision of the Ministry of Economy and European Integration.

This new 90-Day Rule makes even more complicated the structuring of secured lending based on foreign receivables. In particular, difficulties arise because payments within the 90 day period following the export of goods must be paid only to the exporter's Ukrainian bank account, irrespective of whether they are pledged or assigned. It is possible, however, to restructure secured receivable financings to avoid this problem.

Instant access to all of our content. Membership Options | One Week Trial