NBU: Currency Liberalization for Dividend Payments Abroad

The National Bank of Ukraine (the "NBU") through its Resolutions No. 108 dated 6 September 2024, No. 136 dated November 19, 2024, and No. 155 dated 20 December 2024, amended Resolution No. 18 dated 24 February 2022. In particular, Resolution No. 108 and Resolution No. 155 expanded the possibilities of transferring foreign currency abroad for the purpose of paying dividends on corporate rights/shares by a resident legal entity in favor of non-residents in an amount not exceeding:

• Resolution No. 108: Up to the amount of the non-resident's obligation to pay interest on Eurobonds.
• Resolution No. 155: Up to the non-resident's obligation to pay interest on Eurobonds, minus interest paid on a loan.

The changes apply to:

• Resident legal entities that pay dividends to non-residents (the "Residents")
• Non-resident legal entities that:
  • receive dividends from residents ("Non-Resident 1")
  • issue Eurobonds ("Non-Resident 2"), for which the Resident acts as a guarantor or surety
  • issue Eurobonds ("Non-Resident 3") and use the raised funds to provide a credit (loan) to the Resident.

Non-resident 1 and Non-resident 2 must be related entities, meaning they operate within the same business group; or they may be the same legal entity.

The latest changes allow Residents to transfer foreign currency abroad in the form of dividends in favor of Non-Resident 1 if, among other things, the following conditions are met:

• The total amount of all foreign currency transfer transactions for the purpose of paying dividends by the Resident to Non-Resident 1 cannot exceed:
  • the total amount of interest payments on Eurobonds actually paid by Non-Resident 2 to Eurobond holders in the period from 24 February 2022 to 9 July 2024 (inclusive) (based on subclause 46-2, clause 14 of Resolution No. 18 dated 24 February 2022); and/or
  • the total amount that was actually paid to Eurobond holders in the period from 24 February 2022 to 30 April 2024 (inclusive), deducting the amounts of foreign currency transfers for the purpose of paying interest payments on a loan in favor of Non-Resident 3 (based on subclause 46-3, clause 14 of Resolution No. 18).
• The currency transaction is carried out at the expense of the Resident's own funds in foreign currency (i.e., funds that were not purchased or received as a loan).
• The Eurobonds must have been in circulation as of 10 July 2024.
• The Resident must not have violated payment deadlines for export transactions within the last 12 months.

The changes introduced by Resolution No. 136 address key aspects of currency regulation aimed at supporting economic stability. These include:

1. Expanded Possibilities for Settlements on Import Transactions

Previously, settlements for import transactions—including payments of fines, penalties, and compensation for losses due to non-fulfillment of foreign economic agreements—were only allowed if the goods were delivered after February 23, 2021. Resolution No. 136 expands the list of exceptions, allowing settlements even for shipments made before February 23, 2021, in specific cases. These exceptions apply to transfers made to fulfill obligations under import transactions in favor of: 1) foreign export credit agencies; 2) foreign states through an authorized person; 3) foreign entities with shareholders that include foreign states or banks; 4) other non-residents with the involvement of the aforementioned entities.

Additionally, the transfer amount must not exceed 10% of the overdue debt under such contracts (as of November 1, 2024) for a single month.

2. Transfer of Currencies Abroad Within International Technical Assistance Programs

Previously, cross-border currency transfers were only permitted for settlements within international technical assistance and cross-border cooperation programs funded by the European Union. Under the new rules, such transfers are now allowed regardless of the country or organization financing these programs. This adjustment is expected to streamline settlements for international technical assistance and cross-border cooperation projects, while also encouraging more international donors to support Ukraine.

3. Tightened Currency Restrictions on Dividend Transfers Abroad

Previously, resident entities were permitted to transfer dividends abroad in foreign currency, subject to a monthly limit of 1 million euros, provided that:

• Dividends were accrued based on operations from January 1, 2024, with no possibility of paying dividends from retained earnings of previous periods or reserve capital.
• Dividends were paid directly by the issuer of corporate rights/shares to the accounts of foreign investors/non-residents abroad and/or through Ukraine’s depository system.

Resolution No. 136 introduces additional conditions for such transactions:

• The issuer of corporate rights/shares must have been registered for at least 12 months before the date of the transaction.
• A minimum of six months must have passed since the foreign investor or non-resident acquired ownership of the corporate rights or shares before the transaction date.

According to the NBU, inspections have revealed attempts by businesses to circumvent the monthly repatriation limit, prompting the introduction of stricter criteria to regulate these transactions.

4. Prohibition on the Purchase of Securities Denominated in Foreign Currency with Credit Funds

New restrictions have been introduced on the purchase of securities in foreign currency. Banks are now prohibited from transferring client funds obtained through foreign currency loans for the following purposes: 1) purchasing securities denominated in foreign currency; 2) transferring funds to the accounts of central counterparties (intermediaries in financial transactions). Additionally, granting loans in foreign currency for the purpose of purchasing securities in foreign currency is also prohibited. These restrictions are aimed at preventing the circumvention of currency regulations and ensuring compliance with financial controls.

5. Changes to Requirements for Conducting Foreign Currency Purchase Transactions

Legal entities conducting foreign currency purchase transactions are required to provide banks with information on the total amount of foreign currency funds held in their accounts. Previously, when determining a legal entity’s balance of foreign currency funds, only funds of the international technical assistance projects that had undergone state registration were excluded.

Resolution No. 136 provides that regardless of whether international technical assistance projects have undergone state registration or not, funds received into a legal entity’s account and used in accordance with the project's designated purpose will not be considered when determining eligibility for foreign currency purchases.