MEMORANDUM
TO: Subscribers to the
Chronicle of Recent Developments in Ukrainian Legislation
FROM: Russian-Ukrainian Legal Group
DATE:
RE: Legislative Alert: NBU
Resolution No. 482
In our
October Chronicle of Recent Developments in Ukrainian Legislation, we drew your
attention to the new Resolution of the National Bank of Ukraine (the “NBU”) No. 482 "On Approving the Regulations on the Procedure for
Making Monetary Foreign Investments in Ukraine and Returning Investments to
Foreign Investors, as well as Repatriating Profits, Income and Other Means
Derived from Investment Activity in Ukraine" dated 14 October 2004 (the “Investment Resolution”).
The
Investment Resolution has substantially changed certain basic elements of the
procedure in
1. Foreign investors (both
companies and individuals) can no longer make direct contributions to the
charter capital of Ukrainian companies in foreign currencies. It is now
necessary to make such contributions in Ukrainian Hryvnias (UAH) through a
special investment account opened by such a foreign investor (non-resident) at
an authorized
Ukrainian bank (the “Investment
Account”). Therefore,
when a foreign investor wishes to make a contribution to a Ukrainian company's
charter capital (e.g., when setting up a new company or increasing the charter
capital of an existing company), the foreign investor should:
a.
open
an Investment Account at a Ukrainian bank, then,
b.
transfer
foreign currency into such account and convert it into UAH and, finally,
c.
contribute these UAH to the charter capital of the Ukrainian company
from the Investment Account.
2. An Investment Account
must also be opened in order to sell or buy corporate rights in a Ukrainian
company (e.g., an equity interest in a limited liability company or shares in a
joint-stock company). This account is required regardless of whether all
parties to the transaction are foreigners (non-residents) or only some of them
are (however, it would not be needed if all parties are Ukrainian residents).
Now, let us briefly illustrate how
we assume this new procedure will work, using the example of a foreign company
(the “Vendor”) selling its shares of a
Ukrainian company to another foreign company (the “Purchaser”), i.e. both Vendor and Purchaser being non-residents and
wishing to execute the sale-purchase outside Ukraine:
a.
both
the Vendor and Purchaser should open Investment Accounts;
b.
the
Purchaser should transfer the appropriate amount of foreign currency (e.g., US
dollars or euro) to its Investment Account and convert this sum into UAH;
c.
the
Purchaser should then transfer the UAH to the Vendor’s Investment Account in
payment for the shares it is purchasing;
d.
as soon as the Vendor receives the payment, the Vendor can reconvert the
UAH into foreign currency and repatriate it outside
3. Foreign investors wishing
to repatriate dividends or to withdraw and repatriate their investment also
will encounter the same requirement of opening and carrying out all the
operations though the Investment Account.
Moreover, before the dividends or the investment can be repatriated,
foreign investor must present to the bank confirmation of payment of all
applicable taxes, fees and other mandatory payments.
4. The Investment Resolution
also regulates certain other provisions regarding investments in
It is obvious from the above that
the Investment Procedure creates considerable inconvenience and bureaucratic
hurdles, as well as additional costs for making, selling or repatriating
foreign investment. Furthermore, we
would like to stress that although the Investment Resolution has already taken
effect, and is binding, foreign investors may face practical difficulties in
complying with its new rules. Take, for example, the procedure for opening
Investment Accounts. The main act regulating this issue, NBU Resolution No. 492
dated
We have also contacted many
Ukrainian banks to clarify their position in respect to the Investment
Resolution. All of them have confirmed that it needs to be complied with
immediately. However, at the moment, none of them were able to confirm all the
details regarding how to open an Investment Account. We do hope that the banks
will deal with this matter shortly. However, we fear that many of them will not
be able to establish a final position on these questions until the Accounts
Resolution and the Investment Resolution are harmonized. Similarly, we should point out that the banks
are not clear on the procedure for repatriating investments at this time.
Finally, we should advise that
there are serious concerns regarding the legitimacy of the Investment
Resolution in terms of its compliance with the existing laws. For instance, Article 391 of the Commercial
Code of Ukraine requires that “prohibition or restriction of any types of
foreign investment can be established exclusively by law” -- meaning "Laws
of Ukraine" passed by the Ukrainian Parliament (the Supreme Rada). Because
the Investment Resolution was promulgated not by the Parliament, but by the
NBU, it may technically be illegal. Nevertheless, as of today it appears that
the Investment Resolution must be complied with.
We suggest that you carefully
review the Investment Resolution in order to determine whether any of its
provisions affect your business. As
always, we will be pleased to assist should you require specific legal advice
on the Investment Resolution.