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Updated Law “On Currency and Foreign Exchange Transactions”: the impact of innovations on the currency regulation system in Ukraine

Today, the currency regulation system in Ukraine is in the process of reforming. Since February 7, 2019 all issues arising in this field have been regulated by the Law of Ukraine “On Currency and Foreign Exchange Transactions”, which significantly optimizes currency control for both Ukrainian citizens and foreigners, foreign companies.

One of the most profitable updates of the law is the purchase (sale) of currencies online at the current exchange rate at the time of the transaction.

This currency control system previously consisted of 56 regulatory acts. After the optimization of legislation, it was reduced to 8 main resolutions of the NBU Board.


 Updating of the Law of Ukraine “On Currency and Currency Transactions” 


According to statistics, after the law came into force, almost 300 e-limits have already been issued by Ukrainian banks, which replaced the so-called individual licenses for currency transactions.

Previously, such licenses were issued for a certain amount and time. Since the beginning of the law, more than 50% of the funds have been withdrawn for transfer to accounts abroad, more than 40% has been directed to the purchase of securities of dominant global companies.

Companies can invest 2 million euros per year. Now for this, e-limits are no longer required.


 What has changed in the Law of Ukraine “On Currency and Currency Transactions”?  

The main advantage of the updated Law of Ukraine "On Currency and Currency Transactions" is the conduct of currency transactions online (currency exchange, purchase, investment, etc.). This service is currently provided by several banks in Ukraine.

There is an opportunity to perform various kinds of operations from a smartphone, to buy currency “under a contract”. The period for repayment of foreign currency funds was also extended, for legal entities the possibility of free use of accounts abroad appeared. This is just a small list of the benefits of the updated law. In general, there are more than 20 of them.

However, despite the new favorable conditions, the Law of Ukraine “On Currency and Currency Transactions” creates many difficulties for foreign companies owned by residents of Ukraine.

The next step towards the optimization of international relations, banking, is the development and introduction of rules on taxation of controlled foreign companies (CFC). This list will be based on the Law of Ukraine “On Currency and Currency Transactions”.

Controlled foreign company 

A controlled foreign company is a foreign company or a structure without forming a legal entity that is not a tax resident of the country where the CFC rules are applied; but at the same time, the CFC is under the control of the tax residents of this state.

"Control" means the direct or secondary disposition of cash assets by foreign companies. As a result, a certain influence on decisions on the disposal of profits within the company is envisaged.

Residents of Ukraine are obliged to pay tax on CFC profits, which will be included in total annual taxable income. Residents will be required to submit this information in the form of a declaration. But there are provisions for which income tax is excluded.

This happens in the following cases:

  • availability of a treaty on the avoidance of double taxation or on the exchange of information on taxes between Ukraine and jurisdiction abroad, where the CFC was registered;
  • if the specific jurisdiction is not “offshore” (in accordance with the list approved by the Cabinet of Ministers of Ukraine);
  • if the CFC, according to the established terms and rules, repays the tax on the company's profit at an effective rate that is not less than the tax on the profits of companies and enterprises in Ukraine.

If you deliberately ignore the rules for paying taxes or the lack of relevant data in the annual declaration on the CFC, the company will be charged a fine of 500 minimum wages.

It should be noted that the NBU, along with the rest of the banks, will be authorized to: oblige companies and individuals to provide documentation on the foreign exchange operations they have performed. In addition, banking institutions will arrange the control over compliance with current currency legislation; impose all sorts of restrictions in case of any suspicions or risks in the foreign exchange market.

Thus, the launch of the system of automatic exchange of financial data in accordance with the CRS standard, as well as the introduction of provisions regarding taxation of the CFC, obviously, will serve as a “foundation” for the development of a mechanism of regulatory bodies to counter business. These rules will be based on the BEPS Plan and will most likely start functioning simultaneously with the system of automatic exchange of financial information.