As announced earlier (see our law-now article as of 23 November 2009) (http://tinyurl.com/yhamq4r), on 23 June 2009 the Parliament of Ukraine adopted the Law of Ukraine No. 1533-VI "On Amendments to Certain Laws of Ukraine for the Purpose of Overcoming Adverse Consequences of the Financial Crisis" (the "Law"), which became effective on 24 November 2009. The stated purpose of the Law is to combat consequences of the financial crisis and, inter alia, to change certain foreign investment and related currency control rules. In particular, the Law provides that: (a) foreign investors must make cash investments into Ukraine only through investment accounts opened with Ukrainian banks; (b) all foreign investments, both cash and in-kind, must be registered with the relevant Ukrainian authorities; and (c) foreign cash investments in the territory of Ukraine must be made in Ukrainian hryvnia ("UAH").

Further to the changes introduced by the Law, on 23 December 2009, the National Bank of Ukraine (the "NBU") approved Resolution No. 762 (the "Resolution"), which establishes a procedure for registering foreign investments in cash, as well as amends the existing NBU resolutions on foreign investments (NBU Resolution No.280, dated 10 August 2005) and foreign currency trade (NBU Resolution No. 281, dated 10 August 2005). The Resolution became effective on 15 March 2010.

Registration of foreign investments in cash.

The Resolution provides that to register such an investment, a foreign investor must file, with the respective local division of the NBU where the object of the investment is located, an application together with a set of supporting documents. The application package must be filed within 30 calendar days from the date the investment was made. For foreign investments made within the period from 24 November 2009 (when the Law came into force) until 15 March 2010, the 30-day period runs from the latter date.

The local NBU division is required to register the foreign investment and issue a registration document (stamped information notice) to the investor not later than 10 business days after the date when the application package is submitted. The NBU may request additional documents regarding the investment before it registers the investment.

In this case, the review of the application could be extended for an additional 5 business days.

If subsequent to the registration, the foreign investment registration documents need to be amended (e.g., in the case of a change of an investment object's name, additional contributions, etc.), the investor should file an application and supporting documents to amend the information notice together with the initial information notice. The NBU must register amendments to the information notice not later than 10 business days after the application package is submitted.

The NBU may refuse to register a foreign investment if:

  • the submitted documents are not in compliance with the requirements of the Resolution, or
  • the submitted documents contain inaccurate information.

The procedure for registering foreign investments that were made before the Law came into force (i.e., before 24 November 2009) but were not yet registered under the old registration regulations remains unclear. The NBU is expected to issue clarifications in this respect.

Changes to foreign investment rules.

The Resolution introduces a number of changes to the foreign investment and currency control rules affecting the process of investing into Ukraine and repatriating investments and associated profits out of Ukraine. These changes include:

  • a requirement that foreign investments in cash can be made only through an investment account opened with a Ukrainian bank. Earlier rules allowed investing into Ukraine without using an investment account;
  • mandatory conversion of foreign currency transferred to an investment account in Ukraine into UAH for further investment into Ukrainian investment objects. Previously the NBU permitted investments in foreign currency without conversion into UAH;
  • introduction of a new definition of a "portfolio foreign investment" as an acquisition by a foreign investor of securities of a Ukrainian issuer or their derivatives at a stock market (except for acquisition of 10 or more per cent of a Ukrainian stock company's shares). A foreign investor will be required to supply a Ukrainian bank with additional documents in order to repatriate such investment or profits therefrom (e.g., evaluation by a licensed Ukrainian appraiser of such investment securities);
  • the difference between procedures for direct and portfolio investments and repatriation of such investments and associated income (profits) that existed in the old rules was abolished. For example, under the old rules, a portfolio investment had to made through an account of a licensed securities broker, which is no longer necessary;
  • the list of the documents that a foreign investor has to provide to its Ukrainian bank to buy foreign currency and repatriate investments and profits has been amended.

Not all of the amendments are clear and thus the NBU will likely need to issue clarifications explaining how these new rules should be applied.

Law: Resolution of the National Bank of Ukraine No.762 dated 23 December 2009 "On Regulation of Issues Concerning Making and Registration of Foreign Investments"

This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq

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The original publication date for this article was 16/03/2010.