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The use of foreign accounts: specifics

In the light of unstable banking system of Ukraine contracting parties prefer to use foreign banks services. It is more and more popular among Ukrainian businesses to use accounts foreign accounts. As a rule, public entities – Ukrainian residents use foreign accounts to invest in foreign assets, place deposits, get loans from non-residents and conduct commercial activity.

The main requirements

To open an account abroad there is no need for preliminary authorizations. Once an account is opened, within 3 days the resident is obliged to provide the local NBU authorities (hereinafter - authorities) with a notification about the opening of a new foreign account. To deposit money on foreign account, everyone needs an individual license of the National Bank of Ukraine (the NBU). The deposition of assets (in the NBU interpretation) includes money transfers made by the very owner of account, as well as by third parties. 

The license is not required if the account is used for the loan (credit) amortization by legal entity.

The Department of control, methodology and transactions licensing of the NBU issues the licenses for legal entities (residents). However, in practice, it is very restricted. This complicates the issuing of licenses, results in unanswered requests and formalistic withdrawals. 

The official waiting time for the license application is 25 working days, but in fact the Department often requests additional documents not included in the initial application form list. In this case the application prolonged to 10 more days, which slows down the licensing process. In some cases the process took up to 4 months.

The license is valid for 1 year, and if the account will be used for a longer period, the owner will have to annually apply for license certification. When the license expires, the owner is obliged to transfer all the money to Ukraine no later than the next working day. 

Important to stress that to obtain the license, the owner should have a zero balance on his or her foreign account; otherwise, the applicant will not get the license and will be held responsible.

One license is linked to only one foreign account. All the transactions from Ukraine to Ukraine should be made through Ukrainian account indicated in the license. It is not allowed to transfer hryvnas to a foreign account.

The legal entities obligation to surrender 50% of foreign exchange proceeds includes the cases when the foreign proceeds were transferred to a foreign account. Moreover, the account owner as opposed to the bank is obliged to surrender proceeds. The license owner can choose between transferring the money to Ukrainian bank for further surrender (within 30 days after the receipt of money on foreign account) or to surrender an equal amount of money from Ukrainian account. The license owner is obliged to provide the authorities with confirmation of surrender of foreign exchange proceeds within 5 days.

Reasons for license request denial

Wrongly filled application form is the most frequent reason for denial, taking into account the lack of any official recommendations for filling-in the license application forms. The application form should contain a detailed description of purpose and economic viability of the foreign account with the references to legislative grounds. The NBU can return the application if the reasoning considered insufficient. 

The application should contain a list of clear purposes the foreign account will be charged for. Any other transaction for the purposes not indicated in the list will be considered as a violation of laws and license regulations. For example, the account owner is not able to pay bank services costs from that account if he does not include it in the license list. 

To avoid denials it is necessary to ensure that authorities constantly handle your request. Note that if you repeatedly apply, the 25-days term starts anew. To maintain continuous contact with the NBU authorities is essential for successful application. In case of deliberate withdrawals and unfounded denials, one can write a letter to the Head of the NBU requesting her individual control.

“A secret of success” would be a professional and thorough preparation of the document package and communication with the NBU authorities while they are handling your request.

Reporting and controls

Once the legal entity received the license, it has to provide the authorities with quarterly cash flow statements (including a detailed breakdown of transactions and copies of account statements), as well as to inform the NBU about the transactions with non-residents on a monthly basis. The assets on foreign account are subject to quarterly declarations and audit according to a specific procedure.

Control over foreign accounts is performed by the relevant bank and audit offices. For illegal use and opening of account by the legal entity an administration penalty of UAH 51 000 is provided. The NBU has a right to confiscate the assets on the foreign account. 

To sum up, the use of foreign accounts is complicated by various legal requirements and limitations. Nevertheless, as a matter of our experience, the use of foreign accounts is not only possible, but can also be very helpful.

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