To ensure economic security, governments put measures that regulate the flow of foreign currency in and out of their country. This is referred to as capital control. The Ukrainian government has revised its capital control policies and has them stricter than ever. This is due to the previous financial crisis.
In the long run, this will serve in the best interest of Ukraine. The reason why countries take capital control seriously is to help stabilize their local currency. Allowing large volumes of foreign currency to enter and leave the country would result in sudden fluctuations in the value of their currency. The regulations apply to businesses and individuals alike.
In this article, we will look at what Ukraine has done to strengthen its capital control. Capital control revolves around two main strategies. First would be the general rules set by the Ukrainian government to control issues such as foreign asset acquisition. These rules are part of the legislation and are practiced daily. Let's call these “The general Rules''.
The second strategy for controlling Ukraine’s capital control is to watch daily transactions. Some are flagged if they need extra attention. These transactions might involve large sums of money. They may also be occurring frequently. Once these transactions have been flagged, special rules and measures are taken to help strengthen capital control. Let's call these “The special Rules” Let's take a look at these two sets of rules.
The General Rules
Moving the Ukrainian currency out of Ukraine is permitted as long as the amount is less than the equivalent of EUR 10,000. Once the figure exceeds this value, paperwork proving that the money came from a currency exchange is required. Another allowable condition is if the money had previously been withdrawn from the client’s account. Again documents proving this fact would be required.
The National Bank of Ukraine has regulations that help control buying of foreign currency worth an excess of UAH 150,000. Documentation is required to support the transaction. If a foreign investor wishes to return their invested money home, they need to provide the Ukrainian bank with evidence that they had previously put in an amount of money as an investment.
The investment needs to have been legally registered with the Ukrainian government. Furthermore, sending or receiving funds exceeding UAH 150,000 will require documents that clarify the reason for the transaction. This is meant to avoid money laundering and embezzlement.
Hryvnia is Ukraine’s official currency. All payments for transactions occurring within are to be paid in this currency. Payments in foreign currency are not permitted. There are however a few exceptions to this rule. If foreign national wishes to send money to relatives overseas, they may pay with their native currency.
If a foreign investor wishes to return their investment to their country of origin, they may also be allowed to use their currency. Finally, if there has been the termination of a foreign investment and plans have been made to pay back the investment, the payment may be made in foreign currency.
All this is done under intense scrutiny from the Ukrainian authorities. As mentioned earlier, issues like laundering and embezzlement have been an issue in the past. Measures have been taken therefore to ensure that this does not persist.
The Special Rules
Except if one wishes to repay a loan requiring a foreign currency as the payment currency, individuals may not purchase foreign currency exceeding UAH 150,0000. This figure is however limited to one banking institution.
Ukrainian citizens may not send money to foreign bank accounts even those in their name. This rule only applies to certain countries that have been classified as off-shore countries or those that have no standard financial monitoring.
■ Ukrainian residents may not give loans to foreign nationals residing in countries such as those mentioned above.
■ Residents of Ukraine, furthermore, may not make investments in countries such as those mentioned above.
■Cash withdrawals at ATMs within Ukraine may only be in the native Ukrainian currency.
For amounts exceeding UAH 150,000, withdrawal with the intent to export or deposit is restricted.
The Ukrainian government has put in place all these measures for the sole purpose of securing a strong local currency. With the restriction of large volumes of either local or foreign currency flowing out of Ukraine, they have effectively reduced fluctuations in the value of the Hryvnia. With these restrictions, money laundering schemes have also been crippled.
This information may come in handy for foreign investors wishing to put money into a business in Ukraine. To avoid any unwanted surprises, one would want to know the regulations set forth by the Ukrainian government. They want to know the withdrawal limits, exchange rates as well as general strength of the Ukrainian currency. Hopefully, the article has shed light on some of these issues. Additional information is always available for matters involving investing as a foreigner in Ukraine.