9 August 2017
The National Bank of Ukraine launches a
public consultation to garner opinion on the legislative amendments required to
adopt a new model of more relaxed FX
On 1 December 2017, the NBU
adopted a policy on a new model of relaxed FX controls.
This policy gives a green
light to FX operations based on the principle what is not forbidden by the law,
This means that any operations in domestic and foreign currencies between
residents and nonresidents are allowed without any
restrictions. The new model of FX regulation is not only more liberal compared
with the current one but also is in line
with international practices - EU Council Directive 88/361/EEC on the
Liberalization of Capital Movements and the EU-Ukraine Association Agreement.
As provided for by the Constitution, the hryvnia
has retained its function as money, remaining the sole legal tender accepted as
for payment for goods and services. However, the proposed model of FX
regulation provides for the special use of foreign currency for the purpose of
making foreign investment, performing investment-related operations, and
rendering banking services.
Therefore, the NBU believes
that under the new model of FX regulation market-related instruments over
administrative (anti-crisis) instruments. The regime of the free
movement of capital means that there are no foreign exchange restrictions on
capital movements and therefore there is no need to keep in place FX controls
as an instrument of control over compliance with these restrictions. Instead,
foreign exchange supervision will be primarily responsible for overseeing
compliance with foreign exchange legislation and regulations.
Under the regime of the
free movement of capital, procedures will be more of an informative nature
(to serve statistical purposes such as the BOP calculation rather than
permissive one, as they have been until now. For instance, the regulator
has proposed to repeal the requirement for individuals to obtain individual licenses, as well
as the requirement for entities engaged
in foreign economic activity to meet the contract execution deadlines, allowing
them to declare the estimated deadlines without imposing any penalties as this
information is required only for statistical purposes.
Under the new model of FX
regulation, the NBU will have to change its approach to applying FX
restrictions. FX restrictions should be put in
place only to stave off or
overcome a crisis and be kept in place for a short term. The NBU may put in place FX
restrictions when there are clear signs of unsustainable financial position of
the banking system or arising threats to banking and/or financial stability of
the country and if the balance of
payments comes under pressure, thereby
posing a threat to the achievement of monetary policy objectives. The Financial
Stability Council has to acknowledge that the prerequisites are in place for
the NBU to put in place FX controls, which should be maintained only for a limited
period of time - not longer than six months.
At the same time, the
temporary restrictions that were imposed in 2014-2015
and remain in place until now should be relaxed in a gradual manner as long as
favorable macrofinancial prerequisites are in place
and effective tax controls are put in place.
In particular, the NBU believes
that it will be
impossible to remove administrative FX restrictions until after
the adoption of harmonized legislation on taxation, which shall:
set out taxation rules for controlled foreign companies;
introduce reports for groups of international companies;
impose limitations for expenses in the related party transactions;
set out taxation rules for the permanent establishment status;
prevent the abuse of double tax treaties (DTTs);
set out the dispute settlement procedure in line with the international
convention on the avoidance of double taxation; and
adopt international standards for the automatic
exchange of information between the tax authorities.
It should be noted that
last year two draft
laws designed to counteract the erosion of the taxable base and profit-shifting
abroad (BEPS-related draft laws) was prepared in line with the OECD’s BEPS
recommendations by the Parliamentary
Committee on Tax and Customs Policy with the support from the NBU. The draft laws were presented to the
National Council of Reforms and tabled to parliament for consideration. Also, these draft laws are intended to
implement five key and most urgent among 15 OECD recommendations on countering
the tax base reduction and moving profits abroad (BEPS) and provide for Ukraine’s joining the framework
for automatic exchange of information between the tax authorities of other
countries, as well as granting FX amnesty and the introduction of a “one-off
However, it is impossible
to adopt a new model
of more relaxed FX controls under the current regulatory
framework for foreign exchange regulation, which is obsolete and cumbersome. The adoption a new model of more relaxed FX controls require the replacement of Decree of the Cabinet of Ministers of
Ukraine On Foreign Exchange Regulation and Foreign Exchange Control System of
1993 and numerous legal acts with the new legislation. Since November 2016, an
NBU task force, consisting - among others - of experts invited by the European
Commission, has been developing a new draft law as part of the EU-FINSTAR
As a result, the NBU has developed proposals
on the legislative amendments required to adopt a new model of more relaxed FX controls. The NBU proposes
to develop a new draft law, called the Currency Law, which will be a single
framework law, setting out the main principles for foreign exchange regulation
in the country. At the same time, specific issues will be
covered by related regulations.
The NBU plans to discuss
the proposed legislative amendments with representatives of the
business and expert community, banking industry, and public institutions throughout the
next three weeks.
“The NBU’s proposals taking
into account comments and suggestions that we will receive will be tabled to
the National Council of Reforms,” said NBU Deputy Governor Oleg Churiy. “We hope that our vision of the steps required
to be taken for a shift to a new model of more relaxed FX controls will be
backed by the National Council of Reforms”.
According to the NBU’s
proposals, following the adoption of the Currency Law by parliament, the transition period will
take six months during which NBU regulations will be brought into line with the
new law. After this the Currency Law shall come
Materials to be discussed:
The NBU’s proposals on the legislative amendments
required to adopt a new model of more relaxed FX controls.
Comments and proposals to
the document will be accepted until 30 August 2017.
They can be sent via e-mail to firstname.lastname@example.org.