Ukraine

Exchange controls

General legal framework

On 24 February 2022, a martial law legal regime was declared in Ukraine. In order to ensure stability of the financial system, the National Bank of Ukraine (NBU), by its Board Resolution No 18, dated 24 February 2022, introduced a number of restrictions and limitations for financial transactions. The NBU updates the Resolution on a regular basis.

Key limitations to currency transactions

• Certain payments abroad are prohibited (for details please see our comments below).
• Period for settlements under the export and import operations executed starting from 5 April 2022 is shortened to 180 days (from 365 days) and for the operations of export of certain agricultural goods (as per specified type of goods/production, e.g. grain) executed starting from 11 November 2023 - to 90 days.
• All expenditure transactions of residents of Russian Federation/Republic of Belarus and legal entities which beneficial owners are residents of Russian Federation/Republic of Belarus are suspended (except certain transactions, e.g. salary and tax payments, transactions in favour of state authorities).
• The official UAH to USD exchange rate is no longer fixed and is determined by the NBU on a daily basis.
• All payments to Ukraine (e.g. under the export transactions, loan provisions, funds transfer) are allowed on a usual basis (except for most payments from the Russian Federation/Republic of Belarus, which are generally restricted).

Remittance/movement of funds across the Ukrainian border by individuals

Generally, settlements abroad using Ukrainian credit/debit cards are limited to a certain extent. For instance, individuals may transfer funds abroad within the limit of UAH 100,000 (or its equivalent) per month for online purchases (for cards both in UAH). Online purchases from the account in foreign currencies are not limited.

Peer-to-peer (P2P) transfers to a foreign banking card are allowed for cards in foreign currency only and are limited to the equivalent of UAH 100,000 per month.

Also, cash withdrawal from bank accounts in Ukraine is limited to UAH 100,000 per day (or its equivalent for withdrawal from bank accounts in foreign currency).

Cash withdrawals from Ukrainian credit/debit cards abroad are limited to UAH 12,500 per week (7 calendar days) for accounts in UAH and in the amount of UAH 100,000 per day for accounts in foreign currency.

There is also no limit for remittance of funds by post or physical cash movement across the Ukrainian border. However, they are subject to the following requirements:

• Physical movement of cash across the border in excess of EUR 10,000 is subject to filing a customs return.
• Remittance of funds by post is subject to declaring the value of the transfer.

Remittance of funds across the Ukrainian border by business entities

As mentioned above, payments abroad (e.g. payments as a result of a charter capital decrease, investing) are prohibited, except (inter alia):

• dividends payments (for the dividends accrued starting from 1 January 2024 within the EUR 1 million limit per month)

• import of goods and services (till 4 May 2024, services may have been imported subject to a list specified by the Cabinet of Ministers of Ukraine; however, starting from 4 May 2024, such a list was abolished)
• under the special limits of National Bank of Ukraine
• operations ensuring mobilisation needs in the sphere of national security, and
• operations of international financial institutions, settlements with such international financial institutions, or settlements under the transactions for purchasing goods using funds granted by international financial institutions, etc.

It is also possible to return the loans (and interest) provided by non-residents loans granted by non-residents:

• If such a loan is granted with the participation of an international financial organisation, a foreign export credit agency, or a foreign state (through lending, insurance, guarantee, surety, etc.).
• For loans granted after 20 June 2023 (under certain requirements, e.g. with an annual interest rate of up to 12%, the source of funds for the repayment [i.e. own entity’s foreign currency or purchased from the bank] depending on the duration of the loan, etc.).

Payment of the interest under the loans provided before 20 June 2023 (and without the participation of an international financial organisation, etc) is also possibly subject to a number of requirements (interest accrued starting from 1 May 2024 may be returned without limitations and overdue interest accrued for the period from 24 February 2022 till 1 May 2024 may be repaid within the EUR 1 million limit).

Choice of business entity

Generally, a limited liability company (LLC) is one of the most widely used vehicles for legal presence in Ukraine for both residents and non-residents. An LLC has a reasonably straightforward registration procedure and is generally easy to maintain during the company’s lifecycle. There is no statutory fee for the LLC’s registration. Activities of LLCs in Ukraine are mainly governed by the Law On Limited and Additional Liability Companies and other relevant legislation.

Another type of legal presence that foreign investors tend to choose is a representative office (RO) of a foreign company in Ukraine. The choice between the RO and the LLC depends on the nature of the planned business activities, regulatory framework and need to obtain any licenses/permits, plans regarding further development of business in Ukraine, taxation issues, and other factors. The RO does not have a status of a separate legal entity (it is rather a structural division of the parent company).

In certain cases, it might be relevant to establish a joint stock company (JSC). At the same time, in case of JSCs, various establishment and operational considerations should be taken into account. As opposed to LLCs and/or ROs, setting-up and operating a JSC is usually significantly more arduous and time-consuming.

Business and tax treatment of intellectual property (IP)

Ukraine ratified major international treaties in the IP field, including the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS Agreement), Paris Convention for the Protection of Industrial Property, Patent Cooperation Treaty, Berne Convention for the Protection of Literary and Artistic Works, and Rome Convention for the Protection of Performers, Producers of Phonograms and Broadcasting Organization. In 2014, Ukraine also ratified the Association Agreement between the European Union and Ukraine, which means that Ukraine must ensure an adequate level of effective protection and enforcement of IP rights.

The key legal aspects of IP protection in Ukraine to consider are as follows:

• Copyright in Ukraine protects the authors and their successors’ (i) moral (non-proprietary) rights, e.g. a right to require recognition of authorship by properly indicating the author’s name on a work, and (ii) economic (proprietary) rights. Copyright in Ukraine does not allow to transfer or assign the moral (non-proprietary) rights of the author to third parties.
• Trademark and patent protection is territorial and will cover Ukraine only. Patent protection is granted for a specific period of time, generally a maximum of 20 years (with the possibility of obtaining additional protection of rights to inventions for no more than 5 years). A registered trademark is only valid for 10 years, after which it can be renewed indefinitely on payment of additional fees. Ukraine applies a first-to-file system for registering IP rights, i.e. the right to the IP right lies with the first person to file an application for protection.
• The legal protection of industrial designs extends to (i) registered industrial designs, which can be protected for up to 25 years, and (ii) unregistered industrial designs, which are subject to limited legal protection for three years.

The new Law on Copyright and Related Rights No. 2811-IX came into force on 1 January 2023 and provides for the protection of digital assets. In particular, legal protection is provided to objects generated by artificial intelligence (AI) for 25 years. The protection of databases depends on their specifics: (i) original databases are protected by copyright for the life of the author and 70 years thereafter (as a rule), and (ii) non-original databases are protected by sui generis right for 15 years.

Tax treatment for IP transactions is subject to separate analysis on a case-by-case basis since the Ukrainian tax legislation provides different approaches depending on the nature of the concluded agreement. For instance, the transfer of IP may be treated as a sale of intangible assets, the provision of services, or a royalty agreement.

For tax purposes, the term ‘royalty’ does not include payments for the use of computer programs by the end user or for purchasing electronic copies of IP for final consumption.

Mergers and acquisitions (M&A) from a business and tax perspective

There are no specific laws regulating public takeovers or mergers in Ukraine.

The Ukrainian Tax Code provides some guidance on the tax regime for corporate mergers and acquisitions. CIT consequences of such transactions will depend on their accounting in accordance with the financial accounting rules. Some special rules apply to the transfer of the tax attributes within business restructurings.

In view of the martial law enacted in Ukraine on 24 February 2022, the Unified State Register of Legal Entities, Private Entrepreneurs, and Public Organizations of Ukraine (as well as other public registers) functions with certain limitations.

Legal regime of the temporarily occupied territories

The legal regime of the temporarily occupied territories is regulated by the Law of Ukraine 'On Ensuring Civil Rights and Freedoms, and the Legal Regime on the Temporarily Occupied Territory of Ukraine'. The Law foresee the following:

• Legal entities and private entrepreneurs have to change their tax address if they are located in occupied territory to another territory of Ukraine to carry out business activities.
• All agreements are void if one of their parties is registered in the temporarily occupied territories.
• Attracting deposits and/or granting loans (credits) denominated in the currency of the occupying state is prohibited on the territory of Ukraine.
• The transfer of funds between the temporarily occupied territories and another territory of Ukraine is prohibited.
• During the regime of temporary occupation, the norms of regulatory legislation in the temporarily occupied territories are not applied.
• All licences are invalid in the temporarily occupied territories.
• A certificate of Ukrainian origin may not be issued for goods produced in the temporarily occupied territories.
• Any activity of state lottery operators and gambling organizers is prohibited in the temporarily occupied territories.
• In the temporarily occupied territories, an individual is not legally liable for non-payment or delay in payment of wages to employees provided by the legislation of Ukraine if such non-payment (delay) arose as a result of temporary occupation (circumstances of force majeure).

As of now, Crimea and certain territories of Donetsk and Lugansk region are considered as temporarily occupied territories. 

New territories that are de facto occupied by the Russian Federation as a result of escalation of Russian Federation military invasion may be declared as Temporarily Occupied Territories pursuant to the procedure established by the Cabinet of Ministers of Ukraine. Currently, newly Temporarily Occupied Territories are established as such by the List of the territories on which hostilities are (were) conducted or temporarily occupied by the Russian Federation, approved by the Order of the Ministry of Reintegration of Temporarily Occupied Territories of Ukraine No 309 dated 22 December 2022.

United States (US) Foreign Account Tax Compliance Act (FATCA) and OECD Common Reporting Standard (CRS) rules compliance

The United States and Ukraine have reached an agreement in substance with regard to implementing the US FATCA under a Model 1 Intergovernmental Agreement (IGA), and Ukraine has consented to disclose this status. On 29 October 2019, Ukraine’s Parliament ratified the IGA.

Under the IGA between Ukraine and the United States, Ukrainian financial institutions are required to annually report, by 1 September of the year following the reporting year, to the State Tax Service of Ukraine information about financial accounts held in Ukraine by US taxpayers or foreign entities in which US taxpayers hold a substantial ownership interest. This information will be further transferred to the US Internal Revenue Service (IRS). Please note that due to the war in Ukraine, the deadline for 2021 reporting year has been postponed to 2023.

On 28 April 2023, Law of Ukraine No. 2970-IX came into force, which is intended to introduce into Ukrainian legislation the requirements of the OECD Common Reporting Standard, which is a prerequisite for Ukraine's accession to the international system of information exchange under the Multilateral Agreement of Competent Authorities on the Automatic Exchange of Information on Financial Accounts (CRS Multilateral Agreement).

Under CRS procedure, Ukrainian financial institutions will report to the Ukrainian State Tax Service (the supervisory authority) information on accounts of non-resident individuals and legal entities (including private funds, trusts, partnerships, and accounts of legal entities indirectly owned by individuals), which, in turn, will transmit the information to the tax authorities of the respective foreign countries.

The Law of Ukraine No. 2970-IX imposes the following basic requirements on Ukrainian financial institutions:

• Register with the controlling authority within 60 calendar days after establishing their status as a reporting financial institution.
• Apply due diligence measures to financial accounts to determine whether such accounts are subject to automatic exchange under the CRS, i.e. establish a procedure for identifying the tax residency of account holders and/or their controlling persons.
• Annually, by 1 July, submit information for the previous year on financial accounts held by tax residents of other jurisdictions that are parties of the CRS Multilateral Agreement.

Account holders, on the other hand, are required to:

• Provide reporting financial institutions with documents and/or information necessary to verify financial accounts and establish their accountability.
• Notify the reporting financial institutions of any change in their tax residence status within 30 calendar days.
• Provide additional explanations and information at the request of reporting financial institutions if the latter have a reasonable suspicion that the account is a reportable account.

It is expected that the automatic exchange of relevant information with other countries will take place as early as 2024.

As of 30 September 2024, the State Tax Service of Ukraine successfully carried out the first mutual international automatic exchange of CRS information.

As a result of the CRS information exchange, the State Tax Service of Ukraine:

• received information from over 50 foreign jurisdictions, and
• sent information to over 30 foreign jurisdictions.

On 19 August 2024, Ukraine expressed its intent to sign a Multilateral Convention to Facilitate the Implementation of the Pillar Two Subject-to-Tax Rule (Subject-to-Tax Rule, STTR MLI). The STTR is part of a package of rules aimed at ensuring a minimum level of taxation for multinational enterprises. However, no provisions into local legislation were introduced in this respect.