July 17, 2020 · 4 min read
Recently, the National Bank announced good news. By Resolution No. 78 dated 18.06.2019, the National Bank excluded Section III from the Regulation on protective measures and the procedure for conducting certain foreign currency operations, which established the necessity of mandatory sale in most cases of foreign currency receipts. According to the NBU, the abolition of mandatory sale was aimed at simplifying business conduct in Ukraine. Therefore, subjects of foreign economic activity now have the opportunity to independently decide on the direction of using foreign currency proceeds from their operations.
However, we would like to draw the attention of enterprises to the fact that the adopted innovations actually eliminate yet another restriction related to settlements in foreign economic activity. This refers to enterprises gaining the ability to repay debts for export-import operations by offsetting mutual homogeneous claims.
Thus, according to sub-paragraph 5 of paragraph 10 of Section III of the Instruction on the procedure for currency supervision by banks over residents' compliance with maximum settlement periods for export and import operations, approved by NBU Board Resolution No. 7 dated 02.01.2019 (Instruction No. 7), the presence of documents on the termination of obligations for the aforementioned operations by offsetting mutual homogeneous claims is one of the grounds for banks to complete their currency supervision over residents' compliance with maximum settlement periods. In this case, banks have the right to complete currency supervision if enterprises comply with the totality of the following conditions:
- the claims arise from mutual obligations of the counterparties under these operations;
- the claims are homogeneous; the performance deadline for the counterclaims has arrived, is not set, or is determined by the moment of claim presentation;
- there was no dispute between the parties regarding the nature, content, and terms of performance of obligations.
- for operations in foreign currency of the first group of the Classifier of Foreign Currencies or for operations in Russian rubles – regardless of the transaction amount;
- for operations in other currencies – if the total amount of terminated obligations within one export contract exceeds the equivalent of 500,000 euros at the official NBU exchange rate on the date of such termination of obligations.
Thus, due to the existence of the mandatory sale requirement for foreign currency proceeds, offsetting debts was practically impossible in most cases, as the use of foreign currencies from the first group of the Classifier is most common for goods export.
In our opinion, the abolition of mandatory currency sale provides enterprises with the opportunity to repay foreign economic debt through mutual offsetting, provided that the totality of other requirements defined in paragraphs two to four of sub-paragraph 5 of Instruction No. 7 are met. However, for greater certainty, it is better to await official or individual clarifications from the SFS and NBU.
Finally, we would like to add that the abolition of mandatory sale is also positive news for many charitable and other public organizations that receive grants and other targeted funding from foreign donors. The existence of this restriction on the free disposal of received foreign currency funds created many inconveniences for grant recipients. Such organizations were forced to mandatorily sell proceeds from foreign donors and spend the funds obtained from the sale on financing project activities over a long period (several months or a year). In conditions of a rising exchange rate, this led to significant losses. Now, such organizations will be able to independently decide on the period and volume of currency sale, taking into account their current needs.
Leading Auditor
Khitun Svitlana
