The National Bank of Ukraine (the "NBU") continues its piecemeal relaxation of the temporary exchange control measures introduced in 2014.

With effect from 11 May 2016, the NBU abandoned the requirement to convert 75% of foreign investments proceeds into Ukrainian hryvnia. According to the NBU's informational letter, the new exemption applies regardless of the way an investment is made – either through a foreign investor's Ukrainian investment account or through a direct payment to a Ukrainian resident. As a result, the change equally benefits foreign investors' Ukrainian counterparties who in many cases prefer to keep their cash funds in foreign currency and are no longer required to convert the proceeds from an investment transaction.

In general, the new exemption should simplify structuring of back-to-back transactions involving foreign investment element, such as certain cross-border debt-to-equity swaps and equity financing by a foreign parent of foreign currency expenditures of its local subsidiaries. At the same time, the effect of the exemption would remain limited until a more critical constraint remains in place – the prohibition on repatriation of investments in Ukrainian securities and equity (with limited exceptions), as well as dividends on such investments.

Earlier this month, the NBU extended the list of foreign currencies in which foreign investments may be made, including Chinese renminbi, Hungarian forint and Polish zloty.

With effect from 11 May 2016, the NBU also loosened certain other exchange control rules. In particular, the NBU lifted the ban on purchase of foreign currency under assigned/transferred import contracts to settle invoices for goods imported before 1 January 2015. In addition, the period for mandatory deposition of funds prior to a currency conversion transaction or cross-border payment has been shortened from four to three banking days.

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