Foreign bank account and currency regulation of Ukraine (legal advice)

Can Ukrainians (sole proprietors) have bank accounts in foreign banks?

1) Let's consider the situation - a Ukrainian sole proprietor on the third group of the single tax (ST), providing software development services, receives payment under a contract with a foreign partner.

2) Based on subparagraph 1 of paragraph 292.1 of the Tax Code of Ukraine, a sole proprietor who pays a single tax must reflect income under the single tax for the period in which the payment is received. For these purposes, it does not matter whether the funds are received into the sole proprietor’s account in a Ukrainian bank or into a foreign account, it is only important that it is the official account of our sole proprietor.

3) The date of accrual of the unified tax income will be the date of receipt of funds from the non-resident to the sole proprietor's account. This revenue should in any case be assessed as entrepreneurial income. After all, this follows from the content of the contract with the non-resident.

4) The income of a single taxpayer, expressed in foreign currency, is converted into hryvnia at the official hryvnia to foreign currency exchange rate set by the NBU on the date of receipt of income (clause 292.5 of the Tax Code). The currency is converted at the rate on the date of crediting the funds to the sole proprietor's account. The amount of the single tax will be calculated from this amount, converted into hryvnia (by multiplying it by 5%).

5) About sole proprietorship accounts in foreign banks.
At this stage of implementation of the provisions of the Law, the NBU and the State Fiscal Service have not established significant restrictions on the use of accounts opened in foreign banks.

Starting from February 7, 2019, the Law of Ukraine “On Currency and Currency Transactions” came into force.

The National Bank has provided its recommendations to banks on issues of opening foreign currency accounts for clients, guided by the following principles and guarantees:

Article 2. Principles of currency regulation:
– freedom to carry out foreign exchange transactions provides for:
the right of individuals and legal entities – residents to enter into agreements with residents and (or) non-residents and to fulfill obligations related to these agreements in national or foreign currency, including opening accounts in financial institutions of other countries;

Article 4. Guarantees of freedom of foreign exchange transactions:
– residents, taking into account the restrictions determined by this Law and other laws of Ukraine, have the right to open accounts in foreign financial institutions and carry out foreign exchange transactions through such accounts.

An exception is the NBU restriction on the limits for withdrawing funds to accounts in foreign banks (e-limit), i.e. a legal entity will not be able to withdraw more than 2 million euros from Ukraine within a year.

Additional taxation rules for funds received into accounts opened in foreign banks were not adopted by the Law, i.e. accounting and taxation will be carried out in accordance with the existing norms of Ukrainian and international law.

Crediting export proceeds to an individual entrepreneur's foreign account is now entirely acceptable. The only condition is that this proceeds are returned to Ukraine within the deadline set by the NBU (clause 2, clause 9 of Instruction No. 7). Let us recall that from February 7, 2019 (the date of entry into force of the Currency Law3 and Instruction No. 7), banking supervision over the timely return of foreign currency proceeds from the export of any type of services (and works) was resumed. However, as of May 16, in relation to services and works (except for insurance and transport), currency supervision was abolished (!!!) (by the Resolution of the NBU Board dated May 14, 2019, No. 67).

Now, in the absence of currency supervision, a sole proprietor can leave not only a portion of the proceeds not exceeding the so-called insignificant amount (UAH 150,000) on his foreign account without consequences, but also the entire amount. And for this, he will not face any penalties for a delay of 365 days or any other sanctions. Although Clause 23 of Regulation No. 55 speaks of the return of proceeds to an account in Ukraine, there is no deadline for such a return for contracts not subject to currency supervision.

Software development services have again become “unsupervised” since this date, and the 365-day maximum period for return of revenue under such contracts does not apply. Therefore, it is necessary to carefully look at the subject of the contract with a non-resident and the wording in other documents related to this contract.

6) As for the issue of transferring revenue from an account opened in a bank abroad to a Ukrainian account of an ordinary individual, there is a risk factor, such as the danger of general taxes being imposed on revenue received in Ukraine to a non-entrepreneurial account.

Such a transfer of revenue may give tax authorities a reason to regard this income as not entrepreneurial and try to tax it with personal income tax (18%) and military tax (1.5%).

In addition, we note that the bank may consider such transfer of proceeds a violation of paragraph 14 of Instruction No. 4926, which prohibits the use of current accounts of individuals opened for their own needs to conduct transactions related to the implementation of entrepreneurial (and independent professional) activities.

Let us recall that Article 14 of the Law on Currency provides for fines (up to 100% of the transaction amount) only for legal entities for violation of the requirements of currency legislation (except for violations of payment terms punishable by foreign economic activity penalties according to Article 13 of this Law). However, administrative fines are provided for individuals and officials of authorized institutions, officials of legal entities. Article 1621 of the Code of Administrative Offenses of Ukraine establishes an administrative fine of UAH 17,000 to UAH 51,000 for individual entrepreneurs violating the procedure for carrying out currency transactions. However, we note that here, if the norms are violated, then they are not the norms of currency legislation, but general banking regulations, therefore the said administrative fine should not be applied. No other specific sanctions are provided for this.

7) Optional sale. It is no longer possible to consider such a transaction as an individual entrepreneur's evasion of the mandatory sale of part of the foreign currency, since it was canceled on June 20, 2019 (by the Resolution of the NBU Board dated June 18, 2019, No. 78)7. Therefore, in this part, there is no violation of the procedure for foreign exchange transactions and there should be no fine for non-return (or return in an incomplete amount) of foreign currency proceeds to Ukraine or its return to a non-entrepreneurial account.

Legal advice
Pavlenko Alexey, tax expert

It turns out that an individual can also open accounts in Western banks. But without personal presence it is long and expensive.

It is better to use payment systems such as Payoneer.
www.payoneer.com/ru/



They do everything quickly and send a multi-currency card with which you can withdraw money from an ATM in the currency of the country you are in.