On April, 3 this year the roundtable on “Use national currency for calculation with non-residence. Possibilities and restriction” was held. The organizer of the event was Legal Alliance Company with the participation of JSC “Pireus Bank MKB”. Within the roundtable participants discus the situations appeared for sellers and consumers, who decided to connect the payment on international business contract with national currency, and the value fixing in national currency (as adequation) with payment in foreign currency in future etc.
The event started with the speech of Senior Associate at Legal Alliance Company Vitiliy Savchuk, who firstly discussed issues on payment in national currency within international business contracts. “Such operation has to be approved by a creditor and this is less than possible if we talk about Europe or the USA, because subjects from these countries hardly agree to adopt payment in Ukrainian national currency. It may be easier to receive such consent in the states of CIS, but in this case payment operation has to be provided by banks, which have relevant correspondent account in Ukrainian banks and where national currency transferred may be converted in other appropriate currency for client.” – Mr. Savchuk noticed.
European non-residents often are interested in conclusion of a contract, where payment will be provided in national currency only in the case of presence of their associated company in the one of states of CIS, because it makes possible for Ukrainian debtor to provide payment in national currency by transfer on correspondent bank account of associated company. After this adopted money may be converted and transferred on the account of European controlling company in other currency.
As for the contracts with non-residents and fixed value in national currency and payment in foreign currency, Vitaliy Savchuk said: “In such cases correct determination of contract term is very important depending on certain operations and in terms of previous practice with contract partner. In general, such contracts should state that payment currency is foreign currency, but the price of good is fixed in national currency. Thus contract party applies to bank for buying of certain amount in national currency, which should be transferred. However, stated in application the maximum appropriate rate of euro, a distributor, a consumer or other party received goods or services and obliged to transfer currency abroad mitigates changing currency risks.” In other words, it is compensation of currency difference, although it may be provided in other way which is not connected with bank issues. For example, contract may include discounts, credit-notes, calculation of the product cost ect.
Alla Soroka, the head of client service department at JSC “Pireus Bank MKB”, said about changes in exchange regulation for legal entities. She noticed that the Counsel of the National bank of Ukraine has adopted the order “On peculiarities of certain currency operations”, dated 23.02.2015 N 124, which prohibits banks to buy foreign currency for clients by asset in national currency involved by these clients in the credit form. It does not depend on whether it is asset from credit line or overdraft. Even if money is transferred from the other bank account, a bank-creditor will demand submission of the letter proving that this asset is not credit.
In addition, this order prohibits banks to provide advance payments in foreign currency for good import according to international business contracts, which value is more than 500 000 US dollars or equivalent amount in other foreign currency at official rate set by the National bank of Ukraine at the date of contract. The order also establishes that advance payments on international business contracts with value more than 500 000 US dollars are performed only by settlement of account by letter of credit (form of clearing between enterprises and organizations for values and services on the basis of documents confirming reality of contract). If it’s impossible to define the entire contract cost, it will be defined on the basis of the payment amount provided within a month. Thus, if the payment amount for this period will exceed the equivalent of 500 000 US dollars, advance payments will be provided by settlement of account by letter of credit.
A resident has to use his saving in foreign currency and only then submit the application for buying currency for performance of commercial activity to a bank. However the entire amount of asset in foreign currency (on client’s accounts in authorized banks at the data of application for buying of foreign currency) is defined in terms of the outstanding at the client’s accounts at the begging of operational day (not included the amounts which will arrive in client’s account during day) and not included the amounts:
In his turn, Andriy Borovyi, the territory manager at JSC “Pireus Bank MKB”, said that settlements of account by letter of credit are set to restrict creation of fictitious contracts and ensure contract advance payments. As for functions of settlements of account by letter of credit, it is often performed with cash cover (the level of presence of cash security need for carrying out of all payments in time), and currency buying will be provided only for payment by a L/C and this amount will be set at the special cover account.
To sum, Mr. Savchuk noticed that it is possible to avoid difficulties with calculations for international business contract in national currency and the requirements for contract are the same as for payment in foreign currency. It’s important to pay attention on the fact that transfer national currency abroad in favor of non-resident is possible providing several requirements which not always can be performed due to certain circumstances. Legal Alliance Company and Pireus Bank elaborated efficient payment model and are ready to consulate all interested persons.
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