How to return money on loans from Ukrainian companies to foreign companies or citizens?

Since the outbreak of the war, many currency transactions have been prohibited in Ukraine. As of February 2023, this ban is still in effect, with only a limited number of critical imports being allowed, as approved by Resolution 153 of the Cabinet of Ministers of Ukraine.

This article will address the concerns of Ukrainian companies that have received loans from foreign companies prior to the war and are now wondering how to proceed. We will explore the options for returning money on loans from non-residents, foreign companies, or individuals under these conditions.

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Is it possible to repay a loan (principal and interest) to a non-resident outside of Ukraine? 

Repaying the principal amount of the loan is currently prohibited. 

As for the repayment of interest, according to the Resolution of the NBU Board dated February 24, 2022, No. 18 "On the Operation of the Banking System during the Period of Martial Law," restrictions on the repayment of interest abroad were introduced last year. Specifically, paragraph 14 of this Resolution states that the operation to transfer funds for the purpose of paying interest on a loan/credit received from a non-resident is possible only if the following conditions are simultaneously met: 

• If the due date for the payment of interest falls between February 24, 2022, and August 10, 2022 (inclusive);
• If the Ukrainian borrowing company has no overdue debt under the contract as of February 24, 2022;
• The total amount of money that can be transferred under one credit agreement cannot exceed 1/5 of the amount of interest due for the period from February 24, 2022, to August 10, 2022;
• The money used to purchase currency for repayment of the loan to the non-resident was not obtained as a loan from other resident lenders;
• The Ukrainian borrower has no outstanding tax liabilities, which must be confirmed by a certificate from the tax authorities;
• The Ukrainian company continued to carry out economic activities in Ukraine after February 23, 2022 (as a result of which salaries were paid, taxes and social contributions were paid), which should be confirmed by relevant explanations and statements of the Ukrainian company's accounts. 

It's important to note that banks are prohibited from accepting documents from Ukrainian legal entities and making changes to accounting records if the documents are related to rescheduling payment deadlines or amounts for interest payments between February 24th, 2022 and August 10th, 2022, for any other period. 

This means that in order for a bank to release interest payments from Ukraine, they must meet a whole range of requirements, which can be quite challenging to comply with. 

Let's consider a simple scenario: if a loan agreement expired before the war (February 24th, 2022) and needs to be extended, the mechanism for paying interest under that agreement must be analyzed first. 

This is because if the final date for interest payments is postponed between February 24th, 2022 and August 10th, 2022 during the extension process, the bank will not accept the loan extension agreement. 

Furthermore, is it even worthwhile to fight for interest payments if the loan cannot be repaid? This is especially true for companies that are headed for liquidation and want to eliminate creditor and debtor obligations and return money to non-residents. It's unlikely. 

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What to do with a loan you can't repay to a foreign company or non-resident? 

Currently, there is no ban from the National Bank of Ukraine or other regulatory bodies on accepting documents from residents for debt offsetting under loan agreements and making additional contributions to the capital of a resident, provided that the basic debt offsetting requirements are met. Such an increase can already be reflected in the company register (EDRPOU). 

Therefore, the simplest way to get rid of a "hanging" loan from a non-resident is to restructure it into capital (so that you can later freely dispose of the money). 

Note that only the principal loan amount can be restructured into capital (not the interest). 

It's important to note that when restructuring a loan into capital, it's necessary to pay a tax on repatriation for accrued (but not paid) interest.

The loan restructuring into capital includes: 

• Filing a statement from the participant on making an additional contribution;
• Preparing documents to increase the authorized capital through the participant's additional contribution;
• Conducting a transaction to pay the non-resident lender's additional contribution by offsetting the corresponding monetary claims against the Ukrainian legal entity, etc. 

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What should you do after borrowed funds have turned into capital? 

Once the borrowed funds have become capital, you are free to use them. To withdraw them abroad (to a non-resident) in foreign currency, you need to refer to Resolution 153 of the Cabinet of Ministers of Ukraine and choose the operation that will best fit your case (taking into account the type of activity of the Ukrainian company and the non-resident). 

If you are facing such a problem, we can help you solve it. Our services include: 

• Analysis of the existing loan agreement, clarification of the amount owed to the non-resident (principal and interest);
• Resolving the issue of the possibility of extending the agreement, if necessary (this is required in order to restructure the loan into capital in the future and to withdraw it from the servicing bank);
• Assistance in preparing all necessary documents for the restructuring of the loan into capital (power of attorney, extract, decision on offsetting counterclaims, etc.);
• Accompanying the payment of interest (if they meet the NBU conditions);
• Preparation of a package of documents for the restructuring of the loan into capital (submitting an application from the participant for an additional contribution; preparing documents for increasing the charter capital by the participant's additional contribution; formalizing the operation of the creditor paying their additional contribution by offsetting counterclaims against the Ukrainian legal entity);
• Coordination of the package of documents for the restructuring of the loan into capital with a notary and a bank;
• Full support of all registration actions with a notary/state registrar (registration of the increase of the charter capital, registration of a new participant, etc.);
• Accompanying the removal of the loan agreement from the bank's records;
• Drafting an agreement on the withdrawal of funds to the non-resident. 

You can find the cost of tax optimization packages here.

Contact our specialists for an initial analysis of your situation and the creation of a personalized package of services. We will find the exact solution that is right for you.