Sanctions and Restrictions for Non-Resident Companies in Ukraine

Ukraine has the right to impose sanctions to protect its national interests, security, sovereignty and territorial integrity. Sanctions may be imposed by Ukraine against a foreign state, a foreign legal entity, a legal entity controlled by a foreign legal entity or a non-resident individual, foreigners, stateless persons and entities engaged in terrorist activities.

Influence of sanctions on non-residents:

The type of restrictions, established by the relevant sanction and imposed by the competent authority, may include, in particular, blocking of assets, restriction on trading, suspension of economic and financial obligations, prohibition of participation in privatization, public procurement, etc.
Sanctioned individuals may not purchase land in Ukraine, which may limit their ability to develop their business.
Sanctioned non-residents may not participate in the privatization of state property, which may affect their investment plans.
Sanctions may include restrictions on financial transactions, making it difficult to conduct business and make payments.

In particular, on February 22, 2023, the President of Ukraine implemented the decision of the NSDC on sectoral sanctions against all financial institutions of the russian federation.

The sanctions cover hundreds of russian banks and tens of thousands of financial institutions, including banks, non-bank credit organizations, operators of payment systems, insurance companies and other financial institutions registered in russia. They provide for the termination of relations with russian financial institutions, suspension of financial obligations to them and a ban on servicing payment instruments issued by these institutions.

The State Register of Sanctions provides free public access to up-to-date information on legal entities and individuals subjected to sanctions. This resource can be used to verify sanctioned entities. Currently, the Ukrainian Sanctions Register contains more than 10 thousand sanctioned individuals and more than 7 thousand sanctioned legal entities.

Key aspects and restrictions of doing business by non-residents in Ukraine:

Ukrainian legislation provides for sanctions against non-resident companies operating in the aggressor country or owned by the citizens of countries against which Ukraine has imposed economic sanctions. Such actions may include the freezing of assets, restrictions on banking transactions and a ban on entering into new contracts.
Non-resident companies must comply with the legal requirements for transparency of ownership structure and disclosure of ultimate beneficial owners. Companies with ultimate beneficial owners from countries subject to sanctions may encounter difficulties in maintaining or registering their activities in Ukraine.
There are restrictions on activities in certain industries, including the restrictions on non-resident companies from conducting business in certain sectors of the economy considered to be of strategic importance to the state.
Non-resident companies may be subject to additional due diligence if their activities could potentially threaten Ukraine’s national security.

Financial system of Ukraine during the war, sanction restrictions

On March 8, 2022, the National Bank of Ukraine once again updated its regulatory framework regarding the operation of the financial system during wartime by adopting Resolution No. 44 “On Amendments to Resolution No. 18 of the Board of the National Bank of Ukraine dated February 24, 2022”. The new resolution imposes additional restrictions on entities associated with russia and belarus, which are recognized under Ukrainian law as the states engaged in armed aggression against Ukraine.

Resolution No. 44 provides for restrictions on:

residents of russia/belarus
legal entities (except for banks), whose ultimate beneficial owners are residents of russia/Belarus.

Ukrainian financial institutions are prohibited from conducting expenditure transactions on the accounts of the above-mentioned entities, except for the expenses to support the Armed Forces of Ukraine, payments to government agencies, social benefits, payroll, utility bills, taxes, levies and other mandatory payments.

In addition, Ukrainian financial institutions are prohibited (with certain exceptions) from conducting foreign exchange transactions:

using russian or belarusian rubles
with the participation of legal entities or individuals located (registered/permanently residing) in russia or belarus
to fulfill obligations to legal entities or individuals located (registered/permanently residing) in russia or belarus.

The purpose of these restrictions is to prevent the withdrawal of funds by the beneficiaries of such companies and their use in russia. In practice, this can lead to the blocking of funds of such companies.