Borrowing money outside Ukraine may be very profitable, because average interest rates of foreign banks are much lower (3-4 times) than of Ukrainian banks. In case you get loan or credit from foreign country, you are required to register your credit/loan contract by the National Bank of Ukraine. According to the requirements of the applicable Ukrainian legislation, loan agreements, entered into by foreign lenders and Ukrainian borrowers, are subject to compulsory registration with the National Bank of Ukraine. As a matter of practice, the procedure of such registration generally takes of up to 5 (five) business days from the date of receipt of the full set of required documents by the National Bank of Ukraine.
Special regard, however, should be given to the terms and conditions of such loan agreements, as to be registered by the National Bank of Ukraine they must fully comply with the regulations issued by the latter. In particular, the mentioned NBU regulations contain rather strict requirements in respect of the limitation of interest (including all fees, charges and expenses) to be paid by Ukrainian borrowers to foreign lenders under respective loan agreements (so called “interest caps”).
The mentioned loan agreements have to be registered prior to the loan receipt by the borrowers, and their entry into force conditional upon NBU registration. In case of failing the NBU registration, special penalties of up to 1 % of the amount of the loan may be imposed on the borrowers by the National Bank of Ukraine.
Payments made by a local debtor to a foreign lender are taxed as “interest”. A local debtor paying interest to the foreign lender shall be obliged to deduct and pay a withholding tax at the rate of 15 % of the amounts of such interest and at their cost, unless otherwise provided by provisions of effective international agreements of Ukraine. Please note that Ukraine is a party to a number bilateral double taxation avoidance agreements (more than 50). Generally, based on the provisions of the respective agreement, interest arising in Ukraine and paid to the foreign lender may be taxed in Ukraine, but the tax so charged shall not exceed a definite rate (less than 15 %) calculated on the basis of the gross amount of the interest. Please note that some agreements provide for full exemption from the Ukrainian withholding tax. Usually, to apply the relevant provisions of a certain double taxation treaty, a local debtor making payments to the foreign lender shall certify the lender’s tax resident status in the foreign state to its Ukrainian servicing bank. No other local taxes, except for the aforesaid withholding tax, are imposed on a foreign lender in respect of a loan agreement and/or its lending activity in general, including security agreements.