Starting August 14, banks are tightening oversight of new and “dormant” individual entrepreneurs: transfer limits have become stricter

Starting Friday, August 14, a new stage of bank monitoring of transactions by newly established and long-inactive individual entrepreneurs and legal entities came into effect in Ukraine. The enhanced monitoring will apply to new and "dormant" individual entrepreneurs, UNN reports.

Details

On May 14, the National Association of Banks of Ukraine signed an updated version of the Memorandum on Ensuring Transparency in the Operation of the Payment Services Market. The updated version of the Memorandum was developed by banks as part of the work of NABU’s specialized committee.

In particular, the rules for bank transfers by individual entrepreneurs and businesses are changing. In accordance with the memorandum, payment service providers will apply a risk-based approach to:

for newly established and inactive individual entrepreneurs (up to 6 months) with an annual income corresponding to Taxation Group 1, an in-depth examination of the purpose of opening the account and its business activity will be introduced when establishing business relations, along with enhanced monitoring of transactions on the account, taking into account the amount of the average monthly income for Taxation Group 1;

for individual entrepreneurs using the general taxation system or the simplified taxation system of Groups 2–3, the client will be examined in accordance with the provider’s own risk-based approach.

To ensure transparency in the operation of the payment services market and minimize the size of the shadow sector of the economy, payment service providers agreed to introduce restrictions (limits) on transactions for clients with an elevated level of risk, in particular, newly established and inactive individual entrepreneurs:

• for individual entrepreneur clients in Taxation Group 1, a limit of up to UAH 600,000 per month will be established;

• for individual entrepreneur clients in Taxation Groups 2 and 3, a limit of up to UAH 3 million per month will be established.

Six months after signing, that is, on November 14:

• for individual entrepreneur clients in Taxation Group 1, a limit of up to UAH 400,000 per month will be established;

• for individual entrepreneur clients in Taxation Groups 2 and 3, a limit of up to UAH 1 million per month will be established.

Exceeding the established limit does not in itself constitute a violation of the law. However, the bank will not necessarily process such a payment automatically.

If an entrepreneur wants to make a transfer for a larger amount, the bank may conduct additional financial monitoring and request confirmation of the origin of the funds and the genuine economic substance of the transaction.

The following may be required for this purpose, in particular:

• Contracts;

• Certificates of completed work;

• Waybills;

• Other documents explaining the purpose of the payment and the origin of the money.

For all other individual entrepreneur clients or individuals engaged in independent professional activities, the client’s business activity in their accounts will be monitored in accordance with the provider’s own risk-based approach.

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The specified restrictions on transactions do not apply to clients who conduct their activities within the legal framework, continue to support Ukraine’s economy by conducting transparent activities in various sectors of the economy, pay taxes on time and in full, officially employ staff, etc. If the established limit does not meet the needs of the business, the client may contact the payment service provider during servicing with a request to increase the established limit, providing mandatory documentary confirmation of the need for such an increase (seasonality, the need to make capital expenditures, etc.) and the ability to conduct transactions in the volumes stated by the client

Banks will continue to conduct routine financial monitoring of clients and their payment transactions. However, banks’ algorithms will become significantly more sensitive. The bank will immediately request explanations and documents if it records the following suspicious transactions:

• a sudden doubling (or greater increase) in the volume of transfers from individuals that does not correspond to the specifics of the business;

• the individual entrepreneur’s account balance is always zero at the end and beginning of the day;

• a sharp increase in the number of small payments from different counterparties;

• the splitting of transfers (especially in round amounts) to one counterparty over the course of a month.

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Particular attention is paid to networks where several individual entrepreneurs or legal entities are de facto one business but are registered separately to minimize taxes.

Such affiliation is determined by 10 criteria:

• a shared legal address of the company and the individual entrepreneur;

• the same point of sale or website for selling goods/services;

• shared owners, directors, accountants, or representatives acting under a power of attorney;

• the individual entrepreneur has no resources of their own to conduct business (no staff, warehouses, or equipment);

• the lion’s share of the money is transferred to the individual entrepreneur’s account by one legal entity from the group;

• payment from a legal entity to the individual entrepreneur for services whose value is difficult to assess (marketing, advertising, consulting);

• the provision of financial assistance to the individual entrepreneur by a legal entity;

• abnormally high turnover for a newly registered individual entrepreneur;

• the entrepreneur exhausts almost the entire annual income limit of their single-tax group within 2–3 months;

• the use of a single POS terminal by several different business entities.

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