I nsights about the investment climate in Belarus

INSIGHTS ABOUT THE INVESTMENT CLIMATE IN BELARUS

Olga PolozovaCertified Lawyer

31 January 2012

OVERVIEW OF BELARUSIAN INVESTMENT CLIMATE

I. Investment system(i) Legal setup options(ii) Commercial organizations with foreign investments (COFI)(iii) Free economic zones(iv) Small towns (v) Hi-Tech park(vi) Investment agreements

II. Taxation(i) Company level (Key taxes)

a) Corporate taxesb) VAT and Real Estate Taxc) Simplified taxation system

(ii) Shareholder level(iii) Tax burden

III. Repatriation of profit

IV. Currency regulation

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LEGAL SETUP OPTIONSForm of Legal Entity Limited Liability Company Closed Joint Stock

CompanyOpen Joint Stock

Company Private Unitary Enterprise

Number of shareholders/members/ founders (S/M/F)

2 - 50 2 - 50 2 - unlimited 1

Amount of share capital(in cash/in kind)

any Min. 100 basic units (280 Euro)

Min. 400 basic units (1100 Euro)

any

Ownership of the assets Company Company Company Founder

Liability of S/M/F Limited Limited Limited LimitedAlteration of S/M/F composition

•Voluntary withdrawal•Transfer of share (sale, gift, exchange)•Expulsion by court decision

Transfer of share (sale, gift, exchange)

Transfer of share (sale, gift, exchange)

•Sale of enterprise as a property complex (requires registration)•Reorganization

Management bodies •General meeting of members •Board of directors (Supervisory Board) – optional•Board of Managers or (General) Director •Managing company - optional

•General meeting of shareholders •Board of directors (Supervisory Board) – optional•Board of Managers or (General) Director•Managing company - optional

•General meeting of shareholders•Board of directors (Supervisory Board) – optional•Board of Managers or (General) Director•Managing company - optional

• Founder • Director • Managing company -

optional

Other Most popular and flexible type of company structure. Capital is divided into “equity units”.Not subject to securities legislation.

Capital is divided into shares. Subject to securities legislation.

Not flexible, difficult to sell

Issue of shares is limited to the founders or pre-determined groups. No obligation to publish accounts

Shares can be openly traded. Obligation to publish accounts

Representative OfficeTax law concept

Annual fee of 65 basic units (180 Euro)

Simple Permanent Only 3-7 employees;a precondition of obtaining a license by a foreign company;a way to avoid obligatory currency sale and pass over the prepayment prohibition

Only representative functions May carry out economic activity, but subject to taxation as a company-resident

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COMMERCIAL ORGANIZATIONS WITH FOREIGN INVESTMENTS (COFIs)

Investment Code of the Republic of Belarus of 22.06.2001

2006: unification of the statuses of foreign and national investors.

COFI: foreign investments in share capital at least 20 000 US dollars.

The share capital specified in the charter documents has to be formed (in cash / in kind):

- 50% within the 1st year from the registration date by each of the shareholders contributing not less than 50% of their share; - completely - within 2 years from the registration date (Exception: OJSC).

NB: Benefits apply only if: - situated in a free economic zone (FEZ), small town, rural area, Hi-Tech Park and / or- an investment agreement with the RB is concluded.

BUT: No permission is required for employing a shareholder or other non-resident as a Director.

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FREE ECONOMIC ZONES (FEZ)

6 FEZ:

FEZ Brest (1996);

FEZ Vitebsk (1999);

FEZ Gomel-Raton (1998);

FEZ Grodnoinvest (2002);

FEZ Minsk (1998);

FEZ Mogilev (2002).

“On Free Economic Zones” - Law No. 213-3 of 07.12.1998;

“On Some Issues of FEZ Activity on the Territory of the Republic of Belarus” - Edict of the President No. 262 of 09.06. 2005

A minimum investment of EURO 1 million is required to become a FEZ resident, but being one entails various benefits (approx. 40% of tax burden reduction), e.g.:

Tax-free profits for all goods and services manufactured within FEZ for 5 years, afterwards a 50% -discount applies;

VAT at 10% (regular rate is 20%) on import substitution goods manufactured within FEZ;

No taxes on real estate owned or leased in FEZ;

No obligation of compulsory currency sale;

A guarantee that legislation governing FEZ-residents will not change during 7 years after registration as a FEZ -resident.

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SMALL TOWNS

“On Promotion of Manufacturing and Realization of Goods (Works, Services)” - Decree of the President No.1 of 28.01.2008

Carrying out business activity in towns with population less than 50 000 (90% of Belarus towns)

Benefits:

exemption from profit tax in respect of realization of goods (works, services) of own production - 7 years since incorporation;

exemption from customs duties and VAT levied on technological equipment imported as a contribution to the share capital;

no obligation of compulsory currency sale - 5 years since incorporation;

a guarantee that legislation will not change - 7 years since incorporation.

NB: In case of liquidation the commercial organisation is obliged to pay all the taxes it was exempt from for the calendar quarter when the decision on liquidation was adopted and for 12 preceding months.

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HI-TECH PARK (HTP)

“On the Park of High Technologies” - Decree of the President of 22.09.2005 No. 12

Created in 2005 (Currently 94 companies are registered as the Park’s residents. HTP export share in the total production volume is 80%).

Preferences and benefits to: - resident companies of the HTP and - companies implementing business projects registered by the HTP:

exemption from profit tax; value added tax on sales turnover;

9% tax on income of employees without including it into the total annual income;

dividends tax is 5%, unless a smaller rate is established under a double taxation treaty;

exemption from off-shore duty upon paying dividends;

exemption from land tax throughout the duration of construction (3 years at most) and from real estate tax;

exemption from customs duties and VAT on goods imported for IT business purposes.

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INVESTMENT AGREEMENT

“On the Creation of Additional Conditions for Investment Activity in the Republic of Belarus” - the President’s Decree No 10 of 6 August 2009 ;“On Measures of Implementation of Decree of the President of the Republic of Belarus No. 4 of 06.06.2011”- Resolution of the Council of Ministers of 06.87.2011 No. 1058

Benefits:

construction of objects stipulated by the investment project simultaneously with the development, expert examination and approval of the design documentation;

allocation of a land plot (on a leasehold basis) for the construction of objects without an auction;

exemption from payment for the right to conclude a land lease contract; land tax or lease payments for a period of construction + 1 calendar year after the year of completion of construction;

exemption from taxes arising in connection with free transfer of state property to an investor with the aim of project implementation;

exemption from import customs duties and VAT on imports of equipment for project implementation + deduction of the full amount of VAT paid for the acquisition of goods (works/services) and property rights used for designing and construction under the investment project;

right to use design documentation developed abroad for the purposes of construction and selecting without tenders of (sub)contactors and (sub)designers for the construction and renovation of the object;

discharge from the obligation to compensate for the loss of agricultural and/or forestry production caused by the seizure of land plots;

exemption from payment of the stamp duty for the issue of permits for employment in the Republic of Belarus to foreign citizens engaged by the investor for the implementation of the investment project.

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TAXATION: COMPANY LEVEL

CORPORATE TAXES

Tax Code of the Republic of Belarus of 29.12.2009

All businesses which are tax residents in Belarus are liable to corporate profit tax at 18%.

Foreign tax residents are subject to withholding tax on income from the RB: works, services, transfer of property – 15% (Excl., e.g. transportation services – 6%).

The rule is without prejudice to the double-taxation agreements, which may set different tax rates.

NB: Withholding tax applies if commercial activity is NOT exercised through a permanent representative office (RO)!

If a RO starts to carry out any commercial activity, it is automatically deemed to be a permanent RO, and its profit becomes taxable in the Republic of Belarus. Usually, the criteria for qualifying a representative office as a permanent one are set forth in Double-Taxation Treaties.

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TAXATION: COMPANY LEVEL

VALUE-ADDED TAX (VAT)

The tax is levied on the turnover of goods (works/services) and personal property rights in the territory of the Republic of Belarus, and goods imported to the customs territory of the Republic of Belarus.

Standard rate - 20% (in FEZ – 10%);

Export of goods – 0%;

Goods and services that are subject to governmental pricing policies (e.g. goods for kids) – 10%.

REAL ESTATE TAX

The tax is charged on depreciated cost of buildings/structures (including incomplete construction) that are in the ownership or possession (sometimes by virtue of lease) of the commercial organization. The tax rate is:

1% (* index depending on location), per year, or

2% (* index depending on location), per year, in relation to some objects of above-norm uncompleted construction provided that the construction of new objects was started.

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TAXATION: COMPANY LEVELSIMPLIFIED TAXATION SYSTEM (STS)

STS Tax replaces virtually all taxes and duties (except for customs duty, social security contributions, stamp duty, offshore duty, tax on dividends, and profit tax on income from disposal of securities ).

STS TAX RATES:

5% on gross revenue + VAT - under 100 employees and annual gross revenue no more than BYR 12 billion (approx. EUR 1 000 000);

7% on gross revenue and exempt from VAT - under 15 employees and annual gross revenue no more than BYR 3.4 billion (approx. EUR 315,000);

15% on gross income, but exempt from VAT - under 15 employees and annual gross revenue no more than BYR 3.4 billion (approx. EUR 315,000) and businesses engaged in retail and catering;

2% - for exporters.

For companies registered in small towns and rural areas included into the list approved by the Government :

5% on gross revenue and exempt from VAT;

3% on gross revenue + VAT.

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TAXATION: SHAREHOLDERS LEVEL

Dividends (%) Interest (%)

Lithuania 10 10 Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income,1996

Agreement on the promotion and mutual protection of investments, 2004

National regime or most favoured nation regime

Denmark 15 0 Convention for the avoidance of double taxation of income and property,1987



Finland 15 (5) 5 (0) Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income,2007



Sweden 10 (5) 5 (0) Convention for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income, 1994



Norway 20 0 Convention for the avoidance of double taxation of income and property,1980

Under the Tax Code of the Republic of Belarus, 12% tax on dividends received by legal persons and individuals applies. The rule is without prejudice to the double-taxation treaties, which may set forth more favorable tax rates and regime.

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TAX BURDEN

1 – level Belarusian Structure

Shareholder Non-resident

Real Estate Retail

18% 18%

*% *%

Shareholder Non-resident

Managing company

Real Estate

Retail

18%

18%12%12%

*%

18% - profit tax;12% - BY dividends tax;*% - dividend tax under Tax Treaty

18%

2 – level Belarusian Structure

18% - profit tax;*% - dividends tax under Tax Treaty

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REPATRIATION OF PROFIT

Right to freely dispose of received profit by means of:

re-investing in Belarus;

repatriation of profit from activity and/or gains received from selling of property upon termination of activity outside of the country upon payment of necessary taxes.

No special permit of the National Bank for profit repatriation is required.

No restrictions on currency purchase for the purpose of payment of dividends to a non-resident.

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CURRENCY REGULATION

BY corporate tax-resident is obliged to maintain a bank account in a bank which has a license of the National Bank of the Republic of Belarus (authorized bank).

General rule - all contracts, transactions and settlements between residents are in BYR. Settlements between residents in other currencies are allowed in a strictly defined number of cases.

Non-Cash settlements between residents and non-residents can be conducted both in foreign currency and in BYR.

Purchase of Currency

Residents of the Republic of Belarus have to buy foreign currency at the Interbank Currency Exchange (ICE) and at over-the-counter market (under 1000 cu).

Compulsory sale of currency

RESIDENT: compulsory sale of 30% of foreign currency is pursued not later than within 7 working days from the date of receipt of relevant funds are received (contractual revenue). Types of foreign currencies subject to compulsory sale are established by the National Bank of the Republic of Belarus.

NB: foreign currency is not subject to compulsory sale if it is:

received as a contribution to charter capitals of organizations with foreign investments;

received as a loan/credit;

received by FEZ residents;

received by organizations in small towns within 5 years since their incorporation.

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Vilnius Office Belarus HelpdeskOlga Polozova, сertified [email protected]

FINLANDKeskuskatu 7 AFI-00100 HelsinkiFinlandTel. +358 (0)20 506 6000Fax +358 (0)20 506 6100www.roschier.com

SWEDENBlasieholmsgatan 4 ASE-103 90 StockholmSwedenTel. +46 (0)8 553 190 00Fax +46 (0)8 553 190 01www.roschier.com

ESTONIARoosikrantsi 2EE-10119 TallinnEestiTel. +372 640 7170Fax +372 640 7171www.rln.ee

LATVIAValdemara 26LV-1010 RigaLatvia Tel. +371 724 0689 Fax +371 782 1524 www.rln.lv

LITHUANIALvovo 25LT-09320 Vilnius LithuaniaTel. +370 5250 0800Fax +370 5250 0802 www.rln.lt

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Documents

I nsights about the investment climate in Belarus