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Belarus: Flat Taxation System Introduced

(July 30, 2009) In 2009, the Republic of Belarus joined the countries that have a flat income tax system. Previously, income tax rates for individuals as defined under the Law of the Republic of Belarus on Natural Persons' Income Tax of December 21, 1991, No. 1327-XII (hereinafter Income Tax Law) provided for a progressive scale of income tax rates, ranging between 9 percent and 30 percent of the taxable income. (Zakon Respubliki Belarus O Podohodnom Naloge s Fizicheskih Lits [Law of the Republic of Belarus on Natural Persons' Income Tax] (Dec. 21, 1991) (as amended as of Dec. 2008), No. 1327-XII, REPORTS OF THE SUPREME COUNCIL OF THE REPUBLIC OF BELARUS, No. 5, Item 80 (1992).) The rates depended on the amount of income earned during a calendar year. Because the average monthly salary in the Republic of Belarus is equivalent to approximately US$300-$350, about 90 percent of taxpayers fell within the lowest tax bracket of 9 percent. (Will the Income Tax Rate Be Reduced? [in Russian], Information Portal of the Republic of Belarus, (last visited July 22, 2009).)

Additionally, a scale of fixed rates of taxation for specific types of income applied. For example, income derived from businesses in the high technology sector was taxed at 9 percent; dividends, entrepreneurial income, and income of notaries were subject to a 15 percent tax rate. Fixed tax rates for the income of individuals derived from renting out residential and non-residential properties are established by the President of the Republic of Belarus depending on the region and the size of the property. (Income Tax Law, supra.)

Amendments to the 1991 Income Tax Law that entered into force on January 1, 2009, introduced a flat income tax system. The general income tax rate has been fixed at 12 percent. This amendment simplifies accounting and taxation reporting, but establishment of the flat tax rate has increased the tax burden on the majority of taxpayers because the average income of most of them remains lower than US$3,800, the threshold formerly used to apply a 15-percent tax rate. In the past, most taxpayers were taxed at the rate of 9 percent; because few received enough income to be taxed at the 15-percent rate, the next highest bracket in the scale. In other words, the tax burden on taxpayers with average income has increased by one-third, from 9 percent to 12. (Law of the Republic of Belarus on Amendments and Additions to Some Laws of the Republic of Belarus on Taxation (No. 449-Z of Nov. 13, 2008) [Zakon Respubliki Belarus O Vnesenii Izmenenij I Dopolnenij v Nekotorye Zakony Respubliki Belarus po Voprosam Nalogooblozhenija], NATIONAL REGISTER OF LEGAL ACTS OF THE REPUBLIC OF BELARUS, No. 289, Item 2/1551 (2008).) The scale of fixed tax rates for specific types of income continues to apply.

Simultaneously, the amendments to the Law increase the number of tax exemptions, making the permitted non-taxable amount of income six times higher than before. Also, the eligible amount of income deduction for minor children has been doubled. These measures are aimed at reducing the negative consequences of the tax rate increase for low-income taxpayers. (Id.)

At present, a flat income tax system is used in Latvia, Lithuania, Estonia, Bulgaria, Russia, Ukraine, Montenegro, Romania, Czech Republic, Slovakia, the Republic of Georgia, Kazakhstan, and other countries, with tax rates ranging from 10 to 24 percent. (See, for example, the on-line legal databases of Latvia,
); Lithuania, [conduct search]; Estonia, [conduct search]; Russia,;base=LAW;n=89741;f
, & Ukraine,
(all last visited July 22, 2009).)