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Belarus: Tax Code Amended

(Feb. 12, 2016) On December 30, 2015, Belarus adopted a law amending its Tax Code. The new legislation, Law No. 343-Z, came into effect on January 1, 2016, and made changes to provisions for both corporate and individual tax payers. (Belarus Tax Update 2016, SORAINEN (Jan. 2016); Viktar Strachuk, Belarus: Law Introducing Tax Amendments for 2016 – PEs; WHT on Interest Derived by Non-Resident Legal Entities, TAX NEWS SERVICE (Feb. 10, 2016), International Bureau of Fiscal Documentation (IBFD) online subscription database; Tax Code of the Republic of Belarus (as Amended up to Law of the Republic of Belarus No. 224-Z of December 30, 2014), World Intellectual Property Organization website, http://www.wipo.int/wipolex/en/details.jsp?id=15593 (click on link for text in Russian).)

Among the changes introduced, the amended Code now permits the President of Belarus to adopt legislation to impose taxes, levies, or duties, in addition to imposition through legislative amendment of the Code (Law 343-Z, art. 11). (Belarus Tax Update 2016, supra.) Also, those taxpayers employing more than 15 workers must, beginning July 1 of this year, use the electronic filing system for their tax returns. (Id.) From the same date, all value-added tax payers must use the electronic system to issue VAT invoices. (Viktar Strachuk, Belarus: Law Introducing Tax Amendments for 2016 – Details Published, TAX NEWS SERVICE (Jan. 26, 2016), IBFD online subscription database.)

Corporate Taxes

The Amending Law makes these expenses non-deductible:

  • payments made as penalties for breaching investment contracts;
  • bonuses to employees paid based on their annual performance; and
  • payments made as remuneration to a supervisory board. (Id.)

In addition, the revision makes the following items be considered non-operating taxable income:

  • any reduction in accounts payable due to out-of-court settlements;
  • any increase in accounts receivable due to such settlements; and
  • rent owed to an individual lessor if it remains outstanding for more than 12 months. (Id.)

Simplified Tax System for Small Businesses

Law 343-Z excludes more businesses from using the existing simplified tax calculation system. Now individual entrepreneurs with annual turnovers of under BYR1.5 billion (about US$68,300) may use the simplified tax system; previously, entrepreneurs with turnover of up to BYR12.7 billion (about US$578,000) a year or small retailers earning annually up to BYR4.1 billion (about US$186,700) could use the simplified system. (Id.) The tax rate in this system is now 16%, compared with 3-5% previously, and it applies to goods, services, assets, or funds received for no charge. Companies involved in online retail sales or in providing information services, such as through online catalogs or portals, for online retail sales companies may not use the simplified system. (Id.)

Permanent Establishments of Foreign Companies

The way in which a foreign business’s permanent establishment is defined in the Code has been revised. Previously, the definition was based on a company’s activities in a calendar year, but under the new provisions, a foreign business is considered to have a permanent establishment in the country if in any 12-month period it operates for 90 days. (Belarus: Law Introducing Tax Amendments for 2016 – PEs; WHT on Interest Derived by Non-Resident Legal Entities, supra.)

The amended Code has revised methods for calculating what expenditures can be deducted from the profits of a permanent establishment. Whereas in the past only operating expenses could be deducted, now non-operating expenses incurred abroad will be deductible if they would be so under Belarus’s general tax rules and if a foreign auditor confirms the accuracy of the amounts, dates, and types of expenses claimed. (Id.)

Withholding Tax for Non-Resident Legal Entities

Previously, interest income earned by non-resident legal entities from certain loan agreements was exempt from withholding tax; this is no longer the case. Those non-resident businesses that do not have a permanent establishment in Belarus can, however, continue such deductions, but only for interest earned during the 2016 calendar year, as long as they are the beneficiaries of the interest; they are not resident in offshore zones, which are determined by the President; and they are included in the Bankers’ Almanac, as published by Reed Business Information. (Id.)

Transfer Pricing

Transfer pricing methods have been expanded to include the profit split method, wherein each party is assigned a proportion of the profits based on that party’s contribution to creating the profit. (Belarus: Law Introducing Tax Amendments for 2016 – Details Published, supra; for a discussion of the profit split method, see HM Revenue and Customs, INTM421070 – Transfer Pricing: Methodologies: OECD Guidelines: Profit Split, GOV.UK (last visited Feb. 11, 2016).)

In addition, controlled transactions will be subject to reporting requirements and have been more widely defined under the revision to include:

  • real estate and housing bonds transactions;
  • foreign trade transactions with values over BYR1 billion (about US$45,500), after VAT, annually, when performed with a single partner that is an affiliated party or resident of an offshore zone or an affiliated party and a resident of Belarus not paying corporate income tax due to a special tax regime;
  • foreign trade transactions worth more than BYR10 billion (about US$455,000), after VAT, in cases in which there is a single partner and the transactions involve specific, government-identified strategic goods or when the transaction is done by a “major taxpayer,” a term defined in the Tax Code. (Belarus: Law Introducing Tax Amendments for 2016 – Details Published, supra.)

Individual Income Tax

The rate for individual income tax has been increased to 16%from the previous 13%, for expenses calculated by tax authorities as exceeding the amount of income reported by the tax payer. The individual taxpayer’s income from real estate leasing, when there is no contract, is subject to a five-fold higher rate of taxation. The rates depend on various aspects of the rental property, such as the number of rooms for let and the location. (Id.)