Corporate Tax 2020 Comparisons

Last Updated January 15, 2020

Law and Practice

Authors



Egorov Puginsky Afanasiev & Partners is the leading law firm in the CIS, with offices in Belarus, Russia, Ukraine, and associated offices in the UK, the USA and Cyprus. Excellent knowledge of Belarusian law, understanding the specifics of doing business in Belarus and meeting the highest expectations of local and international clients make the EPA&P office in Belarus a highly credible partner. The liberalisation of national legislation and further development of the local business environment in Belarus paved the way for a growing number of complex cross-border M&A transactions, as well as investment and finance deals that require sophisticated international and domestic tax advice. The firm’s tax practice in Minsk offers highly qualified and comprehensive tax advice, helping clients to adapt their business to the steadily improving but still imperfect national tax legislation. The firm's lawyers also specialise in international tax issues that may arise in cross-border or investment transactions.

In Belarus, businesses generally adopt a corporate form. The most common corporate forms of business are companies, including limited liability companies, open and closed joint stock companies, and unitary enterprises. Alternatively, natural persons can carry out business activities without incorporating a company, eg, if registered as individual entrepreneurs, with certain limitations applied in this event. In particular, individual entrepreneurs are not allowed to hire more than three employees. Certain individual professionals may perform business activities without registration as an individual entrepreneur: website developers, photographers, interpreters and translators, and designers.

Each business entity, individual entrepreneur and natural person carrying out business without registration is a separate taxpayer. One additional type of taxpayer is a simple partnership, which may be established by an agreement between individual entrepreneurs and/or business entities. Even though such partnership is an agreement, rather than a legal entity, it is treated as a separate taxpayer.

If a business is incorporated, it cannot be transparent under Belarusian tax and corporate legislation. Right after establishment, each entity is assigned a taxpayer number and becomes a taxpayer. In addition, simple partnerships that are not incorporated as legal entities are assigned their own taxpayer number.

Individual entrepreneurs and other natural persons carrying out business are also, in fact, separate taxpayers, and for tax purposes their income received from business activities is distinguished from other income; eg, salary, gifts, heritage.

According to the Tax Code, residence of an incorporated business entity is generally determined as the place of its registration. However, if the entity is absent or is not functioning at the registered address, place of management tests may apply. For example, residence would be determined as the place where the higher management body functions under the articles of incorporation of the entity; or if it is absent or is not functioning as the place where the permanent executive body functions; or the place where the following decisions in respect of the entity are taken: on incorporation, liquidation and reorganisation, changes in the list of founders (stakeholders), increase or decrease of the charter capital, acquiring or sale of property, and other substantial management issues; or the place where the key accounting documents are stored.

Most of the double taxation treaties (DTTs) executed by Belarusian government are based on the OECD Model Convention. Hence, in the case of a tie, residence of a business entity is determined by mutual agreement of the competent authorities, having regard to the place of effective management, place of incorporation and other relevant factors.

Belarusian residents carrying out business activities are subject to 18% profits tax for companies or 13% personal income tax for natural persons. VAT is generally levied at a 20% rate.

Alternatively, natural persons carrying out business activities may pay a “single tax”, which substitutes most of the taxes associated with their business activities, including VAT and personal income tax. Other alternative tax regimes – such as a simplified tax system, a unified tax for agricultural producers and a unified tax on gambling business – may be applied by taxpayers whose activities are compliant with specific requirements.

A range of tax benefits and exemptions are provided to entities applying special tax regimes, such as residents of Hi-Tech Park (HTP), China-Belarus Industrial Park “Great Stone”, Free Economic Zones, Orsha district, and medium and small towns and rural areas.

No specific rates are established for the taxation of businesses owned by individuals directly or through transparent entities.

Foreign legal entities are subject to the tax on income of foreign legal entities not carrying out activities in the Republic of Belarus (the “tax on income”), generally levied at a 15% rate. Depending on the type of income received, reduced rates may apply, including 10% in respect of interest, and 12% in respect of dividends and capital gains from the sales of shares (stocks).

Profits tax is levied in respect of gross margin (ie, profits from sales of goods (works, services), proprietary rights (the “profits from sales”) and non-operational income less non-operational expenses) and dividends received. Profits from sales are calculated as the difference between revenue from sales minus expenses recognised for tax purposes and minus taxes and duties levied on such revenue. Profits are taxed on an accruals basis.

Taxable profits are generally based on the accounting profits. However, certain adjustments are required – for example, in respect of partially deductible costs, currency differences and deferred tax assets – which result in necessity of separate accounting and tax bookkeeping.

There is no patent box regime in Belarus; however, technology investments are encouraged by a number of special incentives. Technology and research companies may apply special tax regimes set forth for the residents of HTP and China-Belarus Industrial Park “Great Stone”.

HTP, which was established in 2005, is intended for the development of the software industry and the attraction of foreign investment. HTP residents enjoy a favourable tax regime until 2049, including exemptions from profit tax and VAT, lower personal income tax for employees, and a reduction to 5% of the withholding tax on dividends paid to foreign corporate shareholders.

Great Stone Park is a territorial entity with an emphasis on hi-tech and competitive innovation productions with high export potential. Its residents are entitled to a range of taxation benefits, including a ten-year exemption from profit tax in respect of the profits from sales of goods, works and services produced in the Great Stone Park territory for a period of ten years (after this period, the profit tax is paid at a rate reduced by 50%); an exemption from real estate tax and land tax on objects and sites in the Great Stone Park until 2062; a VAT refund in respect of goods, works, and services purchased and imported for constructing and equipping of the objects in the Great Stone Park; and lower personal income tax for employees.

Separate taxpayers – such as research and development parks, their residents and technology transfer centres – pay profits tax at a reduced 10% profits tax rate.

Apart from special regimes, any company carrying out research and development works may deduct the related costs multiplied by 1.5 and a VAT exemption if such works are sold. Full exemption from profits tax is provided to manufacturers of innovative goods. If a company receives profits from manufacturing of goods listed as hi-tech goods, it may apply a reduced 10% profits tax rate or full exemption if such manufacturer has received more than a half of its proceeds from the sales of hi-tech goods.

Venture funds and the Belarusian Innovation Fund may enjoy exemption from profits tax in respect of dividends and interest received from financed innovative companies.

The general approach is that manufacturers (as opposed to distributors) of goods are granted various tax benefits and preferences. For example, if a company or individual entrepreneur is registered in a rural area, it may enjoy a seven-year exemption from profits tax or income tax respectively imposed on the sales of manufactured goods (works, services).

Special incentives relate to specific industries favoured by the government, such as agriculture, medicine and education services, and the shipping industry. Additional incentives may be granted to investors having concluded an investment agreement with Belarus.

A loss for the taxpayer is generally set off against income of that taxpayer received in the tax period; ie, the financial year in which the loss was incurred.

In addition, Belarusian legislation provides for a possibility to carry forward a loss of the previous tax period for the following ten years. Having been carried forward, two categories of losses – loss from operations with securities and sales of capital assets, objects under construction, uninstalled equipment, and enterprises (as an asset complex) – may only be set off against the same categories of income.

Thin capitalisation rules were introduced in Belarus in 2012. According to these rules, any indebtedness to a shareholder of a Belarusian company with a 20% or more shareholding, or an affiliate of such shareholder or third party if such indebtedness is guaranteed by such shareholder or its affiliate, is considered to be controlled indebtedness if it arises under loan, credit or services agreements; eg, in respect of engineering, marketing, consulting, information, management, agency, recruitment, deputation of personnel, IP licence provision services, or as a result of penalties, other liabilities for breach of agreements. From 2019, a capitalisation index is calculated in respect of the full amount of controlled indebtedness, without reference to each affiliate. Maximum deductible expenses under controlled indebtedness are calculated according to a formula: all expenses, including interest payments, arising in connection with controlled indebtedness are divided by a capitalisation index, which constitutes one third of the ratio of controlled indebtedness to the company’s equity.

No consolidated tax grouping is allowed according to the Belarusian Tax Code. Sharing of groups’ losses is not permitted: each company shall only utilise its own losses.

The Belarusian Tax Code does not provide for a separate capital gains tax; capital gains of resident corporations are subject to profits tax.

For example, in the case of selling shares in other corporations, the profit received as a result of such sale is calculated as a positive difference between sales revenue and the respective contribution to the charter capital or expenses borne by the seller when acquiring the share. For the purposes of this calculation, the contribution to the charter capital or expenses are subject to currency indexation with respect to USD/BYN exchange rates as of the date of contribution (sale). The same principles apply in the case of loss as a result of the sales of a share.

In some cases, limitation of loss may apply. For example, if a company incurs expenses on operations with non-deliverable derivatives (eg, due to negative differences between costs of underlying assets), such expenses shall be covered by income from operations with non-deliverable derivatives. Otherwise, such expenses may not be taken into account when calculating the tax base of the profits tax.

Incorporated businesses may be subject to a 15% offshore duty if they pay to a resident of an offshore jurisdiction that is listed in the Edict of the President of the Republic of Belarus dated 25 May 2006 No 353, or to an account opened in such offshore jurisdiction.

Other taxes paid by incorporated businesses include ad valorem real estate tax and land tax, 34% Social Security Fund contributions in respect of employees’ remunerations, as well as customs taxes and duties.

Closely held local businesses shall only operate in a corporate form. Although many individuals run their business as individual entrepreneurs, without incorporation of a company, if two or more persons wish to run a business, they would typically establish a company.

Individual entrepreneurs and companies may form simple partnerships, which are not considered to be incorporated businesses, but still have to register as separate taxpayers. However, such form of business is not widely used in practice.

From 2016, individuals may incorporate one-person companies.

There are no general rules to prevent individual professionals from earning income at corporate rates. However, if a person is already employed with a company, any expenses related to the services he or she provides to such company as an individual professional will not be deductible from such company's profits tax base.

No rules have been enforced to prevent closely held corporations from accumulating earnings for investment purposes.

Resident individuals would generally pay a 13% income tax in respect of dividends and capital gain on the sales of shares in closely held corporations.

A reduced 6% rate applies in respect of dividends paid by a local company that has not distributed profits among shareholders during the last three years, and a 0% rate applies if profits have not been distributed during the preceding five years.

An exemption from income tax in respect of capital gains would apply if the individual has held the share in a Belarusian company for at least three preceding years before its sale.

Dividends from and capital gains on the sales of shares in publicly traded corporations are taxed the same way as other dividends and capital gains.

A single tax on the income of foreign organisations not carrying out business activities in the Republic of Belarus through a permanent establishment (the “tax on income”) with a general 15% rate is imposed on Belarus-sourced income and capital gains of foreign companies. Such rate would apply, in particular, to withholding in respect of royalties. Lower rates apply to interest income (10%) and dividends (12%).

Reliefs available to foreign companies include a 0% rate that would apply to interest income connected with sovereign or corporate bonds, credit facilities provided to the Belarusian state or to the residents if they were secured by governmental guaranty and a 5% rate applied to dividends paid by HTP residents and, during the first five years after the first payment of dividends, by Great Stone Park residents. In addition, until 2017, royalties paid by Great Stone Park residents in respect of some IP rights – eg, know-how, licences, patents, utility models, schemes, formulas and designs – are taxed at a 5% rate.

Belarus has an extensive network of double tax treaties concluded with about 70 countries, mostly based on the OECD Model Convention.

According to the National Statistics Committee reports, the main sources of investments to Belarus are the Russian Federation, the UK, Cyprus, Poland, Germany and China.

Belarusian tax authorities would not generally challenge the application of treaty benefits – eg, reduced tax rates for interest, royalties and dividends – if a treaty country entity is used by a non-treaty resident, provided that such entities are considered to be residents of the respective country. In addition, to combat treaty shopping, a large majority of Belarusian double taxation treaties provide for a beneficial ownership requirement.

From 2016, the term "beneficial owner" was defined in the Tax Code as a foreign company carrying out business connected with the income received from Belarus, being the direct beneficiary of such income and being entitled to use and/or dispose of such income at its sole discretion. A foreign company will not qualify as a beneficial owner of income if it carries out agency functions on behalf of another person, does not assume any risks, has no economic connection with the received income and/or it shall within 12 months transfer 60% or more of such income to a resident of a state whose double taxation treaty with Belarus provides a less advantageous tax regime or that has no double taxation treaty with Belarus.

Belarus has introduced transfer pricing provisions into the Tax Code. For inbound investors operating through a local corporation, the biggest transfer pricing issues may be connected with determining prices for inter-group services transactions, which is especially critical in the absence of established law enforcement practice. Another concern is the lack of public sources of information about comparable prices – respective information is collected by customs and tax authorities, but is not available for businesses. Statistics authorities publish information on prices and inflation from time to time, but this data is usually of a general nature and cannot be used for transfer pricing purposes.

Since 2019, taxpayers may agree transfer pricing issues in advance with the Ministry of Taxation; however, such option is only available for major taxpayers or in connection with transactions whose price exceeds BYN2,000,000.

Limited risk distribution arrangements are not very common in Belarusian practice. Hence, if they result in the reduction of taxes paid in Belarus, local tax authorities may take a close look at such arrangements and examine whether they have been concluded on an arm's-length basis.

Although Belarus is not a party to the OECD, in principle it follows OECD transfer pricing standards in part of its regulations. There is no extensive enforcement practice in the sphere of transfer pricing.

The most significant differences are connected with the scope of transactions subject to control: in Belarus they include a range of internal resident-to-resident transactions. For example, any transaction with an entity exempt from profits tax for some reason (eg, resident of free economic zones, Hi-Tech Park, Great Stone Park, taxpayer applying simplified tax system) would be a transaction under control, subject to general pricing thresholds. Transactions with immovable property carried out by parties applying special taxation regimes (eg, simplified tax system, unified tax for individual entrepreneurs and other natural persons) are also subject to transfer pricing regulations, being the most common type of transactions examined by tax authorities in practice.

Another difference in the sequence of transfer pricing methods used to determine arm's-length price of a transaction. Under the Belarusian Tax Code the first method to apply is comparable uncontrolled price (CUP), and then the resale price method shall be used. Only if neither of them allows establishing the market price range, the most appropriate method of the remaining three – ie, cost plus method, transactional net margin method and transactional profit split method – may apply.

A transfer pricing claim results in payment of additional tax on profits by a resident entity. The taxpayers are allowed to make respective adjustments to the tax base on their own.

Local subsidiaries of foreign corporations are taxed similar to any other resident entity. They are generally liable to tax in respect of their worldwide income and capital gains.

On the contrary, income received by local branches will only be subject to Belarusian taxes if such income is sourced in Belarus. Generally, foreign corporations shall not carry out business activities via local branches (“representative offices”), which are established for preparatory and support activities. In the case of business activities, a permanent establishment shall be registered with the tax authorities and taxed in respect of all Belarus-sourced income subject to the same rules on profits tax calculation as the ones applied to local companies.

Capital gains of non-residents on the sales of shares of local corporations are subject to a 12% tax on the income of foreign organisations not carrying out business activities in the Republic of Belarus through a permanent establishment. The tax base is calculated in US dollars to apply currency indexation. For these purposes, the initial cost of the shares (either contribution or contract price) is converted to US dollars at the rate established by the National Bank of the Republic of Belarus as of the date of contribution or payment for the share; the proceeds from sale of the share are converted to US dollars as of the date of accrual thereof.

Most of the double taxation treaties concluded by Belarus attribute the taxation of such capital gains to the residence state of the seller. About a third of the existing double taxation treaties provide for other rules for taxation of capital gains from the sales of shares in companies with 50% or more real estate property in the assets structure.

Only direct capital gains are subject to taxation in Belarus. No tax would apply if the gain is on the shares of a non-local holding company that owns the shares of a local corporation.

There are no change of control provisions in the Belarusian Tax Code. Hence, the disposal of an indirect holding much higher up the overseas group would not result in any tax consequences in Belarus.

Formulas are not usually used to determine the income of local subsidiaries of foreign companies, except for the application of transfer pricing or thin capitalisation rules.

On the contrary, for determination of income related to Belarusian permanent establishments of foreign companies, formulas may apply. Such formulas would take into account work time expenditures, incurred expenses or received revenue, shipped products, executer works and rendered services of permanent establishments in proportion to the same factors of the foreign organisation. Other factors to be used may be agreed with the tax authorities.

A local company would only be entitled to deduction for management and administrative expenses of a foreign affiliate if such expenses are compensated under an agreement between such companies. In this event, an economic substance test would apply to such deduction: to be deductible, such expenses shall be directly connected with the manufacture or sales of goods (works, services), and proprietary rights. An economic substance test will not be passed if the shareholder or a subsidiary of a Belarusian company, including foreign ones, is paid for works or services that are covered by the professional duties of an employee of such Belarusian company.

In addition, standard thin capitalisation rules would apply to calculate an allowed deduction for payments by local affiliates for management and administrative services rendered by a non-local affiliate.

Such payments may also be subject to transfer pricing control if they exceed the thresholds, which are BYN2,000,000 for major taxpayers and BYN400,000 for other taxpayers.

Borrowing from non-local affiliates is not itself constrained; however, interest payments would be subject to thin capitalisation rules. The loan will be included in the calculation of controlled indebtedness of a local company. From 2019, the capitalisation index is calculated in respect of the full amount of controlled indebtedness, without reference to each affiliate. Interest payments and other expenses under the controlled indebtedness will be deductible to the extent that they do not exceed maximum deductible expenses (see 2.5 Imposed Limits on Deduction of Interest).

Local corporations are generally taxed on a worldwide basis, which results in all income, including foreign-sourced, being subject to Belarusian taxes.

However, Belarusian companies enjoy a range of rules for elimination of double taxation stipulated in double taxation treaties and local legislation. If there is a double taxation treaty between Belarus and the state where income is sourced, such income would either be allocated between the states, or a tax credit or exemption would apply.

In the absence of such a treaty, a Belarusian company would be entitled to claim for non-refundable tax credit under the Tax Code.

The same rules apply to foreign expenses attributable to foreign-sourced income as the ones applied to local expenses. To be deductible, expenses should be connected with the manufacture or sales of goods (works, services) and proprietary rights, as well as pass an economic substance test.

Dividends from foreign subsidiaries of local corporations are generally subject to profits tax and may be taxed at a 18% rate, unless otherwise is stipulated by an applicable double taxation treaty.

Most of the treaties concluded by Belarus allocate taxation of dividends to a source state, limiting the tax rate to 5-15%. In respect of tax paid in a foreign state, a non-refundable tax credit would be granted in Belarus. Tax exemptions are not commonly granted by Belarus under double taxation treaties.

To the extent that the Belarusian profits tax exceeds the provided tax credit, the dividends would be subject to Belarusian profits tax.

Belarusian legislation prohibits free-of-charge transfer of rights to use intangibles; eg, inventions, designs, works, trade marks. Such rights shall be transferred under an assignment or licence agreement, and paid for. For tax purposes, such price shall be determined in accordance with transfer pricing rules.

Profits tax would apply to royalties received from foreign affiliates, subject to double taxation treaty provisions. If any taxes have been withheld from royalty payments abroad, a non-refundable tax credit would be granted.

No controlled foreign corporation (CFC) rules are currently in effect in Belarus.

Although it is not expressly required in any case, in practice a lack of substance may result in increased taxation of transactions with such affiliates. In particular, such affiliates will not qualify as beneficial owners of income, hence reduced rates under double taxation treaties will not apply to their passive income (interest, dividends, royalties). In addition, in the case of a transfer pricing inquiry, it may be difficult to argue that such affiliates are entitled to any share in the added cost of the products.

Some schemes involving offshore non-substance holding companies established by the same beneficiaries, especially Belarusian citizens, are highly inadvisable because of high risks of being qualified as criminal tax evasion.

Capital gains from the sales of shares in foreign subsidiaries are generally subject to profits tax and may be taxed at a 18% rate, unless otherwise stipulated by an applicable double taxation treaty.

Most of the treaties concluded by Belarus allocate taxation of such capital gains to the residence state of the seller; ie, Belarus. Hence, such income would be exempt from taxation in the source state and taxed in Belarus. Other rules may apply to the sales of shares in subsidiaries whose assets mostly consist of real estate. If any taxes are paid in the source state in connection with the sales of such shares, a non-refundable tax credit would be granted in Belarus. Tax exemptions are not commonly granted by Belarus under double taxation treaties.

In the absence of a treaty, the Tax Code rules for elimination of double taxation would apply, providing a non-refundable tax credit in respect of all taxes paid in respect of such gain in a foreign state. To the extent that Belarus tax is not covered by a payment to the foreign state, the profits tax would apply.

Since 2019 a general anti-avoidance rule (GAAR) has been enacted in Belarus. According to this rule, the tax base shall be adjusted if the main purpose of the transaction is non-payment (not full payment) of tax and/or tax credit or tax refund. Adjustment would also apply in the case of a lack of substance of the transaction, and misrepresentations in financial or tax statements.

No official GAAR guidance exists describing the purposes and main approaches of the recently introduced rule. The Higher Court and the Ministry of Taxation have provided a few examples of transactions whose main purpose is tax avoidance. According to the Higher Court, tax adjustment under GAAR shall apply to establishment of a range of entities varnishing the activities of a company that applies special tax regimes (for example, a resident of HTP, the business activities of which are limited to those connected with the IT industry) by the same shareholders or their close relatives, which usually includes registration of all entities at the same address, transfer of employees between related entities, lack of assets of such entities, and using a common warehouse and office. The list of GAAR application cases also includes treaty shopping and substitution of employment with civil law contracts, where contractors in fact render their services in the company’s office and during standard working hours, carry out the same functions as if they were employed, etc.

Since 2018, routine audit cycles of five, three and one year (depending on risk factors) were substituted with spot checks. Field tax inspections are carried out by local tax authorities and State Control Committee bodies in accordance with the plans of spot checks that are published in respect of each forthcoming half-year period not later than on December 15th and July 15th. Companies that shall be subject to inspection are determined on the basis of a risk assessment system. Tax inspections usually cover the preceding three years.

In addition, tax authorities may carry out a desk audit in respect of filed tax returns. Per results of such desk audit, the taxpayer may correct any defects revealed in the filed tax returns, and pay taxes (duties) that are considered to be underpaid upon notification of the tax authority.

Although Belarus has not undertaken to implement any of the BEPS recommendations, Belarus has started implementing Action 6 by amending the existing treaties and including recommended provisions into new ones. In addition, e-VAT taxation rules have been introduced, partially implementing Action 1.

Belarus is neither a party to the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI), nor a member of the OECD; hence, the Belarusian government has not undertaken any obligations to implement BEPS provisions to the national tax legislation and concluded double taxation treaties.

However, from the comments of officials of tax authorities, as well as recent amendments to legislation, it is evident that Belarusian authorities are well aware of BEPS recommendations and intend to implement them at least in the part they find most sufficient. In the absence of any time limits and formal undertakings, this process may take some time; however, it may be expected that Belarusian tax legislation would develop in line with BEPS.

International tax has a high public profile in Belarus; the government is constantly developing tax legislation aiming at attraction of foreign investments, including simplification of tax compliance. It may be expected that Belarusian tax legislation would develop in line with BEPS.

The Belarusian government has a competitive tax policy objective, which is met through simplification of tax compliance and provision of various benefits and exemptions to businesses, especially aimed at fostering hi-tech, substitution of import and oriented on export. As an example of compliance simplification, to register as an e-VAT payer, a foreign company may submit an application on the official website of the Ministry of Taxation by email, with no need to hire a local representative, execute and send any printed documents to the local authorities, etc.

For the most favoured sectors, special tax regimes have been developed, such as regimes applied by residents of HTP, Great Stone Park, Free Economic Zones and small towns. The mentioned regimes grant reduction of the corporate tax rate (up to 0%), VAT benefits and simplified administrative procedures.

Any changes introduced to legislation in the course of BEPS implementation are unlikely to affect the existing special regimes or simplified tax compliance procedures.

Potentially vulnerable features of the Belarusian tax system include individual tax benefits provided to some state enterprises, including under separate Edicts of the President, which are sometimes restricted and not open to the public.

Belarus has not implemented the BEPS recommendations for neutralising the effects of hybrid mismatch arrangements (Action 2); in particular, there is no definition of a hybrid transfer or structured arrangement, and neither indirect deduction/no inclusion (D/NI), nor double deduction (DD) outcomes are specifically combated.

Certain domestic legislative approaches would generally impede hybrid instruments in Belarus on the payee’s side; in particular, there is generally no exemption or deduction for passive income received by Belarusian companies, and to claim tax credit, a local company would be expected to evidence withholding in the source state.

The tax authorities have not stated their intent to implement hybrid instruments. Hence, any substantial legislative amendments in this direction are not likely.

The Belarusian tax system is not territorial, and residents’ income and gains are taxed on a worldwide basis. No exemption or deduction would generally apply to foreign-sourced income, including interest, dividends and royalties. Belarus provides non-refundable tax credit in respect of taxes withheld from foreign income and usually uses its right to receive the remaining tax amounts.

Belarus has not implemented the CFC rule. The government has not announced an intention to change tax legislation in this regard in the near future.

Since 2017, Belarus has implemented the minimum standard of BEPS Action 6 and started to include in the preambles of double taxation treaties a wording that the parties intend to conclude the treaty for the elimination of double taxation with respect to taxes on income and on capital without creating opportunities for non-taxation or reduced taxation through tax evasion or avoidance (including through treaty-shopping arrangements aimed at obtaining reliefs provided in the treaty for the benefit of residents of third states). For example, such provision has been included in the treaties with the UK and Hong Kong (China) alongside the principal purpose test. Treaty shopping has also been addressed by GAAR, which is in force from 2019 (see 7.1 Overarching Anti-avoidance Provisions).

The limitation of benefits rule has been implemented into the treaty with Ecuador; however, it is not clear whether this provision would be further included in Belarusian double taxation treaties yet.

Belarus is not a party to the MLI, hence implementation of BEPS Action 6 recommendations would take quite a long time. To date, new wording of the preamble and principal purpose test has been included in two treaties.

Belarus has not implemented most of the changes in transfer pricing legislation recommended under the BEPS initiative. Although certain elements of transfer pricing regulations are in line with BEPS recommendations – eg, functional analysis of comparable transactions, identifying profit split method as the most appropriate for transactions where intangibles significantly increase the value of the product – the key ideas of Actions 8-10 have not been reflected in the Tax Code, including the concept of hard-to-value intangibles, special treatment of transactions with intangibles and low value-adding intra-group services.

Belarus is neither a party to the Multilateral Convention on Mutual Administrative Assistance in Tax Matters, nor has it implemented coutry-by-country reporting by multinational enterprises.

With its extensive network of bilateral double taxation treaties, Belarus is an active participator in tax information exchange. Such exchange is carried out on request, and Belarus would not generally provide information to foreign tax administrations within spontaneous or automatic information exchange procedures.

In recent years, Belarus has introduced amendments to local VAT regulations to address transactions effected or profits generated by digital economy businesses operating largely from outside. In particular, the e-VAT system has been implemented, according to which foreign companies rendering electronic services on local B2C markets become liable to local VAT and are encouraged to register as Belarusian e-VAT payers via an online service managed by the Ministry of Taxation.

In line with BEPS Action 1 recommendations, Belarus has developed a concept of electronic services and revised allocation rules in respect of e-VAT (see 9.12 Taxation of Digital Economy Businesses).

No significant changes have been implemented into direct taxation rules, including profit allocation and nexus rules in respect of electronic B2C services rendered by foreign companies, where Belarus is a market country. Respective companies are not subject to Belarusian tax on income. Double taxation treaties concluded by Belarus have not been amended to reflect digital taxation specifics either. The Belarusian government has not announced its intention to make any respective amendments in tax legislation or double taxation treaties in the near future.

No amendments to tax legislation have yet been adopted to deal with the taxation of offshore intellectual property that is deployed in Belarus. Currently any transfer of rights to intellectual property, either licence or assignment, would be subject to withholding tax, regardless of qualifying residence state of the owner as a tax haven. Benefits under the double taxation treaty, which usually provides for a reduced tax rate in respect of royalties, would generally apply to the beneficial owners of such income only (see 4.3 Use of Treaty Country Entities by Non-treaty Country Residents).

According to the Tax Code, if any payment is made to a resident of an offshore jurisdiction, which are listed in the Edict of the President of the Republic of Belarus dated 25 May 2006 No 353, or to an account opened in such offshore jurisdiction, the payer would be subject to a 15% offshore duty.

Belarus is not an active party to the BEPS process; however, the government is evidently well aware of the BEPS recommendations and follows them to the extent they consider respective amendments to tax legislation sufficient at the present moment. Although the process may take a long time, this firm believes that Belarus is aimed at international co-operation in the sphere of taxation.

Egorov Puginsky Afanasiev & Partners

11 Zmitraka Biaduli Str.
Minsk, 220034, Belarus

+375 172 688282

+375 172 688272

minsk_office@epap.by www.epap.by
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Law and Practice in Belarus

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Egorov Puginsky Afanasiev & Partners is the leading law firm in the CIS, with offices in Belarus, Russia, Ukraine, and associated offices in the UK, the USA and Cyprus. Excellent knowledge of Belarusian law, understanding the specifics of doing business in Belarus and meeting the highest expectations of local and international clients make the EPA&P office in Belarus a highly credible partner. The liberalisation of national legislation and further development of the local business environment in Belarus paved the way for a growing number of complex cross-border M&A transactions, as well as investment and finance deals that require sophisticated international and domestic tax advice. The firm’s tax practice in Minsk offers highly qualified and comprehensive tax advice, helping clients to adapt their business to the steadily improving but still imperfect national tax legislation. The firm's lawyers also specialise in international tax issues that may arise in cross-border or investment transactions.