Belarus IT Newsflash, December 2017
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  Maksim Salahub
  Maksim Salahub
Partner
maksim.salahub@sorainen.com
   
  Aliaksei Vashkevich
  Aliaksei Vashkevich
Associate
aliaksei.vashkevich@sorainen.com
   
Dear clients and cooperation partners,

We are happy to greet you at the start of 2018!

Below, we offer you some news on recent legal changes in Belarus, as well as thoughts on how the economy and the investment environment may evolve in the near future.

Last year, the Belarusian economy finally overcame an almost three-year recession, showing a modest 2 % GDP growth. Many export markets, including Russia, appear to be increasing purchases of Belarus-made goods. An almost unprecedented improvement of relations with the USA and the European Union, along with accelerated deregulation of business, may result in some increase in FDI flow, which was rather weak in 2015-2017.

There was some expectation that, during the recession, the Belarus Government might adopt a more flexible approach to privatization and sell off more of its assets. However, this did not happen – in the event, only a few relatively small deals were closed. The policy remains the same, so that in the foreseeable future the state will retain its major industrial assets. Any privatization promises will involve a long and difficult process with a number of authorities involved and the final decision still to be made by the Presidential Administration of Belarus.

Official strategies for 2018 provide for a gradual liberalisation of the monetary system and a further increase in the use of the national currency, the Belarusian ruble, in commercial transactions. In addition, goals have been set for increasing the employment rate and average wages. The main indicators of the Government’s economic forecast for 2018 are:

  • GDP growth of 3.5%;
  • Increase in the volume of exports of goods and services by 5.7% and maintenance of a zero foreign trade balance;
  • Inflation rate not more than 6% (the historic low);
  • Gradual reduction of nominal interest rates.;
  • Average salary in-country to achieve the level of BYN 1,000 (approx EUR 400) by the end of 2018, but not to increase faster than labour productivity rates.

Experts at the World Bank and the European Bank for Reconstruction and Development (EBRD) note improvements in the economic and financial situation in Belarus, though its dependency on foreign markets, especially Russia, is unlikely to decrease. Simultaneously, there is a tendency to increase lending and imports, which could lead to devaluation of the BYN against the USD by about 10% during 2018. The World Bank and the EBRD see GDP growth in 2018 within the range of 2 – 2.1 %.



Digital Belarus: New Law Regulates Cryptocurrencies, ICO, Expands Benefits for IT Industry

On 21 December 2017 President Lukashenka signed Decree No. 8 On Development of the Digital Economy (unofficial translation from Russian into English) to foster innovation and development of the digital economy in Belarus.

The Decree will come into force on 28 March 2018 and will introduce the following changes:

  • Extension and expansion of the High-Tech Park preferential regime until 31 December 2049;
  • Introduction of a basic regulation on blockchain, cryptocurrencies, and ICO;
  • Easement of migration formalities for foreign talent arriving to work at resident companies of the High-Tech Park;
  • Introduction within the High-Tech Park of legal instruments that are new to the Belarusian legal system, especially: convertible loan, option agreements, indemnification agreement, non-compete and non-solicitation agreements, irrevocable power of attorney.

The evolving IT industry in Belarus has accepted the novelties with optimism, especially the long-awaited prolongation of the High-Tech Park regime (initially established for the period 2005 – 2020), and expansion of the range of businesses eligible for tax exemptions. The business community is now awaiting a number of supporting laws and regulations to be adopted by the National Bank of Belarus and other government authorities.

More detailed information on Decree No. 8 is available at link.

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Entrepreneurship to Be Unleashed with New Deregulation Action

In addition to special regulation on the High-Tech Park, 2017 was marked by a general improvement in the country’s business climate. Thus, the Presidential Decree of 23 November 2017 No. 7 On Development of Entrepreneurship, entering into effect from 26 February 2018, will significantly reduce the administrative burden on business, especially in the following ways:

  • Establishing the nineteen most common types of business, including general retail and wholesale trading, catering, hotel and consumer services, that can be commenced by notification, not via registration;
  • Reasonably reducing mandatory requirements for fire safety, sanitary and epidemiological standards, as well as in the field of environmental protection and veterinary medicine for maintenance and operation of capital structures, premises and other facilities;
  • Limiting the number of mandatory technical requirements and standards applicable to production of goods and business processes. According to the Decree, these regulations will set only basic requirements, while more detailed of technical rules will be optional;
  • Simplifying regulation in the areas of retail trade, catering, consumer services, organisation of exhibitions and fairs, construction, transport, and advertising;
  • Abolishing mandatory use of corporate seals;
  • Establishing a moratorium on tax increases until 1 January 2020;
  • Increasing management responsibility for company business activities;
  • Limiting the grounds for subjecting company management and shareholders to subsidiary liability in the case of economic insolvency (bankruptcy). Applied more frequently in the past, now it becomes possible only in the case of wilful misconduct by management or shareholders resulting in insolvency.

The main sense of the changes is partial removal of control from state authorities over safe business operations and imposing greater responsibility on business owners and managers. The changes are not revolutionary but may reflect an important shift in the Belarusian government’s attitude towards private business. To see how successful and quick this shift will be, we will follow the practice of enforcing the new law by the controlling authorities and the courts.

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Relaxing Currency Controls

Since 1 October 2017 the amount of a company’s income in foreign currency subject to mandatory sale has been reduced from 20% to 10%. This regulatory measure dates back to 1996 and the rate of mandatory foreign currency conversion has ranged from 10% to 60%. According to the Main Directions of Monetary Policy adopted by the Belarusian Government, mandatory sale of foreign currency will be totally abolished in 2018.

Additionally, during the last days of 2017, the National Bank abolished target purchase of foreign currency and approved a new version of the Instruction on currency exchange transactions. Starting from 11 April 2018, companies will be no longer be obliged to strictly adhere to the purpose for which foreign currency is purchased.

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Taxation

At the end of January 2018 the President signed Decree No. 29 On Taxation, introducing a vast, though moderate, set of amendments to the Belarusian tax system. A significant number of amendments set up new basic rates for the following taxes and deductions:

  • excises;
  • land tax;
  • environmental taxes;
  • severance tax;
  • unified tax on individual entrepreneurs and individuals;
  • amount of personal income tax deductions.

In addition, the Decree increases the thresholds by 20% and thus allowing a simplified taxation system. As a result, the maximum revenue under this system with payment of VAT amounts to BYN 1,851,100 (approx EUR 752,000) and without payment of VAT to BYN 1,270,100 (approx EUR 516,000).

Further amendments improve the procedure for using electronic invoices for VAT payment. These invoices are no longer required in regard to goods and services which are not subject to VAT, and in all other cases the period for invoice submission is now 10 days longer.

The Decree also introduces other changes, such as an amended procedure for calculating the base for land tax and accounting for the exchange rate in calculating VAT and income tax.

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Legal forecast 2018

We expect that in 2018 Belarus will continue its policy of improving the legal framework for investment and the business climate generally. A number of possible changes were noted in Decree No. 7, including reforms to the taxation and construction sector plus correction of criminal liability measures for economic crimes.

Some changes have already been made and will enter into force during 2018. Thus, since 1 January the Customs Code of the EAEU, ratified by all countries of the Union during the previous year, applies in Belarus. Besides, on 23 July 2018 the Law On Investment Funds will come into force and introduce the first comprehensive regulation of collective investment in the country.

In addition to all these novelties, we expect to see changes to the Law On Business Companies providing for non-equity company financing by shareholders, as well as for such international mechanisms as convertible loans and option agreements

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Corporate Eurobonds issue by Eurotorg

Last but not least, we would like to share news on a significant event in the area of corporate finance. This is the first issue of corporate Eurobonds in the history of Belarus. The issuer of bonds amounting USD 350 million was Eurotorg, operator of the largest retail chain in the country — Euroopt. The Eurobonds have been issued for a five-year term with an annual coupon rate of 8.75% maturing on 30 October 2022.

The total volume of applications for bonds issued by Eurotorg LLC with a rating of Fitch “В-“ exceeded the issue amount by more than five times. Representatives of the company noted the success of the issue, as well as potential for further development, both for Eurotorg LLC and for Belarus’ position in the international capital market.

Eurotorg’s issue of Eurobonds was assisted by Sorainen acting as Belarusian law counsel on aspects of the transaction involving structuring, transaction documentation and legal due diligence. The client was advised by a cross-disciplinary team of lawyers led by partner Kiryl Apanasevich.

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